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Stock Market Outlook for March 6, 2018

S&P 500 Index continues to bounce within a narrowing range.

 

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:

Aegon NV (NYSE:AED) Seasonal Chart

Aegon NV (NYSE:AED) Seasonal Chart

Cott Corp. (NYSE:COT) Seasonal Chart

Cott Corp. (NYSE:COT) Seasonal Chart

Owens Corning Inc. (NYSE:OC) Seasonal Chart

Owens Corning Inc. (NYSE:OC) Seasonal Chart

Penske Automotive Group Inc (NYSE:PAG) Seasonal Chart

Penske Automotive Group Inc (NYSE:PAG) Seasonal Chart

AZZ, Inc. (NYSE:AZZ) Seasonal Chart

AZZ, Inc. (NYSE:AZZ) Seasonal Chart

Reinsurance Group of America (NYSE:RGA) Seasonal Chart

Reinsurance Group of America (NYSE:RGA) Seasonal Chart

Discover Financial Services (NYSE:DFS) Seasonal Chart

Discover Financial Services (NYSE:DFS) Seasonal Chart

PNC Financial Services  (NYSE:PNC) Seasonal Chart

PNC Financial Services (NYSE:PNC) Seasonal Chart

Masco Corporation  (NYSE:MAS) Seasonal Chart

Masco Corporation (NYSE:MAS) Seasonal Chart

Citigroup Inc. (NYSE:C) Seasonal Chart

Citigroup Inc. (NYSE:C) Seasonal Chart

W.R. Grace & Co. (NYSE:GRA) Seasonal Chart

W.R. Grace & Co. (NYSE:GRA) Seasonal Chart

Deluxe Corp. (NYSE:DLX) Seasonal Chart

Deluxe Corp. (NYSE:DLX) Seasonal Chart

BB&T Corporation (NYSE:BBT) Seasonal Chart

BB&T Corporation (NYSE:BBT) Seasonal Chart

Republic Services, Inc.  (NYSE:RSG) Seasonal Chart

Republic Services, Inc. (NYSE:RSG) Seasonal Chart

Vail Resorts, Inc. (NYSE:MTN) Seasonal Chart

Vail Resorts, Inc. (NYSE:MTN) Seasonal Chart

PriceSmart, Inc. (NASD:PSMT) Seasonal Chart

PriceSmart, Inc. (NASD:PSMT) Seasonal Chart

 

 

The Markets

Stocks continued to rebound from last week’s weakness as investors shook off trade war concerns, finding value in some of the beaten down names.  The S&P 500 Index added 1.10%, moving back above its 20-day moving average and on track to retest its 50-day moving average, which is still pointed higher.  Market technicians are hoping that the rebound that materialized on Friday and Monday amounts to a higher daily low above early February’s bottom, which, if confirmed, could trigger an all clear for investors to dive back into stocks.  As pointed out in recent reports, sentiment had become deeply bearish in recent weeks as investors aggressively hedged their books via put options, mitigating the need to sell.  Large speculators in S&P 500 futures contracts were the most short the large-cap benchmark since 2011.  It is very difficult to get an increase in selling momentum when a large part of the market is hedged.  Should key benchmarks show negative reaction to the 50-day moving average overhead, things may change and investors may just want to step aside rather than pay for insurance on a weak asset.  Keep in mind that the Nasdaq Composite is still maintaining support at this intermediate moving average as investors continue to stick with what works in the technology sector, fuelling outperformance in this market segment.

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The rally in the markets on Monday was led by two adversaries in the sector world: utilities and financials.  Despite a tick higher in yields during the session, interest rate sensitive sectors outperformed the market return on the day as they start to show buying support at these depressed levels.  The lack of exposure to international trade would have also been a benefit.  Investors have been aggressively short the US treasury bond since the year began, driving rates higher and pressuring the price of interest rate sensitive securities in the utilities and REIT sectors, but the crowed trade is showing signs of unwinding.  The price of of the 10-year treasury note recently cracked resistance around its declining 20-day moving average and momentum indicators have started to curl higher.  The downside move from last summer’s high has essentially gone uncorrected and a reversion to the mean is becoming a reasonable expectation.  While treasury prices remain in a period of seasonal weakness through April, bond proxies in the utility and REIT sectors are typically strong in March and April, gaining around 70% of the time in each of these months.

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Utilities Sector Seasonal Chart

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

UTILITIES Monthly Averages

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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

With talk of tariffs, transportation stocks have weakened, keeping the Dow Jones Transportation Average in the red throughout much of Monday’s session.  The industry benchmark has already shown resistance at the 50-day moving average and now the benchmark is struggling to hold onto support at 10,100, a break of which could see a measured move all the way back to the lows charted last spring around 8800.  Variable support at the 200-day moving average remains intact.  While easy to pin the recent weakness on the Trump tariff warnings, the truth is that this benchmark has been weak ever since mid-January, peaking ahead of the top in the broader market and underperforming the market since that point.  This comes at a time when transportation stocks are typically positive as goods are moved throughout the economy amidst the ramp-up in manufacturing activity.  The action is indicative of thoughts of investors on the strength in the economy given that some economic indicators suggest slowing growth.  The Baltic dry index is one such indicator.  This gauge of prices of moving major raw materials by sea has fallen by over 30% since peaking in December of last year.  Long-term trend channel support remains intact.  A protectionist trade environment would inevitably have negative impacts on this indication of global activity.  We are still waiting for further reports on economic activity in this new tax era to properly gauge the flow of money, but, as of present, investors are being sceptical that everything will end well.  The transportation industry remains in a period of seasonal strength through to mid-April.

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Transportation Industry Seasonal Chart
S5TRAN Index Relative to the S&P 500S5TRAN Index Relative to the Sector

S5TRAN Index Monthly Averages

Sentiment on Monday, as gauged by the put-call ratio, ended neutral at 1.00.

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Seasonal charts of companies reporting earnings today:

ABM Industries Incorporated (ABM) Seasonal Chart AeroVironment, Inc. (AVAV) Seasonal Chart Autodesk, Inc. (ADSK) Seasonal Chart Baytex Energy Corp (BTE) Seasonal Chart Ciena Corporation (CIEN) Seasonal Chart Donaldson Company, Inc. (DCI) Seasonal Chart H&R Block, Inc. (HRB) Seasonal Chart  John Wiley & Sons, Inc. (JW.A) Seasonal Chart Korn/Ferry International (KFY) Seasonal Chart NCI Building Systems, Inc. (NCS) Seasonal Chart Raven Industries, Inc. (RAVN) Seasonal Chart Ross Stores, Inc. (ROST) Seasonal Chart Target Corporation (TGT) Seasonal Chart Urban Outfitters, Inc. (URBN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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