Stock Market Outlook for September 12, 2019
Ratio of the Junk Bond ETF relative to the Investment Grade Corporate Bond ETF retracing back to August’s breakdown point; how the ratio has performed over the next three months, on average, may warrant concern.
*** 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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Chesapeake Lodging Trust (NYSE:CHSP) Seasonal Chart
Wipro Ltd. (NYSE:WIT) Seasonal Chart
Amerco (NASD:UHAL) Seasonal Chart
Acco Brands Corp. (NYSE:ACCO) Seasonal Chart
The Markets
Stocks closed firmly higher on Wednesday as the rotation away from the crowded defensive trade continues. The S&P 500 Index added just less than three-quarters of one percent, inching back above the psychologically important 3000 level. Major moving averages (20, 50, and 200-day) are once again pointing higher, giving credence to the positive trends across multiple timescales. Despite all of the headwinds and negative rhetoric, the benchmark is now mere points away from the all-time high charted around the end of July. Reaction to this all-time high hurdle will be closely scrutinized as any hesitation amongst the bulls could relinquish control back to the bears, who are more than willing to take another bite out of equity prices. Gradually, the overwhelming bearish bias that was embedded in the equity market through the month of August, which provided an excellent contrarian buy signal, is fading, but we are not at the opposite extreme (euphoria) yet.
One of the signals of investor unease in the month of August was the breakdown in the performance of the high-yield bond ETF (JNK) versus the investment grade corporate bond ETF (LQD). The ratio between the two had fallen below multi-year support last month as risk sentiment turned negative. The ratio is now checking back with that previous hurdle following the retracement in risk in the month of September. Similar to risk metrics in the broader equity market, reaction to this limit will be closely scrutinized. Seasonally, weakness through the month of August followed by a rebound into the middle of September is actually average; what typically follows may warrant concern. On average, the ratio tends to decline between mid-September and mid-December. The performance of the two relative to each other provides a good gauge of risk sentiment and the strength of credit conditions.
On the economic front, a report on wholesale trade was released during Wednesday’s session. Wholesale sales were up by 1.9% (NSA) in July, while inventories were higher by 0.2% (NSA). The average change for each in the month is -3.2% and +0.7%, respectively. Subscribers can access the charts via the following link: https://charts.equityclock.com/u-s-wholesale-trade-sales-and-inventories
Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.78.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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