Stock Market Outlook for February 3, 2020
Over the past 20 years, February has been another negative month, averaging a decline of 0.3%.
*** 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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Rent-A-Center, Inc. (NASD:RCII) Seasonal Chart
Obsidian Energy Ltd. (TSE:OBE.TO) Seasonal Chart
Triumph Group, Inc. (NYSE:TGI) Seasonal Chart
Ivanhoe Mines Ltd. (TSE:IVN.TO) Seasonal Chart
Allstate Corp. (NYSE:ALL) Seasonal Chart
Peyto Exploration & Development Corp. (TSE:PEY.TO) Seasonal Chart
Graco, Inc. (NYSE:GGG) Seasonal Chart
VMware Inc. (NYSE:VMW) Seasonal Chart
The Markets
Stocks dipped on Friday as coronavirus fears once again gripped equity markets. The S&P 500 Index shed 1.77%, falling to its 50-day moving average where it found support at the lows of the session. The 20-day moving average is now confirmed as resistance. Momentum indicators continue to point lower following the sell signals that were generated with respect to MACD, RSI, and Stochastics one week ago. The benchmark is around levels where buying demand should materialize, but given the panic on Friday that resulted in a drawdown of over two percent in many areas of the market, it is unclear, as of yet, whether investors will be willing to stick their neck out. A break of the 50-day moving average would open the door toward a test of the 100-day at 3110. The major line in the sand, representing what we foresee as the worst case scenario, is a test of previous horizontal resistance at 3025. A test of this lower limit still appears unlikely, but the situation remains fluid. So far, the large-cap benchmark is off around 3.4% from the all-time intraday peak of 3337.77, which is hardly a blip in the overall path of higher-highs and higher-lows. On average, markets realize at least one drawdown each year in the magnitude of 5% to 10%; we are still a ways off from this standard correction zone.
For the week, the large-cap benchmark was down by 2.12%, breaking to the downside following the inside (indecision) candlestick that we highlighted last week. The short-term trend has been deemed to be lower for the past week, but, now, the follow-through on the weekly look has intermediate negative implications. The benchmark is testing the upper limit of the previous rising trend channel, a level that supported the benchmark around the uptick in volatility that followed escalating tensions between the US and Iran. The relative strength index has rolled over from overbought territory, triggering a sell signal. This is the first weekly sell signal with respect to this indicator since February of 2018. MACD and stochastics have yet to chart a similar bearish crossover, however, the indicators are rolling over as well. Seasonally, the market is typically volatile in the back half of January and into February, something that we were prepared for, however, the catalyst has no seasonal significance.
Friday also marked the last day of the month and following an upbeat start of the year, the 0.16% decline for January is the first negative month since August. The result is inline with the average change for the first month of the year which has seen a loss of 0.3%, on average, over the past 20 years. The return for February doesn’t get any better. Over the same timeframe, the second month of the year has averaged a decline of 0.3%, the same as January, however, the frequency of positive results comes in at 55%. In January, the frequency is only 50%. February returns over the past 20 years have ranged from a loss of 11.0% in 2009 to a gain of 5.5% in 2015. The start of the year is typically a weaker period for equity markets as investors digest the gains from the past three months and react to the release of earnings reports for the last quarter of the year. Want to learn how to position your portfolio for the month(s) ahead and take advantage of the recent dip in equity prices? In our just released 72-page outlook for February we highlight the following:
- Equity market tendencies in the month of February
- Why investors have ignored much of the negative data-points over the past year
- Reason for hope that the manufacturing economy will rebound in the first half of the year
- A simple binary gauge to determine when to "buy the dips" or "sell the rips"
- The odd dynamic between the change in job openings and equity market performance
- Comparison of the present sentiment of investors to similar periods in the past
- Comments on the historical market impact from similar viral outbreaks to the coronavirus
- The technical status of the S&P 500 Index
- Sector reviews and ratings
- Notable stocks and ETFs entering their period of strength in February
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On the economic front, Statscan released its look at the state of Gross Domestic Product (GDP) in Canada. The headline print indicated that GDP in Canada increased by a marginal 0.1% in November, which is slightly better than the consensus analyst estimate that called for an unchanged result. The year-over-year increase now sits at 1.5%, up from the 1.2% reported in the month prior. Stripping out the seasonal adjustments, GDP in Canada actually declined by 0.4% in November, which is stronger than the 0.6% decline that is average for this second to last month of the year. The year-to-date change is now hovering 1.1% below the seasonal average trend, maintaining a gap that has been in place for much of the year. We sent out further insight to subscribers during Friday’s session. Want a copy of this report? Signup now and we’ll send it to you.
Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.07.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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