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Stock Market Outlook for February 24, 2020


 

MACD triggering a Sell signal on the S&P 500 Index as the bid under the Technology sector fades.

 

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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Hornbeck Offshore Services Inc. (NYSE:HOS) Seasonal Chart

Hornbeck Offshore Services Inc. (NYSE:HOS) Seasonal Chart

Crew Energy Inc. (TSE:CR.TO) Seasonal Chart

Crew Energy Inc. (TSE:CR.TO) Seasonal Chart

DHI Group, Inc. (NYSE:DHX) Seasonal Chart

DHI Group, Inc. (NYSE:DHX) Seasonal Chart

Stepan Co. (NYSE:SCL) Seasonal Chart

Stepan Co. (NYSE:SCL) Seasonal Chart

FormFactor Inc. (NASD:FORM) Seasonal Chart

FormFactor Inc. (NASD:FORM) Seasonal Chart

Nomad Foods Limited (NYSE:NOMD) Seasonal Chart

Nomad Foods Limited (NYSE:NOMD) Seasonal Chart

Cohen & Steers Global Income Builder, Inc. (NYSE:INB) Seasonal Chart

Cohen & Steers Global Income Builder, Inc. (NYSE:INB) Seasonal Chart

Diana Shipping Inc. (NYSE:DSX) Seasonal Chart

Diana Shipping Inc. (NYSE:DSX) Seasonal Chart

Waste Connections, Inc. (NYSE:WCN) Seasonal Chart

Waste Connections, Inc. (NYSE:WCN) Seasonal Chart

iShares S&P-TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ.TO) Seasonal Chart

iShares S&P-TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ.TO) Seasonal Chart

ProShares MSCI EAFE Dividend Growers ETF (NYSE:EFAD) Seasonal Chart

ProShares MSCI EAFE Dividend Growers ETF (NYSE:EFAD) Seasonal Chart

FirstAsset Canadian Convertible Bond ETF (TSE:CXF.TO) Seasonal Chart

FirstAsset Canadian Convertible Bond ETF (TSE:CXF.TO) Seasonal Chart

 

 

The Markets

Stocks closed firmly lower on Friday as a bid finally came out of overvalued technology stocks.  The S&P 500 Index shed over one percent, reaching back towards the benchmark’s rising 20-day moving average that currently hovers around 3323.  MACD triggered a new sell signal as the momentum indicator crossed below its signal line.  The bearish crossover is being realized at a level lower than January’s sell trigger, confirming a negative divergence compared to price.  A similar negative divergence can be seen on the Relative Strength Index (RSI), which is rolling over from overbought levels.  While major moving averages continue to point higher, implying positive trends across multiple timescales, the large-cap benchmark continues to look toppy, something that we’ve been alluding to for the past week.  Fortunately, the levels of support below remain many, including major moving averages and open gaps at 3310 and 3275.  The present backdrop provides the highest likelihood of a full blown pullback in the range of 5% to 10%.  However, until the evidence that the fundamental backdrop of the market has shifted, the dip warrants buying.

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On the weekly chart, the 20-week moving average at 3184 remains an enticing target.  The level would represent a pullback of approximately 6% from peak to trough, a typical gyration in any intermediate to long-term bull market trend.  The 20-week moving average, approximately equivalent to the 100-day moving average, has frequently supported the long-term bull market trend through the past many years and it is only at the point when the significant hurdle acts as resistance that taking aggressive risk control measures is appropriate.  Momentum indicators on the weekly look are rolling over from significantly overbought levels with the Relative Strength Index (RSI) triggering a sell signal.  Despite the rollover from overbought territory, the momentum indicators, in general, continue to show bullish characteristics, suggesting that the risks to the intermediate and long-term trend remain low.  Seasonally, the next period of strong buying demand for stocks is typically realized in March and April, suggesting an enticing window to buy should stocks pullback further.

