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Stock Market Outlook for August 9, 2018

Stocks typically weak between mid-August and the end of September during mid-term election years.

 

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:

AutoWeb, Inc. (NASD:AUTO) Seasonal Chart

AutoWeb, Inc. (NASD:AUTO) Seasonal Chart

Allied World Assurance Company (NYSE:AWH) Seasonal Chart

Allied World Assurance Company (NYSE:AWH) Seasonal Chart

autobytel.com, Inc. (NASD:ABTL) Seasonal Chart

autobytel.com, Inc. (NASD:ABTL) Seasonal Chart

MicroStrategy Inc. (NASD:MSTR) Seasonal Chart

MicroStrategy Inc. (NASD:MSTR) Seasonal Chart

Verisign, Inc.  (NASDAQ:VRSN) Seasonal Chart

Verisign, Inc. (NASDAQ:VRSN) Seasonal Chart

LSI Industries, Inc. (NASD:LYTS) Seasonal Chart

LSI Industries, Inc. (NASD:LYTS) Seasonal Chart

CECO Environmental Corp. (NASD:CECE) Seasonal Chart

CECO Environmental Corp. (NASD:CECE) Seasonal Chart

Global Payments, Inc. (NYSE:GPN) Seasonal Chart

Global Payments, Inc. (NYSE:GPN) Seasonal Chart

Allied World Assurance Company (NYSE:AWH) Seasonal Chart

Allied World Assurance Company (NYSE:AWH) Seasonal Chart

 

 

The Markets

Stocks closed around the flatline on Wednesday as investors digested the announcement of new tariffs by China on US goods.  The S&P 500 Index shed a mere three basis points, remaining within points of the all-time high charted in January at 2872.87.  The benchmark closed above horizontal resistance at 2850 on Tuesday, keeping investors optimistic of an upside breakout, despite the threatening headlines.

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The break of resistance on the large-cap benchmark has coincided with a breakdown in the volatility index below the lower limit of a descending triangle pattern.  The VIX now sits at the lowest level since January, despite seasonal tendencies that call for a rise in volatility through the month of August.  The volatility index hit a cycle low at the start of January as investors became overly complacent following the passage of the tax bill at the end of 2017.  Signs of complacency as it existed then have yet to be realized now.  The year-to-date change in margin debt is well below average, a significant shift from the above average pace recorded in 2017, and the put call ratio has remained predominantly neutral, firmly above the overly bullish readings recorded in the days leading up to the late January decline.  Net result is that the equity market is less vulnerable than the last time its was at this level.  Of course, headlines could cross at any time that act as the next catalyst for a market pullback, but the hallmarks for market weakness at this time of year are readily evident.  Seasonally, the volatility index tends to rise through to the start of October as weakness in cyclical sectors weighs on broad market performance.

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Volatility Index (VIX) Seasonality

Monthly Seasonal Volatility Index (VIX)

One of the catalysts that could influence stocks through the remainder of the third quarter is the mid-term election.  The election, which will take place on November 6th, typically leads to jockeying of equity positions ahead of the event as investors anticipate the results.  During these years, the broad equity market tends to drift lower between mid-August and the end of September.  Past this hurdle, the period encompassing the fourth quarter of the mid-term election year through to the second quarter of the pre-election year are the best consecutive three quarters of the 4-year cycle.  Expect the rhetoric surrounding the mid-term elections to heat up in the weeks ahead.

Dow Jones Industrial Average Mid-term Election Year Seasonal Chart

On schedule for the Wednesday session, the weekly petroleum status report was released.  The EIA reported that oil inventories declined by 1.4 million barrels, while gasoline recorded a gain of 2.9 million barrels.  The result left the days of supply of each relatively unchanged, now at 23.4 and 24.1 for oil and gas, respectively.  Peeling back the layers, the production of gasoline abruptly declined coinciding with a decline in the level of product supplied.  This may strip supply of gasoline from the market in the weeks ahead, assuming demand remains upbeat in this summer driving season.  Crude oil inventories, however, may see upside pressures given the lack of gasoline production.  Seasonally, the production of gasoline tends to dwindle through to the middle of October as refiners transition back to winter blend.  Fortunately for the supply of oil, domestic production continues to show signs of rolling over, recording a second consecutive week of declines.  The level of domestic production over the past couple of months, showing levels of either 10.800, 10.900, or 11.000 million barrels per day, have been rather peculiar given the round number disseminated.  Never before has the level of domestic production shown a rounded in the manner that it is presently. It is unclear what is causing this manipulation.

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The price of oil shed over 3% during Wednesday’s session, primarily the result of the tariffs that China will be slapping on US goods, including oil.  The decline pushes the price of the commodity back to rising trend channel support.  Horizontal and 200-day moving average support are apparent around $64.  Given the fundamental backdrop for the commodity, a trading range between $62 and $77 is likely. Any weakness below the lower limit of that range threatens the gains achieved over the past year in the energy sector.  Seasonally, oil prices remain supported through the end of the summer season.

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Crude Oil Futures (CL) Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended close to neutral at 0.95.

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Seasonal charts of companies reporting earnings today:

Acxiom Corporation (ACXM) Seasonal Chart Air Lease Corporation (AL) Seasonal Chart Algonquin Power & Utilities Corp. (AQN) Seasonal Chart Avid Technology, Inc. (AVID) Seasonal Chart Chesapeake Utilities Corporation (CPK) Seasonal Chart Coca-Cola European Partners plc (CCE) Seasonal Chart Hecla Mining Company (HL) Seasonal Chart Microchip Technology Incorporated (MCHP) Seasonal Chart Motorcar Parts of America, Inc. (MPAA) Seasonal Chart News Corporation (NWSA) Seasonal Chart Norwegian Cruise Line Holdings Ltd. (NCLH) Seasonal Chart Orchids Paper Products Company (TIS) Seasonal Chart Perrigo Company (PRGO) Seasonal Chart Plug Power, Inc. (PLUG) Seasonal Chart Revlon, Inc. (REV) Seasonal Chart Ritchie Bros. Auctioneers Incorporated (RBA) Seasonal Chart Semiconductor Manufacturing International Corporation (SMI) Seasonal Chart Silvercorp Metals Inc. (SVM) Seasonal Chart Tetra Technologies, Inc. (TTI) Seasonal Chart Viacom Inc. (VIAB) Seasonal Chart Westport Fuel Systems Inc (WPRT) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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