Stock Market Outlook for January 7, 2020
FANG trade catching a bid, but seasonal tendencies suggest that the trade may not have much longer to run.
*** 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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Skyline Corp. (NYSE:SKY) Seasonal Chart
Callon Petroleum Co. Del (NYSE:CPE) Seasonal Chart
Ecopetrol SA (NYSE:EC) Seasonal Chart
Church & Dwight Co, Inc. (NYSE:CHD) Seasonal Chart
WW Grainger, Inc. (NYSE:GWW) Seasonal Chart
Big Lots, Inc. (NYSE:BIG) Seasonal Chart
Ballard Power Systems, Inc. (TSE:BLDP.TO) Seasonal Chart
The Markets
Stocks closed higher on Monday as investors shook off jitters pertaining to escalating tensions with Iran, which initially sent major benchmarks lower early in the day. The S&P 500 ended with a gain of just over a third of one percent, buoyed by communications services as the FANG trade enticed a bid. Shares of Facebook, Amazon, Netflix, and Alphabet (Google) closed higher by an average of around 2% as a trend of outperformance for each continues to evolve. Across the charts of this classic momentum trade, major moving averages are pointing higher, implying positive trends across multiple timeframes. Seasonally, while strength to start the year in these stocks is typical, generally associated with the strength in the Technology sector into the middle of January, performance tends to fade once earnings reports are released. Average February and March performance for shares of these companies shows that these months have historically been the weakest of the year as investors digest the gains from the months prior. The next upleg for the FANG trade, and the technology sector, in general, tends to be realized through the second quarter.
While investors appeared eager to pick up risk amidst the early morning weakness, an element of concern remained embedded in the market all day. The price of Gold jumped by over 1%, charting another gap on the chart as investors raced into the volatility hedge. The Gold ETF (GLD) charted a new 52-week high as price overcame the September high of $146.82. For the first time in almost a decade, a solid long-term uptrend appears to be developing, as gauged by the direction of the 200-day moving average, which has been pointing higher for the past six months. You may recall that GLD was a top pick of ours on our December 4th appearance on BNN Bloomberg’s Market Call Tonight. The trade is up over 6% since, breaking out of the flag consolidation pattern that we highlighted on the show. Seasonally, gold tends to climb between the middle of December through to the end of February. Should volatility related to the headlines persist, gold would be expected to provide a backstop to investment portfolios.
Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.83.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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