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Stock Market Outlook for October 4, 2018

Rate sensitive sectors get crushed as yields breakout.

 

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:

Syngenta AG (NYSE:SYT) Seasonal Chart

Syngenta AG (NYSE:SYT) Seasonal Chart

Uranium Participation (TSE:U) Seasonal Chart

Uranium Participation (TSE:U) Seasonal Chart

AGCO Corporation (NYSE:AGCO) Seasonal Chart

AGCO Corporation (NYSE:AGCO) Seasonal Chart

Nevsun Resources (TSE:NSU) Seasonal Chart

Nevsun Resources (TSE:NSU) Seasonal Chart

Resolute Forest Products Inc. (NYSE:RFP) Seasonal Chart

Resolute Forest Products Inc. (NYSE:RFP) Seasonal Chart

Parker-Hannifin Corporation  (NYSE:PH) Seasonal Chart

Parker-Hannifin Corporation (NYSE:PH) Seasonal Chart

The Cheesecake Factory Incorporated  (NASDAQ:CAKE) Seasonal Chart

The Cheesecake Factory Incorporated (NASDAQ:CAKE) Seasonal Chart

 

 

The Markets

Stocks closed just above the flat-line on Wednesday as interest rate sensitive sectors of the market acted as a significant drag on broad market performance.  Utilities and REITs charted losses of around one percent on the session as treasury yields shot up to the highest levels of the year.  The 10-year treasury yield surged through resistance around 3.1%, while the 30-year treasury yield ran through resistance around 3.25%.  These moves effectively break a trading range that has spanned the past eight months.  For the 10-year treasury, the breakout suggests a measured move towards 3.45%, while the 30-year treasury projects a move towards 3.55%.  Seasonally, treasury bonds concluded their period of seasonal strength in September.

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The drawdown in the utilities sector index effectively begins to derive an intermediate trend of lower-lows and lower-highs, moving beyond just a short-term downtick that was apparent in the middle of September.  The benchmark traded sharply lower from its 50-day moving average, defining this intermediate hurdle as a level of resistance.  The sector has been underperforming the market over the past month and momentum indicators have been negatively diverging from price since July.  Equity Clock subscribers were alerted to the fact that the utilities sector has tended to be the weakest segment of the market in the month of October, fading following its summer seasonal run.  To become a subscriber of our service, visit the following link: https://charts.equityclock.com/subscribe.

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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

Consumer staples, which often competes on a yield basis with its fixed income counterparts, also punched out a decline of over 1%, sympathizing with its defensive counterparts.  The decline begins to confirm a level of resistance at the benchmark’s 20-day moving average, a level that had supported the sector throughout its seasonal run that began in May.  Momentum indicators have been negatively diverging from price for the past couple of months, suggesting waning buying pressures.  In the Seasonal Advantage Portfolio that we manage with CastleMoore, we booked profits in both our broad utilities and staples sector holdings in August, rotating towards areas with better relative performance versus the market.  To learn more about this managed seasonal mandate, email us at seasonalportfolio@equityclock.com.

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Consumer Staples Sector Seasonal Chart

STAPLES Relative to the S&P 500
STAPLES Relative to the S&P 500

STAPLES Monthly Averages

On schedule for the Wednesday session, the Energy Information Administration (EIA) released the weekly petroleum status.  The EIA indicated that oil stockpiles increased by 8.0 million barrels last week, while gasoline reported a minor draw of 500,000 barrels.  The oil inventory injection was the largest one-week increase sine March of 2017.  The days of supply of oil now sits at 23.6, which is 2.2 days above normal for this time of year.  The narrowing of the spread between the actual and average level appears to have concluded as domestic production of the raw input hits another all-time high.  Meanwhile, gasoline days of supply sits at 25.2, the highest level in over two decades.  The average level for the end of September is 23.7.  The level of product supplied of the refined commodity remains depressed compared to the highs recorded one month ago and production has been reigned in accordingly.  Seasonally production of gasoline remains subdued through the month of October as refiners transition from summer to winter blend.  Looking forward, oil stockpiles tend to increase through the middle of November, while gasoline stockpiles tend to decline, the result of this seasonal switch in production.

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

Investors shrugged off the large oil injection, instead sending the price of the commodity to a new multi-year high.  The price of West Texas Intermediate rose by 1.6%, breaking above July’s high around $75.27.  The market remains focussed on the potential of a supply shortfall created by the US sanctions with Iran.  Clearly, price is showing a case where sentiment and fundamentals have disconnected.  In addition to forecasts that suggest that OPEC can more than offset any supply disruptions resulting from restricting Iran oil purchases, the above average days of supply for energy commodities suggests that there is little reason to be concerned of a shortfall.  The disconnect between sentiment and fundamentals can persist over the short-term, but they are difficult to sustain over the longer-term, suggesting that oil prices are increasingly at risk of declining.  Seasonally, oil prices tend to trade lower through December, falling following the peak summer driving season.

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http://charts.equityclock.com/seasonal_charts/futures/FUTURE_CL1.PNG

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.86.

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Seasonal charts of companies reporting earnings today:

Constellation Brands Inc (STZ) Seasonal Chart Costco Wholesale Corporation (COST) Seasonal Chart International Speedway Corporation (ISCA) Seasonal Chart 

 

 

S&P 500 Index

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TSE Composite

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Seasonal Advantage Portfolio by CastleMoore

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