Stock Market Outlook for August 22, 2019
MACD Buy Signal triggered on the S&P 500 Index, following similar signals on the Consumer Discretionary and Technology sectors.
*** 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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TEGNA Inc. (NYSE:TGNA) Seasonal Chart
BioTime, Inc. (AMEX:BTX) Seasonal Chart
VeriSign, Inc. (NASD:VRSN) Seasonal Chart
Lancaster Colony Corp. (NASD:LANC) Seasonal Chart
Aflac, Inc. (NYSE:AFL) Seasonal Chart
The Markets
Stocks jumped on Wednesday as the swings between risk-off and risk-on continue. The S&P 500 Index gained just over eight-tenths of one percent, buoyed by the consumer discretionary sector following strong reactions to earnings from Target and Lowe’s. The stocks were higher by 20.4% and 10.4%, respectively. The S&P 500 Consumer Discretionary Sector Index moved beyond its declining 20-day moving average to add 1.83%, triggering a MACD buy signal in the process. Momentum indicators have been attempting to reverse course and trend higher since the start of the month as selling momentum faded and investors looked to buy the dip. Seasonally, the broader sector remains in a period of seasonal weakness through September before entering a period of seasonal strength in the fourth quarter.
The consumer discretionary sector wasn’t the only area of the market that triggered a MACD buy signal during the session. Technology recorded a buy signal of its own, which in turn influenced a buy signal in the large-cap S&P 500 Index. These positive events follow sell signals that were triggered in mid to late July as momentum following the average summer rally period faded.
On the large-cap benchmark, 2940 remains a critical hurdle; investors are pinning the benchmark to this level ahead of the Jackson Hole event on Friday. The pattern on the hourly chart gives the appearance of a reverse head-and-shoulders pattern with the neckline represented around 2940. A breakout above this hurdle, and perhaps equally important a break above 2950, would likely entice market participants back into equity holdings.
On the economic front, a report on existing home sales was released during Wednesday’s session. The National Association of Realtors reports that existing home sales increased by 2.5% to a seasonally adjusted annual rate of 5.42 million in July. This is better than the consensus analyst estimate that called for a rate of 5.385 million. Stripping out the seasonal adjustments, existing home sales actually increased by 2.3%, which is a positive divergence compared to the 6.8% decline that is average for the summer month. The year-to-date change now sits 18.0% above the seasonal average trend, representing the best performance since 2009 as the housing market snapped back from the downturn in the years prior. We were thoroughly impressed by the results. Subscribe now to receive our report on what stands out and why the chance of falling into an immediate recession is low.
Sentiment on Wednesday, as gauged by the put-call ratio, ended overly bearish at 1.28. This is a shockingly pessimistic print realized on an upbeat day for the equity market. Just prior to the release of the Fed Minutes on Wednesday afternoon, the indicator reached an overly pessimistic high of 1.60, which is essentially the highest level of the year through the afternoon session. The move shows the sensitivity of investors to interest rates and interest rate policy. High put-call ratios are indication that investors are hedging, which is a positive for the market given that the impetus to sell is removed given that portfolios are protected.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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