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Stock Market Outlook for December 18, 2018


Trying to focus on the positives in this gloomy market.

 

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:

Richelieu Hardware Ltd. (TSE:RCH) Seasonal Chart

Richelieu Hardware Ltd. (TSE:RCH) Seasonal Chart

Westport Innovations Inc. (TSE:WPRT) Seasonal Chart

Westport Innovations Inc. (TSE:WPRT) Seasonal Chart

Dorel Industries, Inc.  (TSE:DII.B) Seasonal Chart

Dorel Industries, Inc. (TSE:DII.B) Seasonal Chart

Schlumberger Limited  (NYSE:SLB) Seasonal Chart

Schlumberger Limited (NYSE:SLB) Seasonal Chart

Denbury Resources Inc.  (NYSE:DNR) Seasonal Chart

Denbury Resources Inc. (NYSE:DNR) Seasonal Chart

Dorel Industries, Inc.  (TSE:DII.B) Seasonal Chart

Dorel Industries, Inc. (TSE:DII.B) Seasonal Chart

Boralex (TSE:BLX) Seasonal Chart

Boralex (TSE:BLX) Seasonal Chart

Central Garden & Pet Co. (NASD:CENT) Seasonal Chart

Central Garden & Pet Co. (NASD:CENT) Seasonal Chart

Hess Corp.  (NYSE:HES) Seasonal Chart

Hess Corp. (NYSE:HES) Seasonal Chart

 

 

The Markets

Tough day for equity markets as investors aggressively sold stocks amidst ongoing global growth concerns.  The S&P 500 Index dropped by 2.08%, testing the lows charted in February at 2532.  Increasingly, damage amongst the charts is being realized.  But while the technicals look threatening, particularly with the February lows at risk, let’s try to look at the positives.  Investor sentiment has soured significantly in the present quarter as bears increasingly make their voice head in major media.  The New York Times published two downbeat articles on the stock market over the weekend, including one in the style section, of all places.  The American Association of Individual Investors indicated that its sentiment survey showed the most pessimistic result since April of 2013 with almost half (48.9%) declaring themselves bearish of of the market over the next six months.  And we indicated in our last report that 30 of the past 50 sessions have seen bearish put-call readings of greater than 1.  If you’re wondering what is has to do with trying to identify the positives, well typically these pessimistic extremes have provided excellent buying opportunities; when others are fearful, it is best to be opportunistic.

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One of the scenarios that we were looking, and somewhat hoping, would play out is the prospect of an ABC correction.  The market saw this at the start of the year where the first leg lower in January and February account for the A wave of the pattern, followed by the B rebound attempt that saw a move higher into March, and then a retest of the lows into the month of April accounts for the C portion of the setup.  Once these corrective pattern is complete, stocks will often gain a footing and at least find a new trading range from the C low.  Putting the pattern into the current context of the market, the A wave was clearly in the month of October, the B rebound attempt, while messy, was completed by the end of November and we are now within the C wave.  When the C wave is complete, it should be safe to re-enter stocks, at least for the short-term.  The pattern suggests that the upside reward over say the next 30 days outweigh the risks.

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As of the close on Monday, only 16% of stocks on the S&P 500 Index were trading above their 50-day moving averages.  Typically, when this indicator bottoms below 20, tradable lows have followed.  As stocks become stretched from this important intermediate technical hurdle, stocks will often revert to the mean, correcting the stretched condition.  Similarly, in another contrarian indicator, when the number new 52-week lows on the NYSE spikes to 500 or more, tradable lows have typically followed.  This indicators closed at 499 on Monday, down by 118 from the day prior.

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The last half of December is typically the strongest time of year for stocks with the S&P 500 Index gaining 1.6%, on average, and showing positive results in 78% of the past 50 periods.  While traders remain handcuffed to the headlines, the negative sentiment typically fades as the end of year holidays near, possibly alleviating this overhang, at least temporarily.

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.37.  This is the second highest level of the year, falling only behind the March 23rd high of 1.54.  As you might have guessed, extremes, such as this, have typically provided excellent buying opportunities.

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Seasonal charts of companies reporting earnings today:

AAR Corp. (AIR) Seasonal Chart ABM Industries Incorporated (ABM) Seasonal Chart Darden Restaurants, Inc. (DRI) Seasonal Chart FactSet Research Systems Inc. (FDS) Seasonal Chart FedEx Corporation (FDX) Seasonal Chart Jabil Inc. (JBL) Seasonal Chart Micron Technology, Inc. (MU) Seasonal Chart Navistar International Corporation (NAV) Seasonal Chart Steelcase Inc. (SCS) Seasonal Chart  Worthington Industries, Inc. (WOR) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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