Stock Market Outlook for February 28, 2019
Now that leveraged bets have unwound, a more equal playfield has been created.
*** 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:
Quest Diagnostics Inc. (NYSE:DGX) Seasonal Chart
Cott Corp. (NYSE:COT) Seasonal Chart
B&G Foods Inc. (NYSE:BGS) Seasonal Chart
Calpine Corp. (NYSE:CPN) Seasonal Chart
The Markets
Another day with little movement amongst major market indices as investors watched for highlights of the testimonies from Robert Lighthizer, Jerome Powell, and Michael Cohen. The S&P 500 Index dipped by 0.05%, continuing to hold below resistance just above 2800.
Following the spring-back in stocks since the December low, there are certainly not the signs of excess in the market that have been seen around major market peaks. FINRA recently released margin statistics for the month of January and following the 13.8% decline in margin debt for 2018, this gauge of leverage only showed a 2.6% rise to start 2019. This is inline with seasonal norms. Typically during periods of investor confidence, or rather complacency, this measure of leverage within portfolios will rise well above average as investors seek to juice their desired market exposure. The rapid unwind of these borrowed positions in 2018 lead to the volatility that we saw in the fourth quarter. As of present, the leveraged bets have been unwound, creating a more balanced playfield. Interesting that while margin debt has been unwinding for the past year, credit balances have also been trending below average. Credit balances are indicative of short positions in accounts, suggesting a negative bias amongst investors. Sentiment extremes provided by these types of indicators can provide excellent signals to buy and sell, but, as of present, little can be concluded.
On the economic front, the December report on US Factory Orders showed exceptional weakness in the last month of the year. The headline print indicated that orders increased by 0.1% in this final print of 2018, missing the consensus analyst estimate that called for a 0.6% increase. Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries actually increased by 0.9% in December, which is well below the 3.6% average increase for the last month of the year. This is the second weakest December change in the past 15 years, falling just behind the December 2002 increase of 0.2% in the midst of a recession. For the year overall, the increase for 2018 was 2.5%, which is precisely inline with the seasonal average trend. Factory orders had been showing above average activity since March of 2017 and, until December, it looked as if 2018 would achieve the same feat, but market conditions denied a similar outcome as the year prior. Subscribers of our service received further insight of what stands out amongst the results. Join now to receive future updates.
Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.93.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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