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Stock Market Outlook for October 16, 2018

Technology sector within its average period of seasonal strength, but question marks remain from a technical perspective.

 

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:

West Fraser Timber Co. Ltd.  (TSE:WFT) Seasonal Chart

West Fraser Timber Co. Ltd. (TSE:WFT) Seasonal Chart

Vuzix Corp. (NASD:VUZI) Seasonal Chart

Vuzix Corp. (NASD:VUZI) Seasonal Chart

Audiovox Corp. (NASD:VOXX) Seasonal Chart

Audiovox Corp. (NASD:VOXX) Seasonal Chart

Northern Dynasty Minerals (TSE:NDM) Seasonal Chart

Northern Dynasty Minerals (TSE:NDM) Seasonal Chart

Dorel Industries, Inc.  (TSE:DII.B) Seasonal Chart

Dorel Industries, Inc. (TSE:DII.B) Seasonal Chart

Home Capital Group Inc (TSE:HCG) Seasonal Chart

Home Capital Group Inc (TSE:HCG) Seasonal Chart

Taiwan Semiconductor Mfg (NYSE:TSM) Seasonal Chart

Taiwan Semiconductor Mfg (NYSE:TSM) Seasonal Chart

Landmark Bancshares, Inc. (NASD:LARK) Seasonal Chart

Landmark Bancshares, Inc. (NASD:LARK) Seasonal Chart

 

 

The Markets

Stocks gyrated on either side of the flatline on Monday as the market attempts to form a footing following last week’s selloff.  The S&P 500 Index shed almost six-tenths of one percent, trading lower from its 200-day moving average.  Momentum indicators are attempting to rebound from oversold levels, but the damage caused by last week’s waterfall decline has investors staying to the sidelines until evidence of a tradable low materializes. Defensive sectors of consumer staples, utilities, and REITS managed to buck the losses on the day as technology stocks continued to weigh.  Seasonally, the average start to the period of seasonal strength in the Technology sector is around the beginning of October, however, at this mid-point to the month there are still questions as to whether it is now appropriate to step in.  One of the question marks is the performance of the sector relative to the broader market, which has been rolling over for the past few months.  Since the middle of July, the S&P 500 Technology Sector Index has underperformed the S&P 500 Index and momentum indicators have negatively diverged from price.  The sector continues to tick the box from a fundamental perspective, suggesting that the sluggish technical results could be temporary and a reinvigoration of the sector momentum could be near, particularly as portfolio managers chase performance into the end of the year.  In the Seasonal Advantage Portfolio that we manage at CastleMoore, we took profits in the technology sector in July, respecting the rollover in technical indicators.  Sector opportunities are now being sought.  To learn more about how to gain exposure to the portfolio that we manage, email us at seasonalportfolio@equityclock.com or visit  http://www.equityclock.com/About/Seasonal-Advantage-Portfolio/.

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Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500
TECHNOLOGY Relative to the S&P 500

TECHNOLOGY Monthly Averages

One of the factors that is maintaining the weakness in the broader market is the fact that so many stocks are below levels of support, as presented by major moving averages.  Almost 85% of stocks in the S&P 500 Index are below their 50-day moving averages; approximately 55% of stocks are below their 200-day moving averages.  These major moving averages that had once been supporting stocks and benchmarks are now in a position of resistance.  Historically, whenever there is less than 62.5% of stocks trading below their 200-day moving averages, weakness and volatility typically persists.  The market is still fresh below these major hurdles, but any prolonged period of weakness would just further solidify the resistance overhead.  Over the short-term, however, the low level of the percentage of stocks trading above 50-day moving averages is consistent with trading lows, which could result in a healthy retracement ahead.  Seasonally, the strongest period for stocks begins at the end of October, on average, running through to the start of May.