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Leading the market lower on Friday was the technology sector.  The ETF that tracks the space (XLK) fell by 2.24%, breaking below its rising 20-day moving average at the lows of the session.  On Tuesday we highlighted the waning momentum in shares of Apple, the largest constituent in most technology benchmarks and the market overall, and the fact that the sector has entered its seasonally weaker time of year, suggesting that there is better opportunities elsewhere.  This has proved to be timely advice.  The technology ETF needs some time to digest the near parabolic rise that has been realized over the past five months, but, as with the broader market, buying opportunities should emerge given that the fundamentals for the sector continue to suggest growth.  The next period of strength for the sector begins in the middle of April, on average.

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http://charts.equityclock.com/seasonal_charts/TECHNOLOGY_RelativeToSPX.PNG

On the economic front, a report on existing home sales was released during Friday’s session. The headline print of January’s report indicates that activity declined by 1.3% to a seasonally adjusted annualized rate of 5.46 million.  Analysts were expecting a 1.4% decline to a rate of 5.45 million. The year-over-year change ratcheted back to +9.6% from +10.6% previous. Stripping out the seasonal adjustments, existing home sales actually fell by 26.7% in January, which is stronger than the 27.2% decline that is average for the month. The result follows a 15.1% increase in sales in 2019, which was the best pace in the past two decades. The average calendar year increase over the past two decades is a mere 0.3%.  Want to find out what this all means for your seasonal portfolio?  Subscribe now to read our full report sent to subscribers on Friday.

Existing Home Sales Seasonal Chart

North of the border, retail sales in Canada were released before Friday’s opening bell.  Statscan reported that retail trade in this country was unchanged in December, which is well below the 0.5% increase that was expected by analysts. The result places the year-over-year change at +2.4%, which is an improvement from the 1.9% annual increase reported in November. Stripping out the seasonal adjustments, Canada Retail Trade actually increased by 1.8% in December, which is nowhere near the 13.5% increase that has been average for the month over the past two decades. The calendar year change was higher by a mere 1.8%, which is below the 3.8% increase that has been the norm over the past 20 years.  In our report to subscribers, we highlight the evolution of the seasonal tendencies surrounding consumer activity, which could have a profound impact on economic and equity market tendencies moving forward.  Subscribe now and we’ll send you our report.

Retail trade Seasonal Chart

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.15.  This is the highest put-call ratio since November 21st, indicating that the complacency that has been prominent in the market is being shaken loose.  The more investors hedge their portfolios by way of puts, the better the risk-reward of the market becomes.

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Seasonal charts of companies reporting earnings today:

Intuit Inc. Seasonal Chart HP Inc. Seasonal Chart ONEOK, Inc. Seasonal Chart Palo Alto Networks, Inc. Seasonal Chart Keysight Technologies Inc. Seasonal Chart BWX Technologies, Inc. Seasonal Chart Trex Company, Inc. Seasonal Chart EPR Properties Seasonal Chart Tandem Diabetes Care, Inc. Seasonal Chart Armstrong World Industries Inc Seasonal Chart Carter's, Inc. Seasonal Chart Sabra Health Care REIT, Inc. Seasonal Chart Cornerstone OnDemand, Inc. Seasonal Chart Itron, Inc. Seasonal Chart Apple Hospitality REIT, Inc. Seasonal Chart Tenet Healthcare Corporation Seasonal Chart American States Water Company Seasonal Chart Halozyme Therapeutics, Inc. Seasonal Chart Shake Shack, Inc. Seasonal Chart Dorman Products, Inc. Seasonal Chart Epizyme, Inc. Seasonal Chart New York Mortgage Trust, Inc. Seasonal Chart Merit Medical Systems, Inc. Seasonal Chart Kratos Defense & Security Solutions, Inc. Seasonal Chart National Storage Affiliates Trust Seasonal Chart Xenia Hotels & Resorts, Inc. Seasonal Chart Argo Group International Holdings, Ltd. Seasonal Chart Black Stone Minerals, L.P. Seasonal Chart Kosmos Energy Ltd. Seasonal Chart Xencor, Inc. Seasonal Chart Kaman Corporation Seasonal Chart Dine Brands Global, Inc. Seasonal Chart Theravance Biopharma, Inc. Seasonal Chart Revance Therapeutics, Inc. Seasonal Chart Rent-A-Center Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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