Stock Market Outlook for January 17, 2020
Dow Jones Transportation Average finally moving above the trading range that spanned the past year.
*** 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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CNX Resources Corp. (NYSE:CNX) Seasonal Chart
PG&E Corp. (NYSE:PCG) Seasonal Chart
Canadian Pacific Railway (NYSE:CP) Seasonal Chart
BP Amoco PLC (NYSE:BP) Seasonal Chart
PVH Corp. (NYSE:PVH) Seasonal Chart
New Flyer Industries Inc. (TSE:NFI.TO) Seasonal Chart
FMC Technologies, Inc. (NYSE:FTI) Seasonal Chart
Greif Bros. Corp. (NYSE:GEF) Seasonal Chart
The Markets
Stocks continued their relentless advance higher on Thursday as investors digest the release of fourth quarter earnings reports. The S&P 500 Index added over eight-tenths of one percent, continuing to elevate above major moving averages. Momentum indicators are curling higher, once again, after providing a head-fake about a week ago as momentum sell signals began to trigger. The Relative Strength Index (RSI) and Full Stochastic Oscillator are firmly embedded in overbought territory as investors express the view that there is no alternative to stocks. The number of new highs minus the number of new lows is now at the highest level since December of 2016, which emphasizes the magnitude of the euphoria in the equity market. Gone are the days where a healthy level of investor scepticism prevailed, as we observed last summer, meaning that opportunities, at least in the US market, are waning.
Encouraging for the structural view of the market, both fundamentally and technically, is the breakout of the Dow Jones Transportation Average. The lack of new highs on this economically sensitive benchmark had provided argument for the bears, particularly those that follow the primary facet of Dow theory. The theory suggests that new highs in stocks must be confirmed by both the Dow Jones Industrial Average and the Dow Jones Transportation Average; if one fails to follow suit, negative implications can be derived. The transportation benchmark has been range-bound for the past year despite ongoing new highs in the blue-chip benchmark. On Thursday, the benchmark took its first step outside of its 15-month zone that spanned from 9,700 on the low side to 11,200 on the high side. The all-time peak for the benchmark was charted in September of 2018 at 11,623.58. Major moving averages are one again pointing higher, suggesting the renewal of short, intermediate, and long-term trends. We have encouraged subscribers to avoid transportation stocks, in general, for some time given that it failed to check off the three prongs to our approach incorporating seasonal, technical, and fundamental analysis; the significant underperformance of the transportation benchmark confirms that this was the correct call. A trend of underperformance remains intact, but the next period of seasonal strength is fast approaching, providing another shot for the index to advance relative to its broad market counterparts. We’ll be releasing a report to subscribers highlighting the fundamental backdrop going into the seasonal trade ahead. Subscribe now.
On the economic front, December’s report on retail sales was released before Thursday’s opening bell. The headline print indicated that activity increased by 0.3% in December, which is marginally weaker than the 0.4% increase that was expected by analysts. Less gas and autos, retail trade was up by 0.5%, which is better than the 0.4% increase that was expected. Stripping out the seasonal adjustments, retail sales actually increased by 12.2% in the last month of the year, which is weaker than the 16.3% increase that is average for December. For 2019, overall, retail trade was higher by 6.4%, stronger than the 3.6% increase that has been average over the past 20 years and the best pace since the 6.7% increase recorded in 2010 as the economy emerged from the recession. The headline print, however, doesn’t tell the whole story. Subscribe now to receive our report detailing what is driving consumer activity and why this report may be implying weakness emerging in the consumer.
Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.71.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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