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Stock Market Outlook for October 25, 2018

Risks of a longer-term double top increasing as the benchmark moves back to the lower limit of its massive trading range.

 

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:

Telefonica Brasil SA (NYSE:VIV) Seasonal Chart

Telefonica Brasil SA (NYSE:VIV) Seasonal Chart

BioMarin Pharmaceutical, Inc. (NASD:BMRN) Seasonal Chart

BioMarin Pharmaceutical, Inc. (NASD:BMRN) Seasonal Chart

Regal-Beloit Corp. (NYSE:RBC) Seasonal Chart

Regal-Beloit Corp. (NYSE:RBC) Seasonal Chart

DSP Group, Inc. (NASD:DSPG) Seasonal Chart

DSP Group, Inc. (NASD:DSPG) Seasonal Chart

Radware Ltd. (NASD:RDWR) Seasonal Chart

Radware Ltd. (NASD:RDWR) Seasonal Chart

 

 

The Markets

Brutal day for stocks as the selloff in broad equity benchmarks continues.  The S&P 500 Index dropped by over 3%, continuing to move firmly below its 200-day moving average.  The gap that was opened during Tuesday’s session quickly rejected any rebound attempt, leading to the meltdown that was fuelled by cyclical sectors.  This is clearly is a market that is struggling to hold levels of support.  The benchmark shot through psychological  support round 2700 and now the next level to watch is the February and April closing lows around 2575.  Losses below this hurdle raises the spectre of a longer-term double-top pattern, which could see a substantial retracement of the Trump rally if completed.  Despite this rather gloomy outlook and reasons to be seriously concerned of equities, a significant test of levels of resistance overhead is still required to confirm that the trend of the market has shifted from a tend of higher-highs and higher-lows to a trend of lower-lows and lower-highs.  The market rarely changes direction on a dime without a significant and abrupt fundamental shift, which arguably has not been achieved.  Entering into the favourable period for the broad equity market between the end of October and the beginning of May, this is still a market that looks reasonable to buy on the dip, but, as alluded to in a previous report, the sustainability of the best six month trend for stocks warrants scrutiny.  Within the Seasonal Advantage Portfolio that we manage with CastleMoore, we continue to look for opportunities to put our substantial cash hoard to work.  Looking to gain exposure to the portfolio?  Email us at seasonalportfolio@equityclock.com.

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For Canadian investors, the prospect of a long-term double-top is much more apparent.  The benchmark struggled to achieve new highs above 16,400 back in July and now the lower limit of the massive trading range is being tested.  A break below 14,900 has calculated downside implications of an additional 1,500 points below this level of support.  This would present a 61.8% retracement, a key Fibonacci level, of the early 2016 to mid 2018 move.  For now, support is support until it is not.  Seasonally, the TSX follows the same seasonal pattern as other developed markets around the globe, moving higher between the end of October and the beginning of May.

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On the economic front, another very weak report on the housing market as new home sales plunged in the month of September.  The headline print indicated that new home sales fell by 5.5% to a seasonally adjusted annual rate of 553,000.  The consensus estimate was for a rate of 625,000.  Analysts would have to look back to December of 2016 to find a pace that is weaker.  Stripping out the seasonal adjustments, sales of new homes sold actually fell by 10.9%, which is well below the 6.5% decline that is average for September.  The result puts the year-to-date change at –8.9%, which is the weakest performance through the first three quarters since 2008.  As highlighted in a recent analysis of the housing market, our snowball size concern pertaining to the housing market is now basketball size.  The months of supply of new homes sits at 7.1, which places this end of the market squarely in the characterization of being a buyers market where those looking to purchase now have increasing power to negotiate.  The median price of new homes sold is down by 6.8% year-to-date, which is well below the 1.5% gain that is average through this point in the year.  Housing has typically been a leading indicator of economic recessions and if the data continues in the manner that it has, an economic downturn may soon be on the horizon.  Seasonally, new home sales continue to decline through the last quarter of the year.

