Stock Market Outlook for August 9, 2019
Equity benchmarks arguably on the B-wave of this shorter-term A-B-C correction.
*** 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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Global Payments, Inc. (NYSE:GPN) Seasonal Chart
Discovery, Inc. (NASD:DISCA) Seasonal Chart
Innospec, Inc. (NASD:IOSP) Seasonal Chart
Mercury Systems Inc. (NASD:MRCY) Seasonal Chart
ViaSat, Inc. (NASD:VSAT) Seasonal Chart
The Markets
Stocks snapped back on Thursday as investors took advantage of the early week selloff to load up on equities. The S&P 500 Index gained 1.88%, erasing the loss for the week just days after the worst session of the year. The benchmark is back to its 50-day moving average, reaction to which will be critical. Recall back in May, following the break of the intermediate moving average during an 8-session decline, the benchmark rallied back to this pivot point rather quickly only to fail from this zone before taking another dip lower in the weeks that followed. This trading action is typical following these abrupt downshifts in equity prices; Elliott Wave theorists refer to these moves as ABC corrections. The first wave lower marks the A-leg of the move, followed by the rebound that represents the B-leg. The C-leg represents the final leg lower, often under-cutting the previous low. We have noted previous ABC corrections on the chart below. This pattern suggests that the market is not out of trouble yet and there could be more opportune levels to load up on equity positions.
The market remains very tenuous with bond and gold prices, two recent volatility hedges, holding up amidst the equity rebound. The put-call ratio remains in bearish territory as investors continue to hedge positions. From a contrarian viewpoint, this is conducive to supporting the broader benchmark against a detrimental decline. Horizontal support on the S&P 500 Index at 2800 and the 200-day moving average just a few points lower at 2792 remain logical hurdles for the benchmark to test, although there are no guarantees. The benchmark has effectively worked off deeply oversold levels in the short-term, which provided the fuel for this rebound attempt.
One indicator that we track suggests that the bull market that stems for the December low is still intact. The NYSE Cumulative Advance-Decline Volume line surged to a new all-time high on Thursday, surpassing the level of consolidation that dominated the month of July. The breadth indicator will often provide confirmation of bull or bear market trends, depending on whether the path is that of higher-highs and higher-lows or lower-highs and lower-lows. Since December, the indicator has suggested a bull market trend by the path upward trending path, a shift from the negative trend that dominated the fourth quarter. The non-volume counterpart, the Cumulative Advance-Decline line, has yet to confirm a similar breakout above the July peak.
Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.05.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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