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Stock Market Outlook for February 21, 2020


The yield on the 30-year treasury bond just broke significant support at 2%; the 10-year yield at 1.5% is an important level to watch.

 

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*** 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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AGNC Investment Corp. (NASD:AGNC) Seasonal Chart

AGNC Investment Corp. (NASD:AGNC) Seasonal Chart

ZAGG Inc. (NASD:ZAGG) Seasonal Chart

ZAGG Inc. (NASD:ZAGG) Seasonal Chart

Ford Motor Co. (NYSE:F) Seasonal Chart

Ford Motor Co. (NYSE:F) Seasonal Chart

ATS Automation Tooling Systems, Inc. (TSE:ATA.to) Seasonal Chart

ATS Automation Tooling Systems, Inc. (TSE:ATA.to) Seasonal Chart

The Children's Place, Inc. (NASD:PLCE) Seasonal Chart

The Children’s Place, Inc. (NASD:PLCE) Seasonal Chart

McCoy Bros., Inc.  (TSE:MCB.TO) Seasonal Chart

McCoy Bros., Inc. (TSE:MCB.TO) Seasonal Chart

TerraForm Power, Inc. (NASD:TERP) Seasonal Chart

TerraForm Power, Inc. (NASD:TERP) Seasonal Chart

 

 

The Markets

Stocks closed lower on Thursday as investors monitored the threat of a breakdown in US treasury yields and what it has to say about the risk-sentiment of investors.  The S&P 500 Index shed nearly four-tenths of one percent, trading back into the tight short-term range than had been highlighted in recent days.  At the lows of the session, the benchmark temporarily broke below the lower limit of the span, hinting of further losses to follow.  But the resilience of the benchmark remains impressive as investors maintained a bid under the market throughout much of the session, helping to offset the brief move lower during the morning session.  As we have been noting for the past few days, momentum on the large-cap  benchmark has been waning, suggesting deteriorating buying demand, typically the precursor to a pullback.  The benchmark closed at the convergence of its 20 and 50-hour moving averages, hurdles that are now in a position of resistance.  Stocks continue to look tired.

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Aside from the technical factors relating to major benchmarks themselves, which made investors (or trading programs) more inclined to sell rather than to buy on Thursday, treasury yields captured attention.  Further gains in treasury prices pushed the yield on these assets back to multi-year lows.  The yield on the 10-year note pressured the 1.5% hurdle that we highlighted in yesterday’s report.  The 30-year yield broke support at 2.0% to trade with a “1”-handle for the first time since last August.  Momentum indicators for yields continue to point to negative trends, suggesting the path of least resistance, for the time being, is lower.  These are significant levels to violate and the action is more indicative of an economy and market that is in contraction.  The 10-year yield is seemingly a big one to watch: it would be difficult to not spook the equity market should the yield on this intermediate bond break significant support at 1.5%.  The yield closed the session at 1.525%.

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The compression in yields is resulting in another inversion of yields at various points along the curve, typically a leading indicator to a recession.  The 3-month yield currently exceeds the 10-year yield, resulting in the curve falling to the lowest level since the third quarter of last year.  The more important spread between the 10 and 2 year yield remains positive, for now, but it has narrowed in recent days.  The spread at this critical part of the curve inverted in August of last year, leading to the proliferation of recession concerns.  Typically, the first instance of inversion can be passed off as equity markets have historically performed very well shortly thereafter.  That they have done.  But it is the second inversion that typically heeds caution.  The spread still has a long way to go to achieve an inversion similar to last summer, but the short-term path is leaning in that manner. 

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On Thursday, we issued a report to subscribers pertaining to the health of the transportation industry and an update on the broader manufacturing sector.  During the session, the widely traded transportation ETF (IYT) traded above resistance at $198, hinting of buying demand during its seasonally favourable time of year.  With shipping metrics in decline, subscribe now to obtain insight on how we see the trade in this cyclical area of the market.

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Cass Freight Index: Shipments  Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.84.

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Seasonal charts of companies reporting earnings today:

Royal Bank Of Canada Seasonal Chart Deere & Company Seasonal Chart Magna International, Inc. Seasonal Chart W. P. Carey Inc. Seasonal Chart Pinnacle West Capital Corporation Seasonal Chart Teck Resources Ltd Seasonal Chart ITT Inc. Seasonal Chart Colfax Corporation Seasonal Chart Cinemark Holdings Inc Seasonal Chart Balchem Corporation Seasonal Chart Barnes Group, Inc. Seasonal Chart HMS Holdings Corp Seasonal Chart Harsco Corporation Seasonal Chart Enerplus Corporation Seasonal Chart Valaris plc Seasonal Chart Ruth's Hospitality Group, Inc. Seasonal Chart Diana Shipping inc. Seasonal Chart VolitionRX Limited Seasonal Chart Olympic Steel, Inc. Seasonal Chart StealthGas, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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