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Stock Market Outlook for February 26, 2018

Strength in the long-bond around trend channel support could shake-up the crowded short-trade.

 

Real Time Economic Calendar provided by Investing.com.

 

*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities.   As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.

Stocks Entering Period of Seasonal Strength Today:

Rosetta Stone Inc. (NYSE:RST) Seasonal Chart

Rosetta Stone Inc. (NYSE:RST) Seasonal Chart

Vedanta Ltd. (NYSE:VEDL) Seasonal Chart

Vedanta Ltd. (NYSE:VEDL) Seasonal Chart

Valmont Industries, Inc. (NYSE:VMI) Seasonal Chart

Valmont Industries, Inc. (NYSE:VMI) Seasonal Chart

Avis Budget Group, Inc. (NASD:CAR) Seasonal Chart

Avis Budget Group, Inc. (NASD:CAR) Seasonal Chart

Ensign Energy Services Inc.  (TSE:ESI) Seasonal Chart

Ensign Energy Services Inc. (TSE:ESI) Seasonal Chart

Dillard's, Inc. (NYSE:DDS) Seasonal Chart

Dillard’s, Inc. (NYSE:DDS) Seasonal Chart

AirBoss of America Corp. (TSE:BOS) Seasonal Chart

AirBoss of America Corp. (TSE:BOS) Seasonal Chart

Masco Corporation  (NYSE:MAS) Seasonal Chart

Masco Corporation (NYSE:MAS) Seasonal Chart

Group I Automotive Inc. (NYSE:GPI) Seasonal Chart

Group I Automotive Inc. (NYSE:GPI) Seasonal Chart

B&G Foods Inc. (NYSE:BGS) Seasonal Chart

B&G Foods Inc. (NYSE:BGS) Seasonal Chart

 

 

The Markets

Stocks rallied into the closing bell on Friday as treasury yields took a breather following a number of weeks of strong gains.  The S&P 500 Index gained 1.60%, closing above the 20 and 50-day moving averages that had constrained market momentum for the past week.  A jump in bearish sentiment over recent days led to a flood of buying pressures as investors right-sized their books going into the final days of the month.

 

With yields falling during Friday’s session, utility stocks topped the leaderboard in what is showing to be the ultimate contrarian trade.  The SPDR Utilities ETF (XLU) was higher by 2.61%, also moving solidly above resistance around its 20-day moving average.  Next hurdle is the 50-day moving average around $51, followed by the 200-day, which is likely to cap the advance in the struggling market segment.  The strength comes at a time, a little early mind you, when stocks in this space gain leading into the ramp up in electricity production through the spring.  The Dow Jones US Conventional Electricity Index was higher by 2.7%, topping the returns of the other sector constituents.  Excluding the impact of higher rates, which has been a dominant influence on prices for the past few months, the factors pertaining to demand for the goods that these companies produce is fairly positive.  Colder weather in December and January has forced electricity producers to increase activity above seasonal norms, bringing an end to a prolonged period of sluggish results as mild temperatures and demand efficiencies weigh.  While the trade in the sector is showing positive signs, keep in mind that these mean-reverting, contrarian trades can often be short-lived, particularly since the long-term trend looks to be turning lower, as gauged by the direction of the 200-day moving average.  A certain degree of nimbleness is appropriate.

Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

Given that investors are focussed on the activity in the bond market, it is probably worthwhile to review where we stand on the price of the 30-year treasury.  Friday’s price gain comes around the lower limit of the long-term rising trend channel of the fixed income investment, a level that has historically preceded reaction in the equity market as investors rotate from one asset class to the other.  Shorting the treasury market has become a popular trade amongst many investment managers, but the level of support below on the long-bond has the potential to stir-up this terribly crowded trade.  Reaction to trendline support could be a determining factor of whether or not the long-term bull market in bonds is broken or still very much intact.  Treasury bond prices remain in a period of seasonal weakness through to May.

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Turning to stocks overseas, while major benchmarks in the US have recouped around 61.8% (a key Fibonaci level) of the losses recorded from the early February decline, benchmarks in Europe and Asia continue to struggle around the 38.2% retracement zone.  This places the rebound in these international equities in the weak category, increasing the odds of a move below the plunge lows that was recorded just two weeks ago.  In a number of cases, benchmarks are struggling below their 200-day moving averages, which are showing signs of rolling over.  Whenever a benchmark struggles below its long-term moving average, a certain degree of caution is warranted as longer-term negative implications are suggested.  Take, for example, the August 2015 decline in the STOXX 600 Index when the benchmark sliced below its 200-day moving average. The benchmark took a couple of months to retrace much of the breakdown move, but the 200-day average was too much of a hurdle to overcome, resulting in a rollover in stocks around the globe just as the favourable six months for stocks was set to begin. The benchmark hit its ultimate lows in early 2016.  All told, the correction from high to low lasted around a year before the upward trend resumed.  We still have yet to see a new high above that August 2015 peak.  Other warning signs in this European benchmark are apparent.  As the benchmark has charted a series of higher-highs since April of last year, momentum indicators have diverged from price, suggesting waning buying pressures.  So while the recent rebound may not be fully exhausted, overseas indices are certainly presenting some troubling signs, which could end up weighing on benchmarks closer to home.  Gaps on the charts of major benchmarks around the globe warrant monitoring as these levels of resistance could halt the ongoing rebound attempt.  Seasonally, European stocks tend to rise through to the start of May.

