Stock Market Outlook for July 29, 2019
US Dollar Index ETF breaking out to multi-year highs, threatening to weigh on the recent price action of commodities.
*** 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:
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Choice Hotels Intl, Inc. (NYSE:CHH) Seasonal Chart
Hillenbrand Inc. (NYSE:HI) Seasonal Chart
MicroStrategy Inc. (NASD:MSTR) Seasonal Chart
Green Dot Corp. (NYSE:GDOT) Seasonal Chart
Cathay Bancorp, Inc. (NASD:CATY) Seasonal Chart
Bottomline Technologies, Inc. (NASD:EPAY) Seasonal Chart
Donegal Group, Inc. (NASD:DGICA) Seasonal Chart
HomeTrust Bancshares, Inc. (NASD:HTBI) Seasonal Chart
McDonalds Corp. (NYSE:MCD) Seasonal Chart
The Markets
Stocks surged to new record highs on Friday as strong reactions to earnings from Google and Twitter sent traders flocking towards the communication services sector. The S&P 500 Index closed higher by three-quarters of one percent, charting a fresh all-time high. The Nasdaq Composite realized a similar achievement. Friday’s move breaks the short-term consolidation range that we highlighted in our last report that peaked around 3020. Short-term support is now implied at that previous hurdle. The benchmarks are higher by between 2% to 3% since the end of May, yet again poking holes in the theory of “Sell In May and Go Away.” We re-visit the topic in our latest monthly outlook that is slated to be released to subscribers over the weekend. Signup now and we’ll send you this timely insight on how to position your portfolio from a seasonal perspective, minus the Sell in May and Go Away bias.
For the week, the large-cap benchmark is higher by 1.65%, making headway above previous resistance at 2950. Major moving averages on the weekly look continue to point higher, warranting a positive bias over the longer-term. However, over the shorter-term, risks have become elevated as stocks trade above levels of support below. On this weekly look, the 20 and 50- week moving averages have provided support to the intermediate-term trend over time, but, at 2900 and 2800, respectively, the downside risks back to these levels is pronounced. This is not an indication on the timing of a pullback, but rather just an observation that the risks are elevated. Given the timeframe that we are in with earnings season nearing the halfway point and the most volatile time of year for stocks around the corner, venturing out on the risk spectrum at this time of year is not exactly prudent. Mean reversion into the end of July could be to the downside as investors reallocate portfolios for the month ahead.
Not helping equities at this juncture is the US Dollar, which according to the US Dollar ETF (UUP), broke out to a multi-year high on Friday. The US Dollar Index itself has a ways to go in order to realize a similar outcome. Indications coming into this year were that upside momentum in the dollar was waning and that a rollover in the currency benchmark was on the horizon, which would be bullish for stocks and commodities. But despite a Fed that seems set to ease monetary policy when it meets in the week ahead, the dollar index continues to defy any weakness, keeping a lid on the progression of stocks and risking a negative impact to the recent run-up in metal commodity prices. Seasonally, the US Dollar Index tends to decline through the third quarter, thereby supporting commodity prices, but strength coming into this period threatens an opposing path. Wednesday’s FOMC announcement is likely to set the tone. Investors need to become confident that the Fed is willing and able roll back measures meant to tighten monetary policy in recent years. If doubts persist, as they have over the past month amidst solid economic data, the strength in the US dollar could continue. Seasonally, precious metal prices remain seasonally strong though the third quarter, fuelled, in part, by dollar weakness.
Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.81. At the lows of the session, the indicator was trading around 0.50, indicating that 2 calls traded hands for every put. This is an extreme bullish reading, suggesting complacency has returned to the market in a meaningful way for the first time in a year. Complacency doesn’t imply that a decline is to immediately follow, but it does suggest that risks are elevated as investors let down their guard, making portfolios vulnerable as they attempt to gain exposure to the move higher in the broad market.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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