Stock Market Outlook for October 22, 2019
The switch between small-cap/large-cap and value/growth reaching a key pivot point on the seasonal timeline.
*** 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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Open Text Corp. (TSE:OTEX.TO) Seasonal Chart
Western Digital Corp. (NASD:WDC) Seasonal Chart
LPL Financial Holdings Inc. (NASD:LPLA) Seasonal Chart
Covenant Transportation Group Inc. (NASD:CVTI) Seasonal Chart
Sun Life Financial Services of Canada, Inc. (TSE:SLF.TO) Seasonal Chart
The Markets
Stocks pushed higher on Monday amidst ongoing trade optimism and earnings reports that are coming in better than feared. The S&P 500 Index added just less than seven-tenths of one percent, closing above the psychologically important 3,000 level that had been flirted with in the previous week. Once again, the upper limit of the summer trading range is being tested as investors continue to wait for that catalyst to fuel a breakout. Energy, financials, and technology topped the leaderboard as value outperformed growth.
The battle between the value and the growth is looking interesting. Following a prolonged period of underperformance amongst value stocks, the segment of the market is attempting to close at least some of the gap in performance with its growth counterpart. On a weekly look, while the trend of the ratio of the Russell 1000 Value Index relative to the Russell 1000 Growth Index continues to show lower-lows and lower-highs, positive momentum divergences with respect to MACD and RSI are hinting of selling exhaustion, implying a shift from growth to value may be on the horizon. From a seasonal perspective, that shift typically takes place by the middle of November, running through the end of the year, in what could be argued as an end of year mean reversion trade. With a number of imbalances in the market at present with respect to risk-on and risk-off bets, the switch between value and growth is another reversion trade that we’ll be watching as the year winds down.
Another area that is showing new interest from investors is small cap stocks, which have been shunned from investor portfolios all year given the higher risk metrics associated with them. The Russell 2000 Small Cap index ETF (IWM) gained just over nine-tenths of a percent on Monday, continuing a recent string of outperformance versus the large-cap S&P 500 Index. The ETF has overcome the hurdles presented by major moving averages between $150 and $152 and has defined support around $144. As with other benchmarks, a positive catalyst could break the benchmark out of its range, enticing investors back to these riskier bets. Seasonally, the Russell 2000 Index has shown a similar period of seasonal strength as value stocks, outperforming counterparts, on average, through the end of the year.
$RUT Relative to the S&P 500 
Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.94.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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