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Stock Market Outlook for August 28, 2018

S&P 500 Index back to the upper limit of its rising intermediate-term trend channel.

 

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:

Northrim Bank (NASD:NRIM) Seasonal Chart

Northrim Bank (NASD:NRIM) Seasonal Chart

ICF International Inc. (NASD:ICFI) Seasonal Chart

ICF International Inc. (NASD:ICFI) Seasonal Chart

Delta Air Lines Inc. (NYSE:DAL) Seasonal Chart

Delta Air Lines Inc. (NYSE:DAL) Seasonal Chart

CVB Financial Corp. (NASD:CVBF) Seasonal Chart

CVB Financial Corp. (NASD:CVBF) Seasonal Chart

Tetra Tech, Inc. (NASDAQ:TTEK) Seasonal Chart

Tetra Tech, Inc. (NASDAQ:TTEK) Seasonal Chart

Evercore Partners Inc. (NYSE:EVR) Seasonal Chart

Evercore Partners Inc. (NYSE:EVR) Seasonal Chart

Neogen Corp. (NASD:NEOG) Seasonal Chart

Neogen Corp. (NASD:NEOG) Seasonal Chart

 

Upcoming BNN Appearance:

I will be on BNN’s Market Call Tonight at 6:00pm ET this Friday, August 31st taking your calls on Technical Analysis and Seasonal Investing.  CALL TOLL-FREE 1-855-326-6266,  EMAIL marketcall@bnnbloomberg.ca,  or TWEET @MarketCall.

 

Just Released…

The monthly outlook for September has just been released to Equity Clock subscribers.  Highlights include:

  • Equity market tendencies in September
  • Potential breadcrumbs that could lead to the next recession
  • Comments on the seasonal trade in natural gas
  • Comments on the conclusion to the period of strength in the energy sector
  • Notable stocks entering their period of strength in September
  • And more…

To obtain a copy of this report, as well as future reports, you can subscribe to the Chart Database at https://charts.equityclock.com/subscribe.

 

The Markets

Stocks closed at record highs to start the week on news that the US and Mexico had reached a preliminary trade deal.  The S&P 500 Index added just over three-quarters of one percent, inching closer to a key psychological milestone at 3000.  The gain puts the total return of the S&P 500 Index since the start of May at 10.05%, much to the chagrin of the Sell in May crowd that were hoping for lower stock prices in this so-called offseason for stocks.  Cyclical stocks led the advance during the session while defensive counterparts stayed out of the market rally as investors rotated back towards risk.  The S&P 500 Index is back to the upper limit of its rising trend channel, potentially capping the near-term advance of the large-cap benchmark.  Momentum indicators remain in bullish territory, however, the stalled trend with respect to MACD raises concerns of waning buying demand, which would not be a surprise with stocks at all-time highs.

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But while stocks push relentlessly to new highs, a few warning signs are apparent.  First, the Volatility Index (VIX) closed higher on the session, atypical for strong, risk-on session.  The VIX has attempted to maintain a floor around 12 as investors use the low levels and high equity prices to buy portfolio insurance.  Seasonally, the VIX tends to rise through the remainder of the third quarter.

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The strength in the VIX might imply that put options volumes were strong as investors looked to the options market to hedge against any potential downturn in stocks from these all-time high levels.  But actually call option activity heavily surpassed put option activity, resulting in a put-call ratio as low as 0.62 earlier in the session.  Ratios this low are typically an indication of complacency, suggesting investors are letting their guard down at all-time highs.  Effectively the ratio is suggesting that speculators reaching for further gains, but those with gains to protect are hedging their books, not exactly confidence inspiring.

Another warning sign comes in performance of US treasury bonds.  With risk premiums in stocks on the rise in recent weeks given trade tensions, the Manafort/Cohen news, weaker than expected economic data, midterm election uncertainty, and economic instability in Turkey, among other factors, investors have gravitated towards defense by way of US treasuries.  But as investors reach further out on the risk spectrum with respect to stocks, the treasury prices have remained relatively unchanged, holding on to gains charted in the month of August.  The price of the intermediate treasury bond ETF (IEF) is holding above the neckline to a reverse head-and-shoulders pattern, which if held would suggest further upside potential in price (downside potential in yields) ahead.  Seasonally, treasury bond prices have historically outperformed stocks through the third quarter, but with the direction of yields remaining neutral, stocks have been the better performer, whether looking at yield sensitive segments or not.  The bond market has historically been the more accurate predictor of risk-sentiment, but equity investors are not on the same page.

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10 Year U.S. Treasury Notes Futures (TY) Seasonality
CME_TY1 Relative to the S&P 500CME_TY1 Relative to the Sector

Monthly Seasonal 10 Year U.S. Treasury Notes Futures (TY)

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.74.

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Seasonal charts of companies reporting earnings today:

Bank Of Montreal (BMO) Seasonal Chart Bank of Nova Scotia (The) (BNS) Seasonal Chart Best Buy Co., Inc. (BBY) Seasonal Chart   Catalent, Inc. (CTLT) Seasonal Chart DSW Inc. (DSW) Seasonal Chart Fang Holdings Limited (SFUN) Seasonal Chart  H&R Block, Inc. (HRB) Seasonal Chart  Lannett Co Inc (LCI) Seasonal Chart NCI Building Systems, Inc. (NCS) Seasonal Chart Noah Holdings Ltd. (NOAH) Seasonal Chart  Prospect Capital Corporation (PSEC) Seasonal Chart ScanSource, Inc. (SCSC) Seasonal Chart Shoe Carnival, Inc. (SCVL) Seasonal Chart Standex International Corporation (SXI) Seasonal Chart The Hain Celestial Group, Inc. (HAIN) Seasonal Chart Tiffany & Co. (TIF) Seasonal Chart  

 

 

S&P 500 Index

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TSE Composite

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