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Stock Market Outlook for October 22, 2018

Housing, a leading economic and equity market indicator, showing increasing signs of concern.

 

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:

Methanex Corporation  (TSE:MX) Seasonal Chart

Methanex Corporation (TSE:MX) Seasonal Chart

Comfort Systems U S A, Inc. (NYSE:FIX) Seasonal Chart

Comfort Systems U S A, Inc. (NYSE:FIX) Seasonal Chart

Middleby Corp. (NASD:MIDD) Seasonal Chart

Middleby Corp. (NASD:MIDD) Seasonal Chart

Avery Dennison Corp. (NYSE:AVY) Seasonal Chart

Avery Dennison Corp. (NYSE:AVY) Seasonal Chart

Graham Holdings Company (NYSE:GHC) Seasonal Chart

Graham Holdings Company (NYSE:GHC) Seasonal Chart

AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) Seasonal Chart

AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) Seasonal Chart

The Toro Company  (NYSE:TTC) Seasonal Chart

The Toro Company (NYSE:TTC) Seasonal Chart

Western Digital Corp.  (NYSE:WDC) Seasonal Chart

Western Digital Corp. (NYSE:WDC) Seasonal Chart

PACCAR Inc  (NASDAQ:PCAR) Seasonal Chart

PACCAR Inc (NASDAQ:PCAR) Seasonal Chart

NCI Building Sys, Inc. (NYSE:NCS) Seasonal Chart

NCI Building Sys, Inc. (NYSE:NCS) Seasonal Chart

Rockwell Automation  (NYSE:ROK) Seasonal Chart

Rockwell Automation (NYSE:ROK) Seasonal Chart

West Pharmaceutical Services (NYSE:WST) Seasonal Chart

West Pharmaceutical Services (NYSE:WST) Seasonal Chart

 

 

The Markets

Stocks traded in and out of negative territory on Friday as investor uncertainty continued to dominate market activity.  The S&P 500 Index closed down by 0.04%, holding within a point of the 200-day moving average at 2768.  The market saw a push and pull between cyclical and defensive bets as consumer staples and utilities gained over one percent on the day, while energy, industrials, and materials closed firmly in the red.  For the week, the large-cap benchmark did manage to punch out a slight gain, holding support at the rising 50-week moving average, the level that the benchmark bounced from earlier in the year.  But what makes this recent decline different than the one recorded in January and February is that back then momentum indicators were overbought,thereby exhausting buying pressures, while this time around momentum indicators failed to reach an overbought state.  This has created a negative momentum divergence with respect to RSI and MACD, suggesting that despite seeing higher-highs above the January peak, buying pressures have faded.  These momentum divergences present warning for the intermediate direction of stocks, particularly if the 50-week moving average is significantly violated.  The defensive shift in the market is certainly not encouraging for risk-taking going into the period of seasonal strength for cyclical stocks between the end of October and the beginning of May.

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On the economic front, a report on existing home sales showed reason for increasing concern pertaining to the housing market.  The headline print indicated that sales of existing homes fell by 3.4% in September to a seasonally adjusted annual rate of 5.15 million.  Analysts were expecting a rate of 5.3 million.  Stripping out the seasonal adjustments, existing home sales actually fell by 22.1% last month, which is much weaker than the 14.9% decline that is average for this time of year.  The year-to-date change has now dipped into negative territory, sitting 11.2% below average through the first three quarters of the year.  This is the weakest performance since 2010.  Parsing the regions, the weakness was equally spread.  The northeast, south, west, and mid-west are all showing below average trends in 2018 with two of the four regions (the south and west) showing a contraction year-to-date.  We have been hinting of troubles in the housing market for the past few months, potentially an area that could snowball into something larger and take a toll on the broader economy.  Well that snow ball is nearing basketball size, which is making it increasingly difficult to slow the momentum that continues to build behind it.  Recall previously, it was not the pace of sales that was of immediate concern, but rather the level of inventories, which is showing gains that are well above average this year.  Inventories are trending 15.6% above average through the three quarters ending in September as potential buyers are priced out of the market following many years of above average price gains.  With inventories elevated, the price momentum is starting to wane.  The median price of existing homes sold is hovering 0.9% above the seasonal average trend, which is well off of the 3.3% above average gain seen in the spring.  Weakness in the housing market typically makes its presence felt in inventories, then flows over to prices, and eventually sales take a hit, often leading periods of economic strain and equity market weakness.  Seasonally, sales, inventories, and prices tend to decline through the back half of the year.

Existing Home Sales Seasonal Chart

Monthly Existing Home Sales Data

Existing Home Sales Seasonal Chart

Existing Home Sales - Northeast Seasonal Chart Existing Home Sales - Midwest Seasonal Chart Existing Home Sales - West Seasonal Chart Existing Home Sales - South Seasonal Chart

Inventory of Existing Homes for Sale Seasonal Chart

Inventory of Existing Homes for Sale Seasonal Chart

Median Sales Price of Existing Homes Seasonal Chart

North of the border, consumer price data for the month of September was released for the opening bell.  Statscan indicated that the Canadian Consumer Price Index fell by 0.4% last month, a negative divergence compared to the 0.1% increase that is average for September.  The result has significantly depressed the year-to-date change of the inflation gauge, which is now just a tenth of a percent above the seasonal average trend.  A substantial plunge in air transportation prices was behind the decline in the headline result.  Prices in the category had surged well above average in July, but as the summer travel season came to an end, so too did the high prices.  Rental car prices also did the same.  Aside from the summer swing in the transportation category, there was very little change from the trends that have been apparent throughout the year.  A broad set of categories are showing above average growth, the result of rising interest rates, higher commodity prices, and increases to the minimum wage of workers.  Seasonally, CPI tends to decline through the last quarter of the year as energy commodity prices trade lower following the high demand summer period.  For a breakdown of the results, the charts are available in the database at https://charts.equityclock.com/canada-consumer-price-index-cpi.

Canada CPI - All-items Seasonal Chart

Monthly Canada CPI - All-items Data

Also released by Statscan was a report on retail trade for the month of August.  The headline print indicated that retail sales fell by 0.1% in the month, missing estimates calling for a 0.4% rise.  Stripping out the seasonal adjustments, retail sales actually increased by 2.2% in the summer month, which is a positive divergence compared to the 0.9% decline that is average for this time of year.  The year-to-date pace is inline with last year’s result, which is 7.5% above the seasonal average trend.  Increased activity was seen almost across the board in September, including a very rare increase in motor vehicle sales.  Big ticket items continue to stand out in the results, including furniture, electronics, and  building materials, which are all growing firmly above average.  Consumers are also showing healthy activity at liquor, health, apparel, and jewellery stores, representing a broad swath of retail activity.  While the consumer in Canada remains willing to spend, there are questions as to how long this trend is sustainable given rising mortgage interest costs, increasing commodity prices, and below average growth in those that are unemployed.  The Canadian economy is increasingly becoming vulnerable as activity is drawn into the US following recent tax cuts.  The important gauge of the strength of the consumer may be ahead with the Christmas shopping season, which showed weaker than average growth last year.  With the year-to-date trend this year very similar to last year’s result, a similar outcome through the critical shopping period should probably be expected.  For a breakdown of the results, the charts are available in the database at https://charts.equityclock.com/canada-retail-trade-sales.

Retail trade Seasonal Chart

Monthly Retail trade Data

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.14.

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Seasonal charts of companies reporting earnings today:

Agree Realty Corporation (ADC) Seasonal Chart American Campus Communities Inc (ACC) Seasonal Chart Bank of Hawaii Corporation (BOH) Seasonal Chart Brown & Brown, Inc. (BRO) Seasonal Chart  Crane Co. (CR) Seasonal Chart Halliburton Company (HAL) Seasonal Chart Hasbro, Inc. (HAS) Seasonal Chart Hexcel Corporation (HXL) Seasonal Chart Kimberly-Clark Corporation (KMB) Seasonal Chart Lennox International, Inc. (LII) Seasonal Chart Logitech International S.A. (LOGI) Seasonal Chart Old National Bancorp (ONB) Seasonal Chart PetMed Express, Inc. (PETS) Seasonal Chart Polaris Industries Inc. (PII) Seasonal Chart Scorpio Bulkers Inc. (SALT) Seasonal Chart SLM Corporation (SLM) Seasonal Chart TD Ameritrade Holding Corporation (AMTD) Seasonal Chart Zions Bancorporation N.A. (ZION) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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