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Stock Market Outlook for March 2, 2018

Benchmarks stop at 100-day moving average, but ominous chart pattern remains.

 

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:

Macquarie Infrastructure Company (NYSE:MIC) Seasonal Chart

Macquarie Infrastructure Company (NYSE:MIC) Seasonal Chart

Christopher & Banks Corp. (NYSE:CBK) Seasonal Chart

Christopher & Banks Corp. (NYSE:CBK) Seasonal Chart

Comstock Resources, Inc.  (NYSE:CRK) Seasonal Chart

Comstock Resources, Inc. (NYSE:CRK) Seasonal Chart

American Express Company (NYSE:AXP) Seasonal Chart

American Express Company (NYSE:AXP) Seasonal Chart

National Beverage Corp. (NASD:FIZZ) Seasonal Chart

National Beverage Corp. (NASD:FIZZ) Seasonal Chart

SNC-Lavalin Group Inc. (TSE:SNC) Seasonal Chart

SNC-Lavalin Group Inc. (TSE:SNC) Seasonal Chart

Shaw Communications (TSE:SJR-B) Seasonal Chart

Shaw Communications (TSE:SJR-B) Seasonal Chart

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) Seasonal Chart

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) Seasonal Chart

DTE Energy Company  (NYSE:DTE) Seasonal Chart

DTE Energy Company (NYSE:DTE) Seasonal Chart

 

 

The Markets

Stocks sold off on Thursday as Donald Trump announced tariffs on steel and aluminum imports into the US, raising fears of a trade war, something that has been speculated upon ever since the election.  The S&P 500 Index shed 1.33%, breaking below its 20-day moving average.  The 100-day moving average acted as support at the lows of the session.  While these longer-term moving averages below are sufficient for support over the short-term, the threat of a more intermediate-term move lower is increasingly becoming a risk.  The appearance of a lower-high below the end of January peak suggests the conclusion of the trend of higher-highs and higher-lows.  The same can be said of advance-decline lines, which are as showing a similar lower-high.  But while this ominous technical setup suggests that a test of the recent lows is inevitable, the fact that bearish sentiment has spiked may mitigate a panic.  The put-call ratio closed at 1.29 on Thursday, just short of the 52-week high charted on February 9th at 1.31.  This bearish signals often provides good contrarian buy signals as it is difficult for the selling momentum to escalate when investors are hedged.  The ratio has seen a number of instances over the past few weeks when the volume of protective puts significantly outweighed that of calls, so investors have been hedging their books throughout the rebound rally.  The spike in the VIX suggests that they have been paying up to do so.  The chart of the put-call ratio is, as usual, available at the end of the report.

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On the economic front, a report on construction spending is the latest in the series of January reports to come in below estimates.  The headline print indicated that construction spending was unchanged in January, missing the consensus analyst estimate calling for a gain of 0.3%.  Stripping out the seasonal adjustments, total construction spending actually fell by 9.7%, edging out the average decline for the first month of the year of 9.0%. The result continues a trend of below average performance in this segment of the economy that persisted throughout the 2017 calendar year as private non-residential spending in the areas of lodging, office, power, and manufacturing dragged on the overall tally.  Private non-residential spending was lower by 10.4% in January, slightly above last year’s result that saw a 10.9% decline at the start of the year.  Public construction is the only major category in the report to show strength, somewhat of a shift from previous years when private residential spending was a significant driver as home construction and renovation projects were completed.  Public spending showed a change in January that was 1.2% above average, adding to the 2.6% above average return generated in 2017.  Infrastructure was previously thought to be a catalyst ahead for the industry, but with the Trump infrastructure plans seemingly in doubt, or at least on hold, investors may not want to hold their breath that this money will flow.  Ballooning deficits in the US is certainly a significant hurdle in implementing a robust spending package.  Construction is quite understandably a very seasonal industry, rising sharply through the spring as warmer weather returns.  Stocks that tend to mimic this trend include Bird Construction (BDT), Sterling Construction (STRL), Granite Construction (GVA), Stuart Olson (SOX), and SNC Lavalin (SNC).  Companies that provide products or services to the construction industry are also beneficiaries, including Trinity Industries (TRN), US Concrete (USCR), and USG Corporation (USG).

Total Construction Spending  Seasonal Chart

Monthly Total Construction Spending  Data

Total Construction Spending Seasonal Chart

Private Construction Spending: Nonresidential  Seasonal Chart Private Construction Spending: Residential  Seasonal Chart Public Construction Spending Seasonal Chart

Another beneficiary of the uptick in construction activity through the spring are the steel stocks, which received a big boost on Thursday when President Trump announced tariffs on steel and aluminum imported into the US.  The industry ETF (SLX) is higher by over 20% since the end of November when a number of stocks in this space entered their period of seasonal strength.  Stocks in this space peak, in a number of cases, during the month of April.  The  Steel ETF continues to show outperformance versus the market, but the risk of a double top has become apparent.  Support at 20 and 50-day moving averages remain intact for the time being, supporting the ongoing positive trend.  A break of these levels would warrant a more cautious stance.

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Steel Industry Seasonal Chart

S5STEL Index Relative to the S&P 500S5STEL Index Relative to the Sector

S5STEL Index Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.29.

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Sectors and Industries entering their period of seasonal strength:

MSCI US REIT Index Seasonality

$RMZ Relative to the S&P 500
$RMZ Relative to the S&P 500

Monthly Seasonal MSCI US REIT Index

 

 

Seasonal charts of companies reporting earnings today:

Foot Locker, Inc. (FL) Seasonal Chart J.C. Penney Company, Inc. Holding Company (JCP) Seasonal Chart JD.com, Inc. (JD) Seasonal Chart  Olympic Steel, Inc. (ZEUS) Seasonal Chart Strayer Education, Inc. (STRA) Seasonal Chart 

 

 

S&P 500 Index

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TSE Composite

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