Stock Market Outlook for January 14, 2020
Percent of stocks trading above 200-day moving averages advancing to the highest level since 2014.
*** 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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Imax Corp. (NYSE:IMAX) Seasonal Chart
National Bank of Canada (TSE:NA.TO) Seasonal Chart
Invesco S&P 500 Quality ETF (AMEX:SPHQ) Seasonal Chart
Invesco S&P-TSX Composite Low Volatility Index ETF (TSE:TLV.TO) Seasonal Chart
O’Reilly Automotive, Inc. (NASD:ORLY) Seasonal Chart
CCL Industries Inc. – Class B (TSE:CCL/B.TO) Seasonal Chart
iShares MSCI USA Equal Weighted ETF (NYSE:EUSA) Seasonal Chart
Occidental Petroleum Corp. (NYSE:OXY) Seasonal Chart
Pioneer Natural Resources Co. (NYSE:PXD) Seasonal Chart
Andersons, Inc. (NASD:ANDE) Seasonal Chart
Carter Holdings Inc. (NYSE:CRI) Seasonal Chart
BMO Junior Gas Index ETF (TSE:ZJN.TO) Seasonal Chart
The Markets
Stocks pushed further into record territory on Monday as investors continue to express their optimism ahead of the signing of a Phase 1 trade deal between the US and China. The S&P 500 Index added seven-tenths of one percent, led by real estate, materials, and technology. Momentum indicators for the large-cap benchmark have gyrated back into overbought territory and prices have extended their reach above major moving averages. The percent of stocks in the S&P 500 trading above their respective 200-day moving average lines is now the highest since 2014, suggesting significant support for market constituents if/when the broader benchmark retraces lower. The 200-day moving average for the S&P 500 Index currently hovers around 2985, or just over 9% below Monday’s close. A test of this hurdle is not foreseen in the near term given the bullish backdrop of equity markets, but we must always be cognizant of the risk-reward of stocks, which at this point heavily favours the risks. Seasonally, fourth quarter earnings season, which begins on Tuesday with some of the big banks, typically sees elevated levels of volatility as investors digest earnings outlooks for the coming year.
One of the characteristics of the market that highlights the elevated levels of risk versus reward is the parabolic trend of a number of stocks, particularly in the technology sector. Shares of Apple have advanced beyond a rising trend channel that provided the limits to the path of higher-highs and higher-lows through the back half of last year. Shares are now the most overbought since September of 2018, ahead of the over 36% decline that was realized through the fourth quarter. Apple is the largest constituent within many benchmarks, therefore, when it goes, the market will follow. Other stocks with notably parabolic trends based on the trading activity over the past few months include Tesla, Microsoft, NVidia, Facebook, Google, and Visa, all high profile names that are widely scrutinized. Parabolic trends, by their nature, are unsustainable and, at some point, buying pressures cease and profits will begin to be booked. Earnings season provides the logical point for investors to sell the news on some of these highly valued positions.
Touching on the seasonal tendencies of the first few companies to kick off earnings season, the big banks have a history of being volatile around the release of results. Stocks in the industry have historically moved firmly lower in a two week period in the middle of January, but, once the results are digested, weakness in the space has created buying opportunities. Shares of JP Morgan, Bank of America, Wells Fargo, and PNC Financial tend to move higher from around the third week in January through to the middle of April, benefitting from increased loan activity over this timeframe. The stocks have shown waning momentum coming into these reports, a suggestion of buying exhaustion. This follows a substantial move in the fourth quarter when bank stocks broke out from a massive trading range that spanned much of 2019.
Released to subscribers on Monday was our last look at vehicle sales for 2019. Vehicle sales is a significant input to overall retail trade in the US, the report of which is slated to be released on Thursday. Signup now and we’ll send you our report that provides insight as to the health of the consumer in the last month of the year.
Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.76.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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