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Stock Market Outlook for March 21, 2018

The parabolic decline in Consumer Staples relative to Discretionary may soon find a floor.

 

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:

Kopin Corp. (NASD:KOPN) Seasonal Chart

Kopin Corp. (NASD:KOPN) Seasonal Chart

Crocs, Inc. (NASD:CROX) Seasonal Chart

Crocs, Inc. (NASD:CROX) Seasonal Chart

SL Green Realty Corp. (NYSE:SLG) Seasonal Chart

SL Green Realty Corp. (NYSE:SLG) Seasonal Chart

Quest Diagnostics Incorporated  (NYSE:DGX) Seasonal Chart

Quest Diagnostics Incorporated (NYSE:DGX) Seasonal Chart

RPC, Inc. (NYSE:RES) Seasonal Chart

RPC, Inc. (NYSE:RES) Seasonal Chart

Linamar Corporation (TSE:LNR) Seasonal Chart

Linamar Corporation (TSE:LNR) Seasonal Chart

Perry Ellis Intl, Inc. (NASD:PERY) Seasonal Chart

Perry Ellis Intl, Inc. (NASD:PERY) Seasonal Chart

 

 

The Markets

Stocks closed mildly higher on Tuesday as investors await the outcome of the two-day FOMC meeting, the first with new Fed Chair Jerome Powell.  The S&P 500 Index added just over a tenth of one percent, holding below its 20 and 50-day moving averages.  Support at the 100-day moving average hovers around 2689.  Looking at the benchmark strictly from a moving average perspective, the shorter-term 20-day moving average is showing signs of rolling over, charting a lower-high, below the 50-day.  This is something you would see at a significant top in the market where the shorter-term path of the market evolves into an intermediate decline, weighing on longer-term moving averages.  August 2015 is the closest example of the last time this happened where the short-term moving average was unable to make any significant headway above the longer-term 50-day average.  Stocks eventually hit the lows for the year in the month that followed and eventually charted the ultimate low to the massive consolidation pattern in February of the following year.  Keep in mind that this was a period of economic stress where manufacturing activity was in recession and corporate earnings were on the decline; neither of these fundamental characteristics are apparent today.  Headline risks are what investors are presently weighing.  The problem with this is that headlines are less sustainable than a defined move lower in economic fundamentals, therefore moves in equities can be erratic in either direction, thereby keeping volatility elevated.  Next headline risk is likely to be the FOMC meeting under the new Fed Chair, an event that investors will scrutinize to determine the path of rates through the remainder of the year.

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While the large-cap S&P 500 Index falls victim to its largest sector constituent, Technology, other benchmarks less exposed to the market segment are showing signs of outperformance.   The S&P 400 Mid-Cap Index has outperformed its large-cap counterpart by almost three percent since the month of March began, in part due to its perceived immunity to a trade war.  The benchmark is presently testing its 20 and 50-day moving averages as levels of support as it attempts to resolve a short-term consolidation pattern that could be argued as resembling the flag to a bear-flag pattern.  A break below the lower limit of the consolidation setup would suggest a move back to the lows charted in February.  Seasonally, mid-caps tend to outperform large-caps, on average, through the start of May, benefitting from the strength in cyclical sectors of the market.  Defensive sectors (consumer staples, utilities, health care & telecom) represent a mere 17% of the benchmark‚Äôs weight, while they represent 26% of the large-cap counterpart.

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Defensive sectors were out of favour in the Tuesday session as investors continue to find opportunities in cyclical counterparts.  Consumer staples and utilities both closed in the red as investors bought into discretionary and energy names.  This pushed the ratio of the S&P 500 Consumer Staples Sector Index relative to the Consumer Discretionary Sector index to the lowest level since early 2000, continuing its parabolic decline that has been intact for almost a year.  A slope this steep is often unsustainable, suggesting a retracement may be due as the relative value of the defensive sector attempts to close the gap.  For seasonal investors, a looming parabolic low comes at an interesting time as Consumer Staples typically outperforms Discretionary, on average, from late April through to early October.  We are into this timeframe when a tradable low should be sought, allowing for a long position in a consumer staples sector ETF paired with a short position in a consumer discretionary sector ETF.  A continued unwind in the FANG trade could help given that Amazon accounts for 21.25% of the most widely traded consumer discretionary ETF (XLY).  Shares of Amazon (AMZN) were higher by 2.69% on Tuesday, bouncing from rising 20-day moving average support.  Seasonally, shares of AMZN tend to remain strong through the middle of July.

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Amazon.com, Inc. (NASDAQ:AMZN) Seasonality
AMZN Relative to the S&P 500AMZN Relative to the Sector

Monthly Seasonal Amazon.com, Inc. (NASDAQ:AMZN)

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.84.

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Seasonal charts of companies reporting earnings today:

Actuant Corporation (ATU) Seasonal Chart  Eldorado Gold Corporation (EGO) Seasonal Chart Five Below, Inc. (FIVE) Seasonal Chart General Mills, Inc. (GIS) Seasonal Chart Guess?, Inc. (GES) Seasonal Chart Herman Miller, Inc. (MLHR) Seasonal Chart On Track Innovations Ltd (OTIV) Seasonal Chart Wheaton Precious Metals Corp. (WPM) Seasonal Chart Winnebago Industries, Inc. (WGO) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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