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Stock Market Outlook for December 17, 2018


Put-call ratio has spent 30 of the past 50 sessions in bearish territory, historically a contrarian buy signal for short-term gains.

 

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:

Chemtrade Logistics Income Fund (TSE:CHE.UN) Seasonal Chart

Chemtrade Logistics Income Fund (TSE:CHE.UN) Seasonal Chart

Papa John's Int'l, Inc.  (NASDAQ:PZZA) Seasonal Chart

Papa John’s Int’l, Inc. (NASDAQ:PZZA) Seasonal Chart

Raytheon Company  (NYSE:RTN) Seasonal Chart

Raytheon Company (NYSE:RTN) Seasonal Chart

Africa Oil (TSE:AOI) Seasonal Chart

Africa Oil (TSE:AOI) Seasonal Chart

NCR Corp. (NYSE:NCR) Seasonal Chart

NCR Corp. (NYSE:NCR) Seasonal Chart

Henry Schein, Inc. (NASD:HSIC) Seasonal Chart

Henry Schein, Inc. (NASD:HSIC) Seasonal Chart

Westpac Banking Corporation (ADR) (NYSE:WBK) Seasonal Chart

Westpac Banking Corporation (ADR) (NYSE:WBK) Seasonal Chart

BHP Billiton Limited (ADR) (NYSE:BHP) Seasonal Chart

BHP Billiton Limited (ADR) (NYSE:BHP) Seasonal Chart

Canaccord Financial (TSE:CF) Seasonal Chart

Canaccord Financial (TSE:CF) Seasonal Chart

Nordstrom, Inc.  (NYSE:JWN) Seasonal Chart

Nordstrom, Inc. (NYSE:JWN) Seasonal Chart

 

 

The Markets

Stocks sold off on Friday amidst renewed global growth concerns following downbeat data out of China and Europe.  The S&P 500 Index fell by 1.9%, taking out the 2630 level of support highlighted in recent days.  The benchmark closed at psychological support of 2,600, in what may provide the last glimmer of hope to the bull camp.  The hourly chart shows the significance of this round figure that is now under threat.  The intraday plunge lows from Monday at 2583 also marks the closing lows from the start of the year, presenting a critical line in the sand that is increasingly being threatened as markets remain in this intermediate slide.  Seasonally, the back half of the month is typically one of the strongest times of the year for stocks, so while we can’t dismiss the possibility of an ideal contrarian buy signal given the pessimism that is flourishing in the market, a certain amount of caution remains warranted.

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On the economic front, a report on US retail trade indicated that the consumer was out and spending in November as they prepare for the end of year holidays. The headline print indicated that retail sales increased by 0.2% last month, marginally beating the 0.1% increase forecasted by analysts. Less the more volatile components of autos and gas, the increase in the month was 0.5%, also edging past estimates that called for a 0.4% rise. Stripping out the seasonal adjustments, total retail trade actually increased by 4.4%, which is more than double the 2.0% increase that is average for the second to last month of the year. The year-to-date change is now running 4.5% above the seasonal average trend. This is the best performance in over 20 years, a testament to the strength of the consumer in this new tax era.  Subscribers to our service were given greater insight as to what is driving the numbers and why the report is not free of concern.  To subscribe, visit the following link: https://charts.equityclock.com/subscribe

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

It’s not just the consumer that is supporting the economy, as evidenced by this morning’s report on retail sales, producers in the US are also acting as fuel for US economic activity. The headline print for November’s report on Industrial Production indicated that activity increased by 0.6% last month, double the 0.3% increase that was forecast by analysts. The manufacturing component was unchanged, missing the consensus analyst estimate that called for a 0.2% increase. Stripping out the seasonal adjustments, total industrial production was essentially unchanged in November, which is better than the 0.8% decline that is average in this second to last month of the year. The result puts the year-to-date change 1.9% above the seasonal average trend, which is the best performance since 2014. The manufacturing category is running 0.5% above average, which is the best performance since 2010, when the economy was emerging from the last recession. Whether looking at business or the consumer, the US economy is strong, showing no impact, as of yet, from slowing conditions around the globe or the threats imposed by the ongoing trade war.  Subscribers to our service also received an intraday update on this important read of the manufacturing economy in the US.

Industrial Production: Total Seasonal Chart

Monthly Industrial Production: Total Data

And finally for today, a report on business sales and inventories reiterated the strength in sales, but it also highlighted the fact that inventories are similarly showing above average growth.  The year-to-date change in business sales is running 3.6% above average through the end of October, which is the best performance since 2007.  Inventories, meanwhile, are running 1.0% above average through the end of October, which is the strongest performance since 2012.  Inventory growth is often a sign of optimism that businesses will be able to sell these goods going forward, however, should demand fail to match supply then these businesses have a problem.  We saw this situation leading into the last recession when a number of years of above average inventory growth was met with varied sales results.  The calendar year 2007 saw strong sales growth but this was merely a snap-back from weak results seen in the year prior.  Obviously, sales continued to show poor performance into 2008 and 2009.  The economy is not yet in the same predicament as what was observed prior to the last recession, but it could get that way if inventories continue to grow and sales fall off.  You can view how the growth in sales and inventories relates to manufacturers, wholesalers, and retailers via the charts in the database at https://charts.equityclock.com/u-s-business-inventories-and-sales

Total Business Sales Seasonal Chart

Total Business Inventories Seasonal Chart

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.13.  Over the past 50 sessions, there have been 30 instances when this sentiment gauge has closed bearish above 1.  Similar instances over the past 20 years have seen gains for the S&P 500 Index in the 30 and 60 day period that followed with returns averaging 1.85% and 3.83%, respectively.  Beyond that, 90 days out, the short covering rally that followed the overly bearish sentiment turns back into losses with the large-cap index shedding 5.50%, on average.

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Seasonal charts of companies reporting earnings today:

Champions Oncology, Inc. (CSBR) Seasonal Chart Heico Corporation (HEI) Seasonal Chart Oracle Corporation (ORCL) Seasonal Chart Red Hat, Inc. (RHT) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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