Stock Market Outlook for August 23, 2019
Despite the volatility and uncertainty in equity markets this year, margin debt continues to trend inline with the seasonal norm.
*** 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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Starbucks Corp. (NASD:SBUX) Seasonal Chart
Acacia Technologies Group (NASD:ACTG) Seasonal Chart
Schnitzer Steel Industries, Inc. (NASD:SCHN) Seasonal Chart
Walmart Inc. (NYSE:WMT) Seasonal Chart
IntercontinentalExchange Group, Inc. (NYSE:ICE) Seasonal Chart
Vodafone Group Public Limited Company (NASD:VOD) Seasonal Chart
The Markets
Stocks closed mixed on Thursday as investors held the tape steady ahead of Friday’s FOMC speeches in Jackson Hole. The S&P 500 Index closed lower by a mere 5 basis points, remaining pinned below short-term resistance at 2940. Bond prices are showing signs of rolling over into the event with sell signals now triggered with respect to Stochastics and RSI on the iShares Long Term Treasury Bond Fund (TLT); MACD is on the verge of triggering a sell signal of its own. The reaction of both asset classes will be heavily scrutinized as it is likely to dictate the next move for both markets. Seasonally, we are closing in on the peak to the period of seasonal strength for bond prices and with the trend over the past year distinctly parabolic, it will take a lot to keep the trend elevated at the present pace.
While calls for a decline in stocks continue to grow, we are not seeing the signs of excess that typically precede a pronounced move lower in prices. One such gauge is the change in margin debt, which is indicative of investor risk sentiment as they seek to leverage their investment portfolios. The gauge can be telling by any deviation from the seasonal average trend. Last year, a deviation in the trend of margin debt compared to the S&P 500 Index through the third quarter suggested the lack of conviction amongst investors to leverage up portfolios around the highs. Conversely, other equity market downturns have been preceded by an increase in margin debt that was well above average. This year, following the pronounced decline in margin debt through the back half of last year, margin debt has been trending inline with the seasonal average; investors are neither euphoric nor doubtful of equity prices this year, at least according to this metric. While the next headline in the market could easily cause some jitters, investors are generally quite solid with their investments, adjusting risk in portfolios as appropriate, but not showing any deviations that pose immediate concern. August is the weakest month of the year for margin debt and, given the volatility that we have seen this month, it would be expected that a similar decline will be realized when results are released next month.
Sentiment on Thursday, as gauged by the put-call ratio, ended marginally bullish at 0.93.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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