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Stock Market Outlook for March 23, 2018

Price action increasingly resembles a standard A-B-C correction.

 

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:

Epsilon Energy Ltd. (TSE:EPS) Seasonal Chart

Epsilon Energy Ltd. (TSE:EPS) Seasonal Chart

U.S. Auto Parts Network Inc. (NASD:PRTS) Seasonal Chart

U.S. Auto Parts Network Inc. (NASD:PRTS) Seasonal Chart

Service Corp. (NYSE:SCI) Seasonal Chart

Service Corp. (NYSE:SCI) Seasonal Chart

AutoCanada (TSE:ACQ) Seasonal Chart

AutoCanada (TSE:ACQ) Seasonal Chart

Dollarama Inc (TSE:DOL) Seasonal Chart

Dollarama Inc (TSE:DOL) Seasonal Chart

Husky Energy Inc.  (TSE:HSE) Seasonal Chart

Husky Energy Inc. (TSE:HSE) Seasonal Chart

Cott Corporation  (TSE:BCB) Seasonal Chart

Cott Corporation (TSE:BCB) Seasonal Chart

Laboratory Corp. of America Holdings  (NYSE:LH) Seasonal Chart

Laboratory Corp. of America Holdings (NYSE:LH) Seasonal Chart

ENI S.P.A. (NYSE:E) Seasonal Chart

ENI S.P.A. (NYSE:E) Seasonal Chart

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

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

BCE, Inc. (NYSE:BCE) Seasonal Chart

BCE, Inc. (NYSE:BCE) Seasonal Chart

Monster Beverage Corp. (NASD:MNST) Seasonal Chart

Monster Beverage Corp. (NASD:MNST) Seasonal Chart

AGCO Corporation (NYSE:AGCO) Seasonal Chart

AGCO Corporation (NYSE:AGCO) Seasonal Chart

Time Warner Inc.  (NYSE:TWX) Seasonal Chart

Time Warner Inc. (NYSE:TWX) Seasonal Chart

CAE, Inc.  (TSE:CAE) Seasonal Chart

CAE, Inc. (TSE:CAE) Seasonal Chart

 

 

The Markets

Stocks plunged on Thursday as trade war fears prevailed amidst the announcement of $60 billion in tariffs against China.  The S&P 500 Index fell by 2.52%, breaking below the flag consolidation pattern highlighted in yesterday’s report.  The benchmark also sliced through its rising 100-day moving average, a variable level of support that buyers have been willing to enter as recently as the past couple of months.  The 50-day moving average is showing early signs of rolling lower for the first time in over a year.  Increasingly, we are seeing these characteristics of a significant intermediate peak in equity prices, allowing for stocks to reset following the parabolic run that ran into the start of this year.  The decline from the January peak still resembles a standard A-B-C correction, where the initial wave lower is followed by a rebound attempt, only to falter into another decline thereafter.  Similar to what we suggested prior to the last low in February, look for signs of capitulation where sellers are unable to maintain the downside momentum and bearish sentiment rises to extremes.  With the VIX jumping by over 30% on Thursday and the put-call ratio closing at an overly bearish level, certainly sentiment is shifting, forcing investors to become more protective/cautious.  However, with stocks closing at the lows of the day, it would be difficult to conclude that the selling is over.  The approximately 130 to 140 point range of the recent consolidation following February’s decline targets a retest of the February low around 2530.  The 200-day moving average, a significant level on the downside, presently hovers around 2585.  Keep in mind, that the recent volatility is being fuelled by headlines, which are never as sustainable as a fundamental shift in the economy.  Economic data remains quite upbeat, with only isolated pockets of weakness, suggesting that when the headlines fade that the longer-term upward trend should resume.  There is little to suggest a period of equity market weakness similar to late 2015/early 2016 and certainly nothing to suggest anything as damaging as the 2008/2009 declines.  First quarter earnings season is near, which should provide a much needed distraction, as is seasonally typical, but beware of any cautious commentary by CEOs pertaining to the protectionist measures implemented by the Trump administration.

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Turning to stocks north of the border, Thursday’s plunge adds to the threat of a possible long-term head-and-shoulders topping pattern.  The benchmark traded back to and resisted precisely from is declining 50-day moving average, breaking below both its 20 and 200-day moving averages during the session.  MACD is rolling over from around 0, a characteristic of a bearish trending market.  Significant horizontal support, which forms the basis of the neckline of a head-and-shoulders pattern, can be seen around 15,000.  It is important to stress that this level remains support until it is broken; the completion of the right shoulder doesn’t automatically conclude a breakdown will occur.  Downside risks are considerable should the breakdown be confirmed.  Momentum indicators on the Canadian benchmark have been negatively diverging from price since the fourth quarter of last year and a longer-term trend of underperformance versus US counterparts has been embedded in the price action for years.  Seasonally, while typically weaker, on average, than the S&P 500 Index, the TSX Composite tends to trade higher through to early June.

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S&P/TSX Composite index Seasonal Chart

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

$TSX Monthly Averages

On the economic front, a key gauge of shipping activity is suggesting solid economic fundamentals amidst the important manufacturing season.  CASS Information Systems is indicating that shipment volumes increased by 5.9% last month, while its expenditures index increased by 5.2%.  The average change for each in the second month of the year is +3.4% and +3.0%, respectively.  This places shipping activity 1.6% above the seasonal norm through the first two months of the year, resuming an above average pace that was very apparent in the last quarter of 2017.  The report sends good signals pertaining to the health of the broader economy as larger shipping volumes combined with higher prices to move the goods suggests solid demand as the manufacturing sector heats up, along with the weather, into the spring.  Manufacturing activity typically hits a peak in June, just prior to the summer factory shutdown period in July, but, as we have seen in recent years, this summer slowdown has been taking less of a bite as manufacturers keep factories open to fulfill demand.  It is too early to say if this will be the case this year, particularly with the threat of a trade war. The manufacturing economy in the US is strong, which should otherwise be supportive of the cyclical sectors of the equity market that perform well at this time of year.

Cass Freight Index: Shipments  Seasonal Chart

Monthly Cass Freight Index: Shipments  Data

Cass Freight Index: Shipments Seasonal Chart

Cass Freight Index: Expenditures Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.22.

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Seasonal charts of companies reporting earnings today:

Destination XL Group, Inc. (DXLG) Seasonal Chart Westport Fuel Systems Inc (WPRT) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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