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Stock Market Outlook for January 27, 2020


Reversal pattern for the large-cap benchmark suggesting the conclusion of this massive buy program that elevated equity prices to euphoric levels.

 

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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DISH Network Corp. (NASD:DISH) Seasonal Chart

DISH Network Corp. (NASD:DISH) Seasonal Chart

Stella-Jones, Inc. (TSE:SJ.TO) Seasonal Chart

Stella-Jones, Inc. (TSE:SJ.TO) Seasonal Chart

Cohen & Steers Inc. (NYSE:CNS) Seasonal Chart

Cohen & Steers Inc. (NYSE:CNS) Seasonal Chart

Navient Corp. (NASD:NAVI) Seasonal Chart

Navient Corp. (NASD:NAVI) Seasonal Chart

Aptargroup, Inc. (NYSE:ATR) Seasonal Chart

Aptargroup, Inc. (NYSE:ATR) Seasonal Chart

Linde plc (NYSE:LIN) Seasonal Chart

Linde plc (NYSE:LIN) Seasonal Chart

Freshpet Inc. (NASD:FRPT) Seasonal Chart

Freshpet Inc. (NASD:FRPT) Seasonal Chart

 

 

The Markets

Stocks dipped on Friday as headlines related fears pertaining to the coronavirus to the selling pressures seen across the tape; the more logical answer, however, is that investors have been waiting for weeks for a catalyst to book profits following the substantial run higher through year-end.  The S&P 500 Index shed nine-tenths of one percent, touching levels around the 20-day moving average at the lows of the session.  The session had originally opened firmly higher following solid earnings from Intel, but, as the session dragged on, it became apparent that investors were more inclined to sell into the strength as opposed to buying the weakness, as had been apparent in recent days.  The action charted an outside reversal candlestick where the high and the low of the session engulfed the previous day’s range.  This is a classic reversal pattern and it is suggesting a change in the short-term trend.  Momentum indicators have triggered another round of sell signals, including a bearish crossover with respect to MACD and a move below 70 on the relative strength index (RSI).  These indicators provided false signals at the start of the month surrounding the flaring of tensions with Iran, so we’ll see how far the move lower takes us this time.  Short-term support at the 20-day moving average remains intact, however, as alluded to yesterday, a test of the 50-day moving average is to be expected at some point, perhaps providing a gut-check to portfolio positioning.  Seasonally, volatility tends to spike into the beginning of February, something that is starting to be realized.

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Volatility Index (VIX) Seasonality

For the week, the S&P 500 Index shed 1.03%, which is, astoundingly, the largest weekly drawdown since the end of August.  The benchmark had gone 16 weeks without a drawdown of over one percent, the last occurrence being the 1.01% decline in the week ending September 27th.  This grind higher in prices has been persistent and it was only a matter of time before the resiliency of the trend was put to the test.  The drawdown last week essentially recorded an inside candlestick.  While the high of the week did exceed the high charted in the week prior, the open, close, and low were within the bounds of the prior week’s range.  This is a rather indecisive pattern at a market high; follow through to the downside next week would certainly have negative implications.  Momentum indicators on the weekly look, while remaining overbought, are showing the slightest signs of rolling over.  Downside risks on this chart are to the 20-week moving average, which has provided consistent support to the bull market trend throughout the past few years.  The big hurdle on the downside is previous horizontal resistance around 3025, which, at this point, is not foreseen to be tested.

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Signs of risk aversion were certainly apparent during Friday’s session with Utilities ending higher on the day, while REITs and Consumer Staples topped the market return.  However, while defense was in vogue, the weakest sector on the day was health care, which can often exhibit defensive characteristics.  The Health Care ETF (XLV) shed 1.67%, closing below its 20-day moving average for the first time since the start of October.  MACD is showing a negative divergence compared to price and performance relative to the market is fading.  The sector provided a “healthy” return through the fourth quarter, following seasonal norms attributed to the ramp up in pharmaceutical sales into the end of the year.  The sector is now rolling over right on cue.  Between the middle of January and the end of March, the sector tends to underperform the broader market as sector constituents fall out of demand.  In the Seasonal Advantage Portfolio that we manage in partnership with Castlemoore, we rotated out of our Health Care allocation a couple of weeks ago, booking profits in what proved to be a stellar performer in its, now ended, seasonal run. 

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On the economic front, Statscan released its tally of retail sales in Canada for the month of November.  The headline print indicated that sales increased by 0.9% in the second to last month of the year, which is stronger than the 0.6% increase that was expected.  The year-over-year change sits at +1.9%, as of this report.  Stripping out the seasonal adjustments, sales actually increased by 1.0%, which is stronger than the 0.5% increase that is average for this time of year.  The year-to-date trend of retail trade is hovering 8.7% above the seasonal norm, which is the second best pace of the past two decades. Subscribers can login to the database and view the seasonal charts for this report via the following link: https://charts.equityclock.com/canada-retail-trade-sales

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.10.

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Seasonal charts of companies reporting earnings today:

D.R. Horton, Inc. Seasonal Chart Sprint Corporation Seasonal Chart Equity Lifestyle Properties, Inc. Seasonal Chart Arconic Inc. Seasonal Chart Brown & Brown, Inc. Seasonal Chart PerkinElmer, Inc. Seasonal Chart Whirlpool Corporation Seasonal Chart Graco Inc. Seasonal Chart Juniper Networks, Inc. Seasonal Chart F5 Networks, Inc. Seasonal Chart Dr. Reddy's Laboratories Ltd Seasonal Chart TCF Financial Corporation Seasonal Chart Crane Co. Seasonal Chart Ashland Global Holdings Inc. Seasonal Chart Bank of Hawaii Corporation Seasonal Chart J & J Snack Foods Corp. Seasonal Chart CenterState Bank Corporation Seasonal Chart South State Corporation Seasonal Chart WesBanco, Inc. Seasonal Chart Sanmina Corporation Seasonal Chart Independent Bank Group, Inc Seasonal Chart Heartland Financial USA, Inc. Seasonal Chart Rambus, Inc. Seasonal Chart Berkshire Hills Bancorp, Inc. Seasonal Chart Alliance Resource Partners, L.P. Seasonal Chart OceanFirst Financial Corp. Seasonal Chart Lakeland Financial Corporation Seasonal Chart Opus Bank Seasonal Chart Washington Trust Bancorp, Inc. Seasonal Chart K12 Inc Seasonal Chart HomeStreet, Inc. Seasonal Chart Bank of Marin Bancorp Seasonal Chart  Scorpio Bulkers Inc. Seasonal Chart Northeast Bank Seasonal Chart Provident Financial Holdings, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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