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Stock Market Outlook for November 21, 2018

Price of oil gapping below support at $55 as the “OPEC-cut” rally unwinds.

 

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:

Brooks - PRI Automation, Inc. (NASD:BRKS) Seasonal Chart

Brooks – PRI Automation, Inc. (NASD:BRKS) Seasonal Chart

Brinker Intl, Inc. (NYSE:EAT) Seasonal Chart

Brinker Intl, Inc. (NYSE:EAT) Seasonal Chart

World Wrestling Entertainment, Inc. (NYSE:WWE) Seasonal Chart

World Wrestling Entertainment, Inc. (NYSE:WWE) Seasonal Chart

KeyCorp  (NYSE:KEY) Seasonal Chart

KeyCorp (NYSE:KEY) Seasonal Chart

Darling Ingredients Inc. (NYSE:DAR) Seasonal Chart

Darling Ingredients Inc. (NYSE:DAR) Seasonal Chart

SIR Royalty Income Fund (TSE:SRV-UN) Seasonal Chart

SIR Royalty Income Fund (TSE:SRV-UN) Seasonal Chart

CVS Caremark Corporation  (NYSE:CVS) Seasonal Chart

CVS Caremark Corporation (NYSE:CVS) Seasonal Chart

Norbord Inc (TSE:OSB) Seasonal Chart

Norbord Inc (TSE:OSB) Seasonal Chart

 

Upcoming BNN Appearance:

I will be on BNN’s Market Call Tonight at 6:00pm ET this Friday, November 23rd taking your calls on Technical Analysis and Seasonal Investing.  CALL TOLL-FREE 1-855-326-6266,  EMAIL marketcall@bnnbloomberg.ca,  or TWEET @MarketCall.

 

 

The Markets

Stocks continued to weaken on Tuesday as investor shed risk ahead of the Thanksgiving holiday.  The S&P 500 Index dropped by 1.8%, opening a gap around previously highlighted support around 2685.  The gap lower below support, combined with a bearish crossover with respect to the 12,26,9 daily MACD oscillator provides a fairly powerful technical sell signal.  For seasonal investors, this will cause a significant dilemma given that the broader equity market is within a very strong time of year with the US Thanksgiving and the month of December ahead.  A big range of support is directly below between 2500 and 2600, an area that the benchmark has held during each selloff since the year began.  Resistance is now the previous level support around 2685.

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Weighing on the market were shares of energy stocks as the price of oil took another leg lower.  Oil, as gauged by WTI Crude, broke below support at $55, violating a significant pivot point that price has reacted to in the past few years.  The move provides a significant warning sign for the strength of the manufacturing economy, which if you recall took a significant hit following the downfall in oil prices in 2014 and 2015.  The S&P 500 Energy Sector Index has been bound by a trading range between 475 and 575, a violation of which would project a 100-point move in the direction of the break.  Seasonally, oil prices and the energy sector remain in a period of weakness through the start of December.

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Energy Sector Seasonal Chart

ENERGY Relative to the S&P 500
ENERGY Relative to the S&P 500

ENERGY Monthly Averages

A look to the activity in the Canadian market may be sending a powerful signal of its own pertaining to the energy sector.  Preferred shares have charted a parabolic move lower over the past month and a half, recording a major topping pattern.  Earlier in the year, analysts had forecasted great things for preferred stocks given the rising rate environment, but that call appears to have backfired in a big way as investors question the creditworthiness of those companies with exposure to the crumbling price of oil.  Significant tops in the S&P/TSX Preferred share index have preceded the 2008, 2015, and now the 2018 market declines, providing a warning signal for the growth prospects of the country, and the broader global economy overall.

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On the economic front, a report on housing starts was released before Tuesday’s opening bell.  The headline print indicated that starts increased by 1.5% to a seasonally adjusted annual rate of 1.228 million.  Analysts were expecting a rate of 1.24 million.  Stripping out the seasonal adjustments, housing starts actually increased by 0.4%, which is a positive divergence compared to the 0.7% decline that is average for this time of year.  The year-to-date increase now sits at 31.8%, which is just marginally above the seasonal average change of 31.0% by the end of October.  Parsing the regions, the north-east and south are trending inline with their seasonal average trends, while the midwest is jumping firmly above it.  The west, meanwhile, is trending below its seasonal norm.  There is only slight evidence of a hurricane snap-back following the significant dip in starts in the south during the month of September.  As for the gauges of future activity, permits are trending inline with their seasonal average trend, higher by 18.7% through the end of October.  But while builders are holding steady with permit activity, they appear to be stockpiling these plots of land on which to build.  The change in the level of of housing units authorized but not started is trending well above average.  A similar trend was apparent last year, but while back then it appeared that builders were preparing for the potential tailwind created by the pending tax cuts, a similar setup is not apparent this year.  Given that sales have not picked up to the magnitude that builders were expecting in this new tax era, completions are starting to wane.  Completions had been trending inline with its seasonal average trend, but it is now falling below this norm.  Seasonally, starts continue to decline into the colder winter months, then snap back in the spring as the home buying season gets underway.  The charts have been uploaded to the database at https://charts.equityclock.com/u-s-housing-starts.

Housing Starts Seasonal Chart

Monthly Housing Starts Data

Sentiment on Tuesday, as gauged by the put-call ratio, ended slightly bullish at 0.93.  Investors were clearly not concerned by Tuesday’s broad market decline, choosing to bet on upside calls as opposed to protective puts.

 

 

 

Seasonal charts of companies reporting earnings today:

AstroNova, Inc. (ALOT) Seasonal Chart  Deere & Company (DE) Seasonal Chart  Sociedad Quimica y Minera S.A. (SQM) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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