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Stock Market Outlook for February 25, 2020


If you are not excited by the opportunities that this pullback presents, you are either too exposed to risk for your own tolerance and/or not the correct individual to manage your portfolio on your own.

 

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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Aflac, Inc. (NYSE:AFL) Seasonal Chart

Aflac, Inc. (NYSE:AFL) Seasonal Chart

Ashland Global Holdings Inc. (NYSE:ASH) Seasonal Chart

Ashland Global Holdings Inc. (NYSE:ASH) Seasonal Chart

Baidu, Inc. (NASD:BIDU) Seasonal Chart

Baidu, Inc. (NASD:BIDU) Seasonal Chart

Shaw Communications, Inc. (TSE:SJR/B.TO) Seasonal Chart

Shaw Communications