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Stock Market Outlook for December 5, 2018

Yield on the 10-year treasury note breaking below a rising wedge pattern.

 

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:

Detour Gold (TSE:DGC) Seasonal Chart

Detour Gold (TSE:DGC) Seasonal Chart

Cominar REIT (TSE:CUF-UN) Seasonal Chart

Cominar REIT (TSE:CUF-UN) Seasonal Chart

Public Service Enterprise (NYSE:PEG) Seasonal Chart

Public Service Enterprise (NYSE:PEG) Seasonal Chart

Ritchie Bros. Auctioneers Inc. (NYSE:RBA) Seasonal Chart

Ritchie Bros. Auctioneers Inc. (NYSE:RBA) Seasonal Chart

Barrick Gold Corp.  (TSE:ABX) Seasonal Chart

Barrick Gold Corp. (TSE:ABX) Seasonal Chart

Wajax (TSE:WJX) Seasonal Chart

Wajax (TSE:WJX) Seasonal Chart

Quebecor, Inc. (TSE:QBR.B) Seasonal Chart

Quebecor, Inc. (TSE:QBR.B) Seasonal Chart

Essential Energy Services (TSE:ESN) Seasonal Chart

Essential Energy Services (TSE:ESN) Seasonal Chart

Geodrill Ltd. (TSE:GEO) Seasonal Chart

Geodrill Ltd. (TSE:GEO) Seasonal Chart

Apache Corporation  (NYSE:APA) Seasonal Chart

Apache Corporation (NYSE:APA) Seasonal Chart

 

 

The Markets

Brutal day for stocks as the bears retook control of the equity markets.  Major equity benchmarks in the US shed over 3% during the session, breaking back below their 20, 50, and 200-day moving averages.  The S&P 500 Index is now back to the gap from which the short-covering rally in the last few days of November began.  This range between 2685 and 2700 is an important line in the sand, a violation of which puts the October lows in doubt.

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Risk was definitively shed on Wednesday with industrials and financials leading the downfall.  Meanwhile, bonds and some bond proxies, such as utilities, closed higher, emphasizing the defensive shift.  This risk aversion sets a bad tone for the market, particularly at a point where the bears have now had an opportunity to reload of short allocations given the recent rebound in stocks over the past week.  Seasonally, we are in the time of year when investors execute sales for tax purposes and, with cyclical sectors predominantly lower year-to-date, there are plenty of areas of the equity market to enact tax loss selling.  This tendency could keep the market under pressure over the near-term, but that could setup for an appealing entry point to the Santa Claus rally period that dominates in the last half of December.

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With bonds gaining on the day, the yield on the 10-year treasury note moved lower on the session, falling below its rising 200-day moving average for the first time in a year.  Yields had been trading within a rising wedge pattern for the past couple of years, but, with Tuesday’s move, a breakdown in this negative setup (negative for yields, positive for prices) was realized.  The technical setup suggests a retracement all the way back to where the pattern started, although textbook and reality don’t always match.  Looking for levels of significance that yields could retrace to, the 2.75% level stands out given the previous level of trendline resistance.  Below this 2.4% to 2.6% presents a massive range of congestion, levels that if attained would likely see an inversion of the yield curve.  The spread between the 2’s and 10’s is down to around a tenth of a percent, which has fuelled conversation pertaining to an early recession indicator.  We note the past two instances when the yield curve first inverted ahead of a recession.  While the initial inversion led the ultimate peak in the market and the economy by about a year and a half, a negative reaction in the equity market was certainly apparent in the shorter-term, covering a span of 7% to 19%.  These shorter-term corrections provided appealing buying opportunities to get in for the final leg of the bull market run, which has historically been one of the best times to be in stocks.

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Sentiment on Tuesday, as gauged by the put-call ratio, ended slightly bullish at 0.95.

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Sectors and Industries entering their period of seasonal strength:

iShares S&P/TSX Capped 
REIT Index ETF (TSE:XRE) Seasonality

XRE.TO Relative to the S&P 500
XRE.TO Relative to the S&P 500

Monthly Seasonal iShares S&P/TSX Capped 
REIT Index ETF (TSE:XRE)

 

 

Seasonal charts of companies reporting earnings today:

American Eagle Outfitters, Inc. (AEO) Seasonal Chart Brown Forman Corporation (BF.B) Seasonal Chart  Five Below, Inc. (FIVE) Seasonal Chart G-III Apparel Group, LTD. (GIII) Seasonal Chart Greif Bros. Corporation (GEF) Seasonal Chart H&R Block, Inc. (HRB) Seasonal Chart    Korn/Ferry International (KFY) Seasonal Chart Lands' End, Inc. (LE) Seasonal Chart lululemon athletica inc. (LULU) Seasonal Chart Momo Inc. (MOMO) Seasonal Chart   Synopsys, Inc. (SNPS) Seasonal Chart United Natural Foods, Inc. (UNFI) Seasonal Chart Verint Systems Inc. (VRNT) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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