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Stock Market Outlook for February 7, 2020


Stocks re-taking all-time high levels, but a couple of things don’t look right.

 

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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Broadcom Inc. (NASD:AVGO) Seasonal Chart

Broadcom Inc. (NASD:AVGO) Seasonal Chart

McDonalds Corp. (NYSE:MCD) Seasonal Chart

McDonalds Corp. (NYSE:MCD) Seasonal Chart

Flowers Foods, Inc. (NYSE:FLO) Seasonal Chart

Flowers Foods, Inc. (NYSE:FLO) Seasonal Chart

Clean Energy Fuels Corp. (NASD:CLNE) Seasonal Chart

Clean Energy Fuels Corp. (NASD:CLNE) Seasonal Chart

Stein Mart, Inc. (NASD:SMRT) Seasonal Chart

Stein Mart, Inc. (NASD:SMRT) Seasonal Chart

Baytex Energy Corp. (NYSE:BTE) Seasonal Chart

Baytex Energy Corp. (NYSE:BTE) Seasonal Chart

Gear Energy Ltd. (TSE:GXE.TO) Seasonal Chart

Gear Energy Ltd. (TSE:GXE.TO) Seasonal Chart

Invesco Global Water ETF (NASD:PIO) Seasonal Chart

Invesco Global Water ETF (NASD:PIO) Seasonal Chart

Invesco S&P SmallCap Consumer Staples ETF (NASD:PSCC) Seasonal Chart

Invesco S&P SmallCap Consumer Staples ETF (NASD:PSCC) Seasonal Chart

United States Oil Fund, LP (NYSE:USO) Seasonal Chart

United States Oil Fund, LP (NYSE:USO) Seasonal Chart

 

 

The Markets

Stocks tacked on further gains on Thursday following news that China will cut tariffs in half on $75 billion in goods that it imports from the US.  The S&P 500 Index gained a third of one percent, closing at a new all-time record high.  On the hourly chart, short-term momentum indicators remain overbought and appear to be stalling as investors digest the gains from the past week.  The relative strength index (RSI) remains firmly above 70, stochasticts remain embed above 80, and MACD is at the highest level since June of last year.  MACD is also converging with its signal line, seemingly poised to trigger a short-term sell signal.  A number of gaps remain unfilled given the action in recent days and a fill of these zones seems probable.  Seasonally, buying demand in the equity market tends to wane following the first few days of the month, leaving the large-cap benchmark susceptible to short-term consolidation going into the middle of the month.  The gaps that are unfilled below are poised to act as levels of support.

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As highlighted in yesterday’s report, the next catalyst for stocks is likely to be the non-farm payroll report that is slated to be released on Friday.  On Thursday, our last hint of what to expect from this labour market report was disseminated.  Initial jobless claims, a leading indicator to employment activity, fell to a nine-month low last week at 202,000.  The result is down 15,000 from the week prior and better than the consensus analyst estimate that called for a decline of 2,000 to 215,000.  Stripping out the seasonal adjustments, initial claims actually fell by 4,554 to 224,448.  The year-to-date change is now down by 28.2%, which is the best pace since 2006.  The average decline by this point in the year is 17.7%.  Strains in the labour market are typically picked up in unemployment claims before any significant impact on the change in employment is realized.  The result suggests that January’s non-farm payroll report could be quite strong, helped by, among other things, renewed manufacturer optimism, warmer than average winter weather, and census hiring.  We’ll break down the results in an intraday update for subscribers on Friday.  Signup now to be added to the list.

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While stocks return to all-time highs, there are a number of aspects of the market that don’t equate to the return of risk-on sentiment.  For one, bond prices remain elevated.  The bond market gained new life following the recent uptick in volatility in equity markets.  The iShares 7-10 Year Treasury Bond ETF (IEF) rallied back to the all-time high below $114.  Momentum indicators for the fixed income ETF are showing bullish characteristics and the 20-day moving average of the relative trend recently curled higher, suggesting a period of outperformance has begun.  Major moving averages are also on an upswing, suggesting positive trends across short, intermediate, and long-term timeframes.  A break above resistance for the intermediate-term bond fund would send a strong signal of risk aversion amongst investors.  Seasonally, bond funds tend to underperform stocks between now and the end of April.

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http://charts.equityclock.com/seasonal_charts/IEF_RelativeToSPX.png

Another aspect that suggests that the market is not back in risk-on mode is the action in the commodity market.  Of course, the weakness in the price of energy commodities is well known with oil hovering around multi-year lows, indicative of struggling economic conditions.  But more telling of sentiment is the elevated level of the price of Gold, which continues to hover around multi-year highs.  The US Dollar has recently strengthened, breaking out of an intermediate declining trend channel, but the price of gold has remained rather resilient.  Dollar strength is typically a headwind for commodity prices.  Seasonally, the price of gold strengthens between the middle of December and the end of February amidst the uptick in volatility around the middle of the fourth quarter earnings season.  With volatility coming down as equity prices hit all-time highs, the scepticism of investors in the precious metal continues to be apparent.

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Gold Futures (GC) Seasonal Chart

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Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.71.

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Seasonal charts of companies reporting earnings today:

AbbVie Inc. Seasonal Chart Honda Motor Company, Ltd. Seasonal Chart FirstEnergy Corp. Seasonal Chart CNH Industrial N.V. Seasonal Chart Cboe Global Markets, Inc. Seasonal Chart ASE Technology Holding Co., Ltd. Seasonal Chart CAE Inc Seasonal Chart The Madison Square Garden Company Seasonal Chart Hanesbrands Inc. Seasonal Chart Cameco Corporation Seasonal Chart Domtar Corporation Seasonal Chart Meridian Bioscience Inc. Seasonal Chart Civista Bancshares, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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