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Stock Market Outlook for September 20, 2018

Financial ETF testing the neckline of a reverse head-and-shoulders pattern as yields near the high of the year.

 

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:

Myriad Genetics, Inc. (NASD:MYGN) Seasonal Chart

Myriad Genetics, Inc. (NASD:MYGN) Seasonal Chart

World Fuel Services Corp. (NYSE:INT) Seasonal Chart

World Fuel Services Corp. (NYSE:INT) Seasonal Chart

Tembec (TSE:TMB) Seasonal Chart

Tembec (TSE:TMB) Seasonal Chart

Lannett Co., Inc. (NYSE:LCI) Seasonal Chart

Lannett Co., Inc. (NYSE:LCI) Seasonal Chart

Chase Corp. (AMEX:CCF) Seasonal Chart

Chase Corp. (AMEX:CCF) Seasonal Chart

 

 

The Markets

Stocks closed mixed on Wednesday as investors took positions on either side of the trend of higher rates.    The S&P 500 Index closed the session higher by just over a tenth of a percent, remaining within a hair of the all-time high.  The move in the large-cap benchmark follows further losses in the bond market, which pushed treasury yields back to around the highs of the year.  The 10-year note closed the day at 3.08%, just short of the high of 3.11% charted in May; the 30-year treasury yield is now at 3.23%, just short of May’s high at 3.25%.  Treasury bond holders have not been rewarded in this seasonally strong period.  The price of the most actively traded treasury bond ETF (TLT) is back to around the lows of the year, bringing an unpleasant end to the period of seasonal strength for the asset class.  Seasonally, treasury bond prices tend to outperform stocks between the middle of July and the end of September as volatility grips equity markets, but with strong economic fundamentals and continued buying demand in stocks, the seasonal trade has underperformed this year by a wide margin.  Within the Seasonal Advantage Portfolio, our three-pronged approach kept us out of the treasury bond market this year and predominantly invested in stocks, thereby avoiding the pitfalls of a date-based investment approach.  To learn more about the three-pronged seasonal approach that we manage through CastleMoore, please visit the following link: http://www.equityclock.com/About/Seasonal-Advantage-Portfolio/.

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30 Year U.S. Treasury Bonds Futures (US) Seasonality

CME_US1 Relative to the S&P 500

With yields on the rise, investors were seen rotating into financials, the ETF that tracks the sector (XLF) gaining over 2% at the highs of the day.  The bounce comes following a test of support around the rising 50-day moving average in recent days; resistance has been apparent around $28.75.  Momentum indicators for the sector turned bullish within the past couple of months as investors began to price in the prospect of a rise in the cost of borrowing.  On the flipside, the utilities ETF (XLU) was sharply lower, plunging below support around the 20-day moving average.  Momentum indicators on the chart of the utilities ETF have been negatively diverging from price for the past couple of months, suggesting waning buying demand.  Seasonally, financials tend to rise through the fourth quarter, while utilities tend to struggle into the month of December.  Within the Seasonal Advantage portfolio, we substantially lowered our exposure to utilities in August, rotating instead towards seasonally favoured industries in the financial sector in anticipation of higher yields.

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Financial Sector Seasonal Chart

FINANCIAL Relative to the S&P 500
FINANCIAL Relative to the S&P 500

FINANCIAL Monthly Averages

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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

On the economic front, housing starts for August were released before the opening bell.  The headline print indicated that starts jumped by 9.2% to a seasonally adjusted annual rate of 1.282 million.  The consensus estimate was for a rate of 1.240 million.  Permits, on the other hand, weakened, falling by 5.7% to a seasonally adjusted annual rate of 1.229 million, a miss versus estimates of 1.315 million.  Stripping out the seasonal adjustments, starts actually increased by 2.3% in August, a positive divergence compared to the 4.6% decline that is average for the summer month.  The result has put the year-to-date trend back above the seasonal average pace by 5.7%.  Strength in the south and midwest are helping to fuel the above average pace.  As for permits, the 3.5% below average pace year-to-date looks to be a factor of the above average rise in the number of units authorized but not started.  When builders have sufficient lots on which to build, their willingness to seek new permits will be limited.  Housing units completed, the more stable measure in the report, is running 2.6% above the seasonal norm.  The report suggests that builders remain optimistic of their ability to sell these newly built homes in the future, as long as economic fundamentals remain strong.  But, as we have highlighted in recent months, it is the sales side that has started to show concern.  Rising inventory levels of existing homes and sales that are showing sluggish results through the month of July have indicated that the high price of homes has taken a toll, threatening to lead to slower activity moving forward.  We’ll gain insight into the strength of sales on Thursday with the report on existing home sales.  Seasonally, housing starts tend to decline through the remainder of the year as the ability to start new projects ahead of the colder winter weather is limited.

Housing Starts Seasonal Chart

Monthly Housing Starts Data

Housing Starts Seasonal Chart

Housing Starts: Northeast Region Seasonal Chart Housing Starts: Midwest Region Seasonal Chart Housing Starts: South Region Seasonal Chart Housing Starts: West Region Seasonal Chart Building Permits Seasonal Chart Housing Units Authorized, But Not Started Seasonal Chart Housing Units Completed Seasonal Chart

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

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Sectors and Industries entering their period of seasonal strength:

IBEX 35 Seasonal Chart

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

$IBEX Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Darden Restaurants, Inc. (DRI) Seasonal Chart Micron Technology, Inc. (MU) Seasonal Chart S&W Seed Company (SANW) Seasonal Chart Steelcase Inc. (SCS) Seasonal Chart  Thor Industries, Inc. (THO) Seasonal Chart United Natural Foods, Inc. (UNFI) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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