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With data in the US light on Friday, we look to data released out of Canada pertaining to consumer inflation.  In what is one of the few economic reports where the headline print is not seasonally adjusted, Statscan reported that the Consumer Price Index increased by 0.7% in January, well above the average increase for the first month of the year of 0.2%.  Analysts were expecting a 0.5% rise.  The result follows the strongest calendar year increase in CPI since 2011 as energy commodities rebounded.  The 1.87% rise in 2017 edged out the average increase of 1.81%, based on data from the past 20 years.  But while the rise in fuel prices over the past year certainly captures the headlines, the rise in other categories suggest that consumers are paying more, in some cases substantially more, for a wide range of things.  Mortgage interest was a category we highlighted in our last look at this report after this cost of financing showed the largest calendar year increase in a decade.  It was up by another 0.5% in January, the largest increase for the first month of the year since 2008.  Food, communications, child care, transportation, health, and alcoholic beverages all showed increases to start the year that were well above normal, covering almost every aspect of consumer’s lives.   The increase in the minimum wage in Ontario would have been a factor.  Communications prices were higher by 4.5%, showing the largest January increase since 1998 as the prices that consumers paid for telephone services rebounded following the sales that were offered in the month of December.  Overall, these higher costs are certain to weigh on the budgets of Canadians in the year ahead, threatening to reduce retail activity.  Seasonally, inflationary pressures are the strongest in the first half of the year as commodity prices increase amidst heightened demand for manufacturing purposes.  For a breakdown of the results, the seasonal charts can be found via the database at http://charts.equityclock.com/canada-consumer-price-index-cpi.

Canada CPI - All-items Seasonal Chart

Monthly Canada CPI - All-items Data

Canada CPI - Food Seasonal ChartCanada CPI - Mortgage interest cost Seasonal ChartCanada CPI - Communications Seasonal ChartCanada CPI - Child care services Seasonal ChartCanada CPI - Transportation Seasonal ChartCanada CPI - Gasoline Seasonal ChartCanada CPI - Health and personal care Seasonal ChartCanada CPI - Alcoholic beverages and tobacco products Seasonal Chart

Canada CPI - All-items excluding food and energy Seasonal ChartCanada CPI - Services Seasonal Chart

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.01.  The ratio hit an overly bearish high of 1.27 early in Friday’s session, making it very difficult for selling pressures to materialize when investors are hedged to the manner that this indicator was suggesting.

 

 

Sectors and Industries entering their period of seasonal strength:

Rough Rice Futures (RR) Seasonal Chart
FUTURE_RR1 Relative to the S&P 500FUTURE_RR1 Relative to Gold

FUTURE_RR1 Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

American States Water Company (AWR) Seasonal Chart Armstrong World Industries Inc (AWI) Seasonal Chart California Resources Corporation (CRC) Seasonal Chart Carrizo Oil & Gas, Inc. (CRZO) Seasonal Chart Clovis Oncology, Inc. (CLVS) Seasonal Chart Comstock Resources, Inc. (CRK) Seasonal Chart Copart, Inc. (CPRT) Seasonal Chart CoreLogic, Inc. (CLGX) Seasonal Chart Dean Foods Company (DF) Seasonal Chart Douglas Dynamics, Inc. (PLOW) Seasonal Chart Eagle Pharmaceuticals, Inc. (EGRX) Seasonal Chart Freightcar America, Inc. (RAIL) Seasonal Chart Howard Hughes Corporation (The) (HHC) Seasonal Chart NutriSystem Inc (NTRI) Seasonal Chart NuVasive, Inc. (NUVA) Seasonal Chart ONEOK, Inc. (OKE) Seasonal Chart Palo Alto Networks, Inc. (PANW) Seasonal Chart Ritchie Bros. Auctioneers Incorporated (RBA) Seasonal Chart Sasol Ltd. (SSL) Seasonal Chart SBA Communications Corporation (SBAC) Seasonal Chart Scripps Networks Interactive, Inc (SNI) Seasonal Chart Tenet Healthcare Corporation (THC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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