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On the economic front, a report on retail sales was released before Monday’s opening bell.  The headline print indicated that sales increased by 0.1% in September, much weaker than the 0.6% increase forecasted by analysts.  Stripping out the seasonal adjustments, sales actually declined by 7.6% in the month, which is weaker than the 6.8% decline that is average for the month of September.  The year-to-date change now sits 0.8% above the seasonal average trend as electronics, furniture, clothing, and gasoline station sales support the aggregate result.  Auto sales continue to be the drag, now siting 7.7% below average through the first three quarters.  The spread with respect to the year-to-date and average trend on the chart of auto sales is gradually narrowing, suggesting the ongoing shift of sales away from the spring and into the end of the year as consumers take advantage of year-end deals.  Other categories weighing on September’s result, non-store retailers (aka. e-commerce) fell 5.9% in the month, diverging from the average gain of 0.4%.  The category typically doesn’t lag for long going into the last few months of the year as holiday spending fuels double-digit percentage increases in November and December.  The other category in the report that showed a weaker than average print for September was food services and drinking places, which fell by 7.2%.  The average decline in restaurant sales in this seasonal transition month is 5.3%. The trend in this discretionary category has been inline to below average through the first three quarters as spending battles with increasing burdens on consumer budgets, such as high gasoline prices, rising interest expenses, and increasing inflationary pressures.  Overall, the report continues to suggest strength in the consumer, despite some of the headwinds that are taking a toll.  The final months of the year remain setup well for strength as consumers open their wallets for holiday purchases.  For a breakdown of the results, the charts are available in the database at https://charts.equityclock.com/u-s-retail-trade-sales.

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

Elsewhere in the economy, a report from the New York Fed reiterated that manufacturing conditions in the US remain strong.  The headline print indicated that the general business conditions index increased to +21.1 in October from +19.0 previous.  Stripping out the seasonal adjustments, the index actually showed a print of +16.0, which is well above the +1.4 that is average for this time of year.  The index has been showing above average levels all year as the manufacturing economy flourishes.  Seasonally, this manufacturer sentiment gauge typically declines into the winter as activity shifts from producing to spending.

Empire State General Business Conditions Index Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended around neutral at 0.96.

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Seasonal charts of companies reporting earnings today:

ADTRAN, Inc. (ADTN) Seasonal Chart BlackRock, Inc. (BLK) Seasonal Chart Comerica Incorporated (CMA) Seasonal Chart Cree, Inc. (CREE) Seasonal Chart CSX Corporation (CSX) Seasonal Chart Del Taco Restaurants, Inc. (TACO) Seasonal Chart Domino's Pizza Inc (DPZ) Seasonal Chart First Horizon National Corporation (FHN) Seasonal Chart Fulton Financial Corporation (FULT) Seasonal Chart  Healthcare Services Group, Inc. (HCSG) Seasonal Chart Hope Bancorp, Inc. (HOPE) Seasonal Chart Infosys Limited (INFY) Seasonal Chart Interactive Brokers Group, Inc. (IBKR) Seasonal Chart International Business Machines Corporation (IBM) Seasonal Chart J.B. Hunt Transport Services, Inc. (JBHT) Seasonal Chart Johnson & Johnson (JNJ) Seasonal Chart Lam Research Corporation (LRCX) Seasonal Chart LegacyTexas Financial Group, Inc. (LTXB) Seasonal Chart Marten Transport, Ltd. (MRTN) Seasonal Chart Mercantile Bank Corporation (MBWM) Seasonal Chart Morgan Stanley (MS) Seasonal Chart Netflix, Inc. (NFLX) Seasonal Chart Omnicom Group Inc. (OMC) Seasonal Chart Pinnacle Financial Partners, Inc. (PNFP) Seasonal Chart Progressive Corporation (The) (PGR) Seasonal Chart Prologis, Inc. (PLD) Seasonal Chart United Community Financial Corp. (UCFC) Seasonal Chart United Continental Holdings, Inc. (UAL) Seasonal Chart United Financial Bancorp, Inc. (UBNK) Seasonal Chart UnitedHealth Group Incorporated (UNH) Seasonal Chart Universal Forest Products, Inc. (UFPI) Seasonal Chart W.W. Grainger, Inc. (GWW) 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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