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Stock Market Outlook for August 27, 2019


The last two times the change in credit balances was this weak through the month of July, equity benchmarks traded firmly higher in the years that followed.

 

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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Dine Brands Global, Inc. (NYSE:DIN) Seasonal Chart

Dine Brands Global, Inc. (NYSE:DIN) Seasonal Chart

Costco Wholesale Corp. (NASD:COST) Seasonal Chart

Costco Wholesale Corp. (NASD:COST) Seasonal Chart

Delta Air Lines Inc. (NYSE:DAL) Seasonal Chart

Delta Air Lines Inc. (NYSE:DAL) Seasonal Chart

 

 

The Markets

Stocks snapped back on Monday as investors found relief in comments provided by President Trump that indicated that the US and China were ready to resume serious negotiations.  The S&P 500 Index recouped just over a third of Friday’s loss, adding 1.10%.  The tight range between 2825 and 2940 remains intact and it could take a Trump tweet to break the large-cap benchmark free from these bounds.  Defensive sectors (staples, health care, and utilities), along with technology stocks were the best performers on the session, suggesting continued hesitation amongst investors to venture too far out along the risk spectrum.  The rest of the week is likely to see month-end positioning amongst portfolios; positions that investors are overweight may be sold in favour of those areas where investors are underweight.  The phenomena is much more pronounced into the end of the third quarter, but the month-end fluctuation also warrants monitoring.

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Monday’s gain was a massive reversal of the loss that was apparent at the open of futures trading on Sunday evening on the east coast.  Futures were suggesting a continuation of the decline that started on Friday, threatening to undercut the previously mentioned trading range for the large-cap benchmark.  S&P 500 futures were lower by around 1.2%, and gold rallied higher by the same margin.  All of that was reversed during  Monday’s session as the S&P 500 Index traded higher and the gain in the price of gold was eliminated as the day progressed.  This flip-flop trading is preventing investors from taking position on either the bullish or bearish side of the spectrum for fear that the position might be shaken out in a moment’s notice.  The change in credit balances in margin accounts, providing a glimpse into short selling activity, has been consistently weak over the past couple of years, implying no conviction to downside bets despite some significant drawdowns over the past year and a half.  That may sum up the entire trading action of the past year and a half: no conviction.  Investors are clearly waiting for something.  Similar patterns for credit balances through this point in July were seen in 2009 and 2013, both prior to pronounced moves higher in stocks.

NYSE Credit balances in margin accounts Seasonal Chart

On the economic front, a report on durable goods orders in the US was released before Monday’s opening bell. The headline print of July’s report indicated that activity increased by 2.1%, far surpassing the consensus analyst estimate that called for 1.2% rise. Core capital goods orders, a key metric for the health of the business activity, increased by 0.4%, also surpassing analyst forecasts that called for no change. Stripping out the seasonal adjustments, durable goods orders actually fell by 9.5%, which is firmly better than the 16.1% decline that is average for this summer month. The year-to-date change now sits 3.9% above the seasonal average trend, on par with some of the better performances during the economic expansion through the first seven months of the year.  We’ve released our full analysis of the results to subscribers.  Signup and we’ll send it to you now.

Value of Manufacturers' New Orders for Durable Goods Industries Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.09.

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Seasonal charts of companies reporting earnings today:

American Woodmark Corporation (AMWD) Seasonal Chart Autodesk, Inc. (ADSK) Seasonal Chart Bank Of Montreal (BMO) Seasonal Chart Bank of Nova Scotia (The) (BNS) Seasonal Chart Catalent, Inc. (CTLT) Seasonal Chart Eaton Vance Corporation (EV) Seasonal Chart Frontline Ltd. (FRO) Seasonal Chart Heico Corporation (HEI) Seasonal Chart   J.M. Smucker Company (The) (SJM) Seasonal Chart Lannett Co Inc (LCI) Seasonal Chart Momo Inc. (MOMO) Seasonal Chart Phibro Animal Health Corporation (PAHC) Seasonal Chart Regis Corporation (RGS) Seasonal Chart Veeva Systems Inc. (VEEV) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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