Stock Market Outlook for September 17, 2019
Oil supply disruptions could help to normalize an oversupplied market.
*** 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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MarketAxess Holdings Inc. (NASD:MKTX) Seasonal Chart
Calian Group Ltd. (TSE:CGY.TO) Seasonal Chart
Global Indemnity plc. (NASD:GBLI) Seasonal Chart
Interactive Brokers Group, Inc. (AMEX:IBKR) Seasonal Chart
Safety Insurance Group, Inc. (NASD:SAFT) Seasonal Chart
Columbus McKinnon Corp. (NASD:CMCO) Seasonal Chart
The Markets
Stocks traded lower on Monday as investors reacted to the drone strikes over the weekend that knocked out half of Saudi Arabia’s oil production capacity. The price of oil gained almost 15%, moving back into the the $60 range, according to West Texas Intermediate. The S&P 500 Index shed almost a third of a percent as investors analyzed the impact of higher energy commodity prices on the economy. The large-cap benchmark broke below the short-term rising trendline that was highlighted on Friday, although the trend of higher-highs and higher-lows from the August bottom remains unbroken. Resistance at the all-time high around 3025 is the major hurdle that the market is presently contending with.
The surge in oil prices to start the week “fuelled” a bid in energy stocks as investors looked for the beneficiaries of the higher cost of the commodity. The Energy SPDR ETF (XLE) moved solidly above its 200-day moving average, a level that had capped upside momentum throughout the past year. Quickly, this unloved and underexposed area of the market is pressing the shorts and forcing investors to pay attention after recession fears in August raised concerns pertaining to demand. The supply of oil has been elevated for years, running above average with respect to the days of supply. The supply disruption bodes well for normalizing an oversupplied market. This is something to look for closer to the end of this year or the beginning of next rather than anything material showing up in the inventory data in the near-term. Overall, the events help to alleviate the bearish bias that has persisted in the sector for years, allowing for the prospect of more normalized performance and fundamental status for the year ahead. This is based on the assumption that the disruption is prolonged (greater than six months) in order to make any meaningful impact to supplies. Seasonally, the energy sector enters a period of weakness in the fourth quarter, trading lower amidst the conclusion to the high demand summer season.
On the economic front, the New York Fed released it manufacturer sentiment survey before Monday’s opening bell. The headline print indicated that the General Business Conditions Index of the Empire State Manufacturing Survey had fallen from +4.8 to +2.0. Analysts had expected a print of +4.9. Stripping out the seasonal adjustments, the index actually came in at –0.7, indicating a contraction in activity. The average level for this time of year is +12.2, reflecting the ramp up in activity ahead of the critical consumer and business spending period during the fourth quarter. This is the weakest read for this time of year since 2016 as manufacturing conditions struggled in the final year of President Obama’s term. Seasonally, September tends to mark a peak in the manufacturing gauge during the back half of the year; the indicator tends to decline through the fourth quarter as economic activity shifts from production to spending. This suggests that activity in the New York region could fall further into contractionary territory in the final months of the year.
Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.19.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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