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Stock Market Outlook for October 11, 2018

S&P 500 Index quickly closing in on long-term trend channel support around 2750.

 

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:

Hawaiian Holdings, Inc. (NASD:HA) Seasonal Chart

Hawaiian Holdings, Inc. (NASD:HA) Seasonal Chart

Arrow Electronics Inc. (NYSE:ARW) Seasonal Chart

Arrow Electronics Inc. (NYSE:ARW) Seasonal Chart

Reynolds American, Inc.  (NYSE:RAI) Seasonal Chart

Reynolds American, Inc. (NYSE:RAI) Seasonal Chart

Aspen Technology, Inc. (NASD:AZPN) Seasonal Chart

Aspen Technology, Inc. (NASD:AZPN) Seasonal Chart

Mohawk Inds, Inc. (NYSE:MHK) Seasonal Chart

Mohawk Inds, Inc. (NYSE:MHK) Seasonal Chart

Texas Roadhouse Inc. (NASD:TXRH) Seasonal Chart

Texas Roadhouse Inc. (NASD:TXRH) Seasonal Chart

SNC-Lavalin Group Inc. (TSE:SNC) Seasonal Chart

SNC-Lavalin Group Inc. (TSE:SNC) Seasonal Chart

 

 

The Markets

Brutal day for stocks as investors panicked over the possible impact that rising rates will have on the economy.  The S&P 500 shed 3.29%, representing the largest single session decline since February 8th amidst the last time that stocks reacted negatively to rising rates.  The large-cap benchmark is now firmly below its rising 50-day moving average, as well as its 100-day moving average, a level that had acted as a short-term pivot point during the February decline.  Next major hurdle is the 200-day moving average, which hovers around 2765.  Momentum indicators have fallen into oversold territory, warranting a close monitoring for signs of selling exhaustion in order to play the bounce to the upside.  This is still a market that is attempting to find a level of support, but that level could be near.  In the Seasonal Advantage Portfolio that we manage at CastleMoore, we took aggressive defensive action in the past couple of months, diversifying away from equities and moving into other investments that are still trading higher amidst the selloff.  Interested in having us manage your portfolio? Email us at seasonalportfolio@equityclock.com.

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Looking at the longer-term chart that we include at the bottom of each report, the benchmark is quickly closing in on the lower limit of its rising trend channel, which comes in around 2750.  The level provides a good risk to reward entry point to play the longer-term trend of higher-highs and higher-lows.  Seasonal tendencies for stocks start to turn strongly positive around this time of year and the selloff into this seasonally strong period is providing very appealing opportunities for the period of strength ahead.

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The move in stocks to start the month of October is quite abnormal.  Typically stocks trade higher, or at least hold steady, going into earrings season as investors anticipate positive results. The estimated earnings growth rate for the third quarter is 19.2%, however, 74 companies within the S&P 500 have issued negative guidance going into the results.  A strong US dollar, higher oil prices, tariffs, and slowing growth overseas are just some of the concerns that companies are expressing and investors are choosing to sell now rather than wait for the reports.  We’ll find out in the coming days whether the selloff is justified or merely an over-reaction to a few companies that may have greater exposure to some of the suggested headwinds than others.  In addition to rates and earnings, speculation of the results of the upcoming mid-term election may also be a factor surrounding the recent market slide.  Typically, between April and September of mid-term election years the political rhetoric has historically fuelled weakness in stocks.  But once into the month of October when investors have a good sense of the election outcome, stocks tend to rebound.  The opposite scenario is playing out this year as political rhetoric surrounding the election has been largely overshadowed by news pertaining to tariffs, solid economic fundamentals, and other distractions (eg. the Kavanaugh confirmation).  Stocks have traded higher as a result, but now that October has arrived, investors may still be becoming more confident of the election outcome and pricing in the risks .  It has been speculated that the Democrats will take control of the House, which could create a bottle-neck for the Trump administration in executing its business friendly mandate.  Stocks have been opposing seasonal norms all year, therefore it is not out of the realm of possibilities to see this abnormal action continue.

Dow Jones Industrial Average Mid-term Election Year Seasonal Chart

On the economic front, a report on Producer Prices was released before the opening bell.  The headline print indicated that PPI Final Demand increased by 0.2% in September, inline with the consensus analyst estimate.  The result put the year-over-year rate at +2.6%, down marginally from the +2.8% pace reported previously.  Stripping out the seasonal adjustments, PPI Final Demand actually increased by 0.1%, which is marginally above the unchanged result that is average for the month.  The year-to-date pace now sits at +2.4%, which is still firmly above the +1.7% rate that is average through the first three quarters of the year.  Less food and energy, the pace is eight-tenths of one percent above the seasonal norm, which is the strongest rate since 2011.  Strength in durable consumer goods, private capital equipment, and transportation is fuelling the strength in the aggregate result; strong demand in the manufacturing economy is a significant factor.  Seasonally, producer prices tend to decline through the fourth quarter as energy commodity prices trade lower following the summer driving season.

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In other economic news, the final tally of auto sales for September was released on Tuesday.  Total Vehicle Sales in the US fell by 3.4% in September, which is much better than the 11.3% decline that is average for this last month of the third quarter.  The year-to-date change has now narrowed to 3.7% below the average trend, a significant improvement from last month’s pace.  Heavy weight trucks are trending above average year-to-date, as are domestic light-weight trucks, a testament to the strength of the manufacturing economy and small businesses, in general.  The weakness behind the aggregate result continues to stem from autos, both domestic and foreign.  Consumers continue to hold on to their cars longer, thereby diminishing demand for new automobiles.  Seasonally, vehicle sales tend to decline into November, then jump in December as broader consumer spending acts as a benefit.

Total Vehicle Sales Seasonal Chart

Monthly Total Vehicle Sales Data

Total Vehicle Sales Seasonal Chart

Motor Vehicle Retail Sales: Domestic Autos Seasonal Chart Motor Vehicle Retail Sales: Domestic Light Weight Trucks Seasonal Chart Motor Vehicle Retail Sales: Heavy Weight Trucks Seasonal Chart Motor Vehicle Retail Sales: Foreign Autos Seasonal Chart Motor Vehicle Retail Sales: Foreign Light Weight Trucks Seasonal Chart

And finally, with respect to wholesale trade, the headline print indicated that sales increased by 0.8% in August, while inventories increased by 1.0%, more than the 0.8% increase forecasted by analysts.  Stripping out the seasonal adjustments, wholesale sales actually increased by 7.0%, while inventories increased by 0.4%.  The average change for each is +3.3% and –0.4%, respectively.  The result has elevated the year-to-date change of each to the best pace in years.  Both durable and nondurable goods factor prominently behind the result, particularly those that benefit from the strength in the manufacturing economy.  Lumber, metals, machinery, and farm product raw materials are all showing trends that are well above average.  Seasonally, sales and inventories peak around the month of October, just prior to the critical spending season at the end of the year.  For a breakdown of the results from the sales side, the charts can be accessed via the database at https://charts.equityclock.com/u-s-wholesale-trade-sales-and-inventories

Wholesale Sales  Seasonal Chart

Monthly Wholesale Sales  Data

Wholesale Sales Seasonal Chart

Wholesale Inventories Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.17.

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

Commerce Bancshares, Inc. (CBSH) Seasonal Chart Delta Air Lines, Inc. (DAL) Seasonal Chart EXFO Inc (EXFO) Seasonal Chart Walgreens Boots Alliance, Inc. (WBA) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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