Technology outperformance resulting in underperformance of the S&P 500 Equally Weighted Index, but seasonal tendencies suggest an opposing dynamic over the remainder of the first quarter.

Stock Market Outlook for January 23, 2020

Technology outperformance resulting in underperformance of the S&P 500 Equally Weighted Index, but seasonal tendencies suggest an opposing dynamic over the remainder of the first quarter.

Real Time Economic Calendar provided by Investing.com.

*** 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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Flowserve Corp. (NYSE:FLS) Seasonal Chart

Boardwalk Equities, Inc. (TSE:BEI/UN.TO) Seasonal Chart

Walker & Dunlop Inc. (NYSE:WD) Seasonal Chart

Steven Madden, Ltd. (NASD:SHOO) Seasonal Chart

PICO Holdings, Inc. (NASD:PICO) Seasonal Chart

Tapestry, Inc. (NYSE:TPR) Seasonal Chart

Aptiv Plc (NYSE:APTV) Seasonal Chart

Continental Building Products Inc. (NYSE:CBPX) Seasonal Chart

Invesco S&P Global Water Index ETF (NYSE:CGW) Seasonal Chart

The Markets

Stocks closed little changed on Wednesday as investors weigh the ongoing release of earnings reports and watch for any revelations pertaining to the spreading coronavirus. The S&P 500 Index closed higher by a mere three basis points, ending close to the lows of the session. Looking at the hourly look of the large-cap benchmark, while momentum indicators are rolling over, they are still showing bullish characteristics. Stochastics and RSI continue to trend predominantly above 50. MACD remains above 0 and the trend has yet to show a lower-low that would be indicative of waning buying pressures. The benchmark closed below its 20-hour moving average in the last hour of trade, giving up a very short-term level of support that has been intact throughout January. Next level of variable support is the 50-hour moving average at 3305.

Technology remains key to this market, something investors have grown used to for some time. The growth sector added just over a third of one percent, continuing to outpace the market return. Energy, industrial, and material stocks continue to weaken with the ETFs tracking the sectors at or near multi-year lows relative to the S&P 500 Index. Technology tends to peak relative to the market around this time of year, pausing after the run-up in prices through the the fourth quarter and into the new year. Earnings tend to be the catalyst. Investors use the reports to sell on news, leading to rotation towards other opportunities. The S&P 500 Technology Sector Index is presently the most overbought according to the relative strength index (RSI) since the end of April of last year, just prior to the pullback in broader markets in the month that followed. Previous rising trendline resistance is apparent just above 1600, while trendline support can be seen around 1550, both logical levels to test should the benchmark pullback. The parabolic path risks an abrupt decline as we head into the end of the month as prices revert back to the mean.

TECHNOLOGY Relative to the S&P 500

Given that technology, the largest weight within most benchmarks, is leading market performance, it is no wonder why the equally weighted S&P 500 Index continues to lag its capitalization weighted counterpart. The S&P 500 Equal Weight Index is higher by 8.28% over the past three months while the capitalization weighted benchmark is higher by 10.87%. The relative weakness has picked up since the year began, which is counter to seasonal norms that see the equal weight benchmark excel through the first quarter. Between December 14 and April 3, the S&P 500 Equal Weight ETF (RSP) has outperformed the total return of the S&P 500 Index by 1.33%, on average, each year. This seasonal timeframe has shown positive results compared to the benchmark in 15 of the past 16 periods, indicating an excellent rate of success. The benchmark is presently showing signs of rolling over from overbought territory, however, any weakness in the technology sector is likely to translate into strength, on a relative basis, for this capitalization weighted index alternative.

On the economic front, housing data for December was released by the National Association of Realtors on Wednesday. The headline print of December’s report on existing home sales indicates that activity increased by 3.6% to a seasonally adjusted annual rate of 5.54 million. Analysts were expecting a 1.5% increase to a rate of 5.43 million. The year-over-year change increased from +2.7% to +10.8%. Stripping out the seasonal adjustments, existing home sales actually increased by 7.4% in December, which is almost double the 3.8% increase that is average for the month. The final calendar year tally shows that existing home sales increased by 15.1% in 2019, which is well above the 0.9% increase that has been average over the past 20 years. This is the best pace in the past two decades. We sent out further insight to subscribers intraday. Signup now and we’ll send you our report.