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Stock Market Outlook for January 3, 2019


If history is a guide, rebound attempt from the recent low could last around 30 sessions before the ultimate low is confirmed.

 

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:

ADF Group, Inc. (TSE:DRX) Seasonal Chart

ADF Group, Inc. (TSE:DRX) Seasonal Chart

Ellington Financial LLC (NYSE:EFC) Seasonal Chart

Ellington Financial LLC (NYSE:EFC) Seasonal Chart

Darden Restaurants, Inc.  (NYSE:DRI) Seasonal Chart

Darden Restaurants, Inc. (NYSE:DRI) Seasonal Chart

Old Line Bancshares Inc. (NASD:OLBK) Seasonal Chart

Old Line Bancshares Inc. (NASD:OLBK) Seasonal Chart

Noble Energy, Inc.  (NYSE:NBL) Seasonal Chart

Noble Energy, Inc. (NYSE:NBL) Seasonal Chart

 

 

The Markets

Happy New Year! In our last look at the major equity indices before the Christmas break we were witnessing a market that was increasingly becoming oversold as tax loss selling and negative investor sentiment drove stocks to their lows of the year on Christmas Eve.  Stocks have since rebounded as end-of-year selling pressures have alleviated and investors search for value amidst the rubble.  The S&P 500 Index bounced from support at its 200-week moving average, as well as its 50-month moving average.  Referring to the monthly chart of the large-cap benchmark, the index is hovering around the mid-point between its 20 and 50-month moving averages, which are two important levels for the longer-term direction of stocks.  Looking back over history, you can see the precision with which the benchmark has held these levels during bull market runs, while the break of the lower limit of the 50-month has resulted in those waterfall plunges equivalent to the 2001/2002 and 2008/2009 declines.  The market has lost support at the 20-month moving average, implying that this level is now in a position of resistance.  Back in 2001 and 2008, resistance from this level provided indication of the more detrimental decline that followed.  As of present, the benchmark still has some room to confirm resistance at the 20-month, which sits at 2657.  It would not be surprising to see a retracement back to this zone, give or take a certain margin.  The 50-month moving average at 2338 still has much to prove as a level of support to the ongoing bull market trend in stocks.

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At the lows of the year on Christmas Eve, the percentage of stocks on the S&P 500 Index trading above 50-day moving averages hit an oversold extreme of 1.2%.  This is the lowest level since August 8 of 2011 when the level hit 0.4% following the downgrade of the US credit rating.  Prior to this, extreme percentage readings, such as this, have only been seen during recessionary periods.  On November 20 2008, the level hit 1% before bouncing.  Both dates coincided with significant lows, not necessarily the ultimate lows, in stocks from which a multi-week rebound attempt followed.  Back in 2011, the rebound lasted 28 sessions, recouping approximately 8.5% over the timeframe.  In November 2008, the rebound saw a gain on the S&P 500 Index of around 24% over a 30-session period that followed.  Of course, both periods saw new lows in the months thereafter, from which the ultimate bottom was derived.  This sets up a reasonable playbook for the timeframe ahead where a rebound attempt may provide an ideal opportunity to trim equity exposure around levels of resistance before the market attempts to chart those ultimate lows.

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Looking forward, January is one of the poorer performing months of the six month positive trend for stocks. The S&P 500 Index has averaged a gain of 0.8% with just over half (56%) of periods over the past 50 years showing gains. Returns have ranged from a loss of 8.6% in January of 2009 to a gain of 13.2% in January of 1987. Beyond the initial bump in stocks running into the earnings season mid-month, stocks essentially just gyrate through much of the period, taking its cues from the earnings reports themselves. In our monthly outlook that was sent out to subscribers on the weekend, we highlighted various stocks, industries, and sectors that start their period of seasonal strength in the month.  Want a copy? Simply subscribe to either the monthly or yearly option via the following link and we’ll deliver it right to your inbox: https://charts.equityclock.com/subscribe

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Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.06.

 

 

Seasonal charts of companies reporting earnings today:

Landec Corporation (LNDC) Seasonal Chart Resources Connection, Inc. (RECN) Seasonal Chart Unifirst Corporation (UNF) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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