New Home Sales Seasonal Chart

Monthly New Home Sales Data

New Home Sales Seasonal Chart

New Home Sales - Not Started Seasonal Chart New Home Sales - Under Construction  Seasonal Chart New Home Sales - Completed Seasonal Chart Median Sales Price for New Houses Sold Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.29.

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Seasonal charts of companies reporting earnings today:

AK Steel Holding Corporation (AKS) Seasonal Chart Alaska Air Group, Inc. (ALK) Seasonal Chart Alphabet Inc. (GOOGL) Seasonal Chart Altria Group (MO) Seasonal Chart Amazon.com, Inc. (AMZN) Seasonal Chart Ambev S.A. (ABEV) Seasonal Chart American Airlines Group, Inc. (AAL) Seasonal Chart American Electric Power Company, Inc. (AEP) Seasonal Chart Anheuser-Busch Inbev SA (BUD) Seasonal Chart Bemis Company, Inc. (BMS) Seasonal Chart BorgWarner Inc. (BWA) Seasonal Chart Boston Beer Company, Inc. (The) (SAM) Seasonal Chart Boyd Gaming Corporation (BYD) Seasonal Chart Bristol-Myers Squibb Company (BMY) Seasonal Chart Brunswick Corporation (BC) Seasonal Chart Camden Property Trust (CPT) Seasonal Chart Canon, Inc. (CAJ) Seasonal Chart Carter's, Inc. (CRI) Seasonal Chart Celgene Corporation (CELG) Seasonal Chart Century Aluminum Company (CENX) Seasonal Chart Cerner Corporation (CERN) Seasonal Chart Chipotle Mexican Grill, Inc. (CMG) Seasonal Chart CME Group Inc. (CME) Seasonal Chart Coca-Cola European Partners plc (CCE) Seasonal Chart Comcast Corporation (CMCSA) Seasonal Chart Commercial Metals Company (CMC) Seasonal Chart ConocoPhillips (COP) Seasonal Chart Discover Financial Services (DFS) Seasonal Chart Eastman Chemical Company (EMN) Seasonal Chart Eldorado Gold Corporation (EGO) Seasonal Chart Gilead Sciences, Inc. (GILD) Seasonal Chart Hershey Company (The) (HSY) Seasonal Chart Imax Corporation (IMAX) Seasonal Chart Intel Corporation (INTC) Seasonal Chart International Paper Company (IP) Seasonal Chart Iron Mountain Incorporated (IRM) Seasonal Chart Leggett & Platt, Incorporated (LEG) Seasonal Chart Marsh & McLennan Companies, Inc. (MMC) Seasonal Chart Mattel, Inc. (MAT) Seasonal Chart McKesson Corporation (MCK) Seasonal Chart Merck & Company, Inc. (MRK) Seasonal Chart Merit Medical Systems, Inc. (MMSI) Seasonal Chart National Oilwell Varco, Inc. (NOV) Seasonal Chart Newmont Mining Corporation (NEM) Seasonal Chart Old Dominion Freight Line, Inc. (ODFL) Seasonal Chart Precision Drilling Corporation (PDS) Seasonal Chart Raytheon Company (RTN) Seasonal Chart Republic Services, Inc. (RSG) Seasonal Chart Royal Caribbean Cruises Ltd. (RCL) Seasonal Chart Scana Corporation (SCG) Seasonal Chart Shaw Communications Inc. (SJR) Seasonal Chart Sherwin-Williams Company (The) (SHW) Seasonal Chart   Southwest Airlines Company (LUV) Seasonal Chart Stanley Black & Decker, Inc. (SWK) Seasonal Chart Stryker Corporation (SYK) Seasonal Chart Teck Resources Ltd (TECK) Seasonal Chart Union Pacific Corporation (UNP) Seasonal Chart Valero Energy Corporation (VLO) Seasonal Chart Waste Management, Inc. (WM) Seasonal Chart Western Digital Corporation (WDC) Seasonal Chart Xcel Energy Inc. (XEL) Seasonal Chart Yamana Gold Inc. (AUY) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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