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Stock Market Outlook for August 7, 2019


Junk Bond ETF relative to the Investment Grade Corporate ETF flashing a warning signal as the ratio breaks down.

 

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:

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Golden Star Resources (AMEX:GSS) Seasonal Chart

Golden Star Resources (AMEX:GSS) Seasonal Chart

Neurocrine Biosciences, Inc. (NASD:NBIX) Seasonal Chart

Neurocrine Biosciences, Inc. (NASD:NBIX) Seasonal Chart

Granite Construction Inc. (NYSE:GVA) Seasonal Chart

Granite Construction Inc. (NYSE:GVA) Seasonal Chart

Southern Copper Corp. (NYSE:SCCO) Seasonal Chart

Southern Copper Corp. (NYSE:SCCO) Seasonal Chart

LSI Industries, Inc. (NASD:LYTS) Seasonal Chart

LSI Industries, Inc. (NASD:LYTS) Seasonal Chart

AMERISAFE, Inc. (NASD:AMSF) Seasonal Chart

AMERISAFE, Inc. (NASD:AMSF) Seasonal Chart

CMS Energy Corp. (NYSE:CMS) Seasonal Chart

CMS Energy Corp. (NYSE:CMS) Seasonal Chart

Hilltop Holdings Inc. (NYSE:HTH) Seasonal Chart

Hilltop Holdings Inc. (NYSE:HTH) Seasonal Chart

 

 

The Markets

After a brutal bunch of days for equity markets, stocks found some reprieve on Tuesday, reversing sharp overnight declines as fears of a currency war abated.  The S&P 500 Index closed with a gain of 1.30%, attempting to move into the gap that was opened during the previous day’s session around the 50-day moving average.  This previous level of support is now in a position to act as resistance and the gap opened to start the week confirms the significance of this level to investors.  Coming into Tuesday’s session, the S&P 500 Index was the most oversold since December, thereby helping to exhaust selling pressures, conducive to the turnaround Tuesday.  Horizontal support is implied around 2800, a level that has acted as both support and resistance over the past year.  The 200-day moving average at 2790 is also a level to watch.

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The days action created an inside day, where the highs and lows were within the range of the previous day’s session.  This candlestick pattern is not yet indicative of a conclusive low for stocks.  The hurdles that were in place to support stocks are now going to work to resist an upside attempt, suggesting supply may continue to outweigh demand over the near-term.  But we’ll keep an open mind.  In the Seasonal Advantage Portfolio that we manage in partnership with Castlemoore, we went from around 95% invested to 55% invested as of July 26th, which just happened to be the recent peak in the market.  Of those assets that are allocated, gold is our top exposure, which has significantly hedged the portfolio against volatility.  We are actively seeking to re-allocate should confirmation of a low in stocks be achieved.  Seasonally, the third quarter of the year sees increasing volatility, which can create both buying and selling opportunities.

Volatility Index (VIX) Seasonality

Prudent during periods of panic and waterfall declines in stocks is to look for signs of strain in the economy that would suggest the move is sustainable.  We breakdown various economic reports within our seasonal models for subscribers, providing regular insight of what to look out for ahead.  These reports can give indication as to whether the decline in broad markets is fundamentally warranted or not and whether buying the dip is appropriate.  The fourth quarter is a prime example when the move lower in broader markets was not fundamentally warranted, something that we made clear to subscribers through that December breakdown.  We’ve issued our stance to subscribers in recent reports.  You can subscribe now to try out our reports for a month or for a year – cancel at any time.

One of the signs of strain that has caught our attention in recent days is the breakdown on the ratio of the High Yield (Junk) Bond ETF (JNK) relative to the Investment Grade Corporate Bond ETF (LQD).  The ratio had been holding a defined level of support for years, but last week that level of horizontal support broke.  The setup resembles a head-and-shoulders topping pattern with downside implications towards the 2016 lows.  Weakening credit conditions, as this indicator is warning, is often a leading indicator to broader economic and equity market vulnerability.

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On the economic front, a report on Job Openings and Labor Turnover (JOLT) was released during Tuesday’s session.  The headline print of June’s JOLT survey indicated that openings declined by 0.5% in the month to 7.348 million. Analysts were expecting a decline of 1.2% to 7.293 million. There were 5.975 million individuals that were declared unemployed in June, according to the Bureau of Labor Statistics, suggesting that at least one opportunity was available for everyone seeking a job. Stripping out the seasonal adjustments, openings actually fell by 0.7% to 7.225 million in this last month of the second quarter, which is actually stronger than the 2.4% decline that is average for this time of year. The year-to-date change is now higher by a mere 4.4%, far less than the 16-year average increase through the first half of the year of 16.5%.  Further analysis was provided to subscribers during Tuesday’s session, including what recent reports have suggested about the risk-reward of the equity market.  Subscribe now to access this and other reports from our archive.

Job Openings: Total Nonfarm Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.10.

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Seasonal charts of companies reporting earnings today:

3D Systems Corporation (DDD) Seasonal Chart Abraxas Petroleum Corporation (AXAS) Seasonal Chart Albemarle Corporation (ALB) Seasonal Chart American International Group, Inc. (AIG) Seasonal Chart Blue Bird Corporation (BLBD) Seasonal Chart Booking Holdings Inc. (BKNG) Seasonal Chart CAI International, Inc. (CAI) Seasonal Chart Career Education Corporation (CECO) Seasonal Chart Cedar Fair, L.P. (FUN) Seasonal Chart CenturyLink, Inc. (CTL) Seasonal Chart Coeur Mining, Inc. (CDE) Seasonal Chart Comstock Resources, Inc. (CRK) Seasonal Chart Craft Brew Alliance, Inc. (BREW) Seasonal Chart CVS Health Corporation (CVS) Seasonal Chart First Majestic Silver Corp. (AG) Seasonal Chart Flowers Foods, Inc. (FLO) Seasonal Chart Fortuna Silver Mines Inc. (FSM) Seasonal Chart Fossil Group, Inc. (FOSL) Seasonal Chart Fox Corporation (FOXA) Seasonal Chart Franco-Nevada Corporation (FNV) Seasonal Chart Gran Tierra Energy Inc. (GTE) Seasonal Chart Gray Television, Inc. (GTN) Seasonal Chart Hecla Mining Company (HL) Seasonal Chart IAC/InterActiveCorp (IAC) Seasonal Chart Iamgold Corporation (IAG) Seasonal Chart Jack In The Box Inc. (JACK) Seasonal Chart Manulife Financial Corp (MFC) Seasonal Chart Marathon Oil Corporation (MRO) Seasonal Chart Monster Beverage Corporation (MNST) Seasonal Chart Nuance Communications, Inc. (NUAN) Seasonal Chart Office Depot, Inc. (ODP) Seasonal Chart Pan American Silver Corp. (PAAS) Seasonal Chart Rayonier Inc. (RYN) Seasonal Chart Rent-A-Center Inc. (RCII) Seasonal Chart Royal Gold, Inc. (RGLD) Seasonal Chart Skyworks Solutions, Inc. (SWKS) Seasonal Chart Teva Pharmaceutical Industries Limited (TEVA) Seasonal Chart Wendy's Company (The) (WEN) Seasonal Chart Zillow Group, Inc. (ZG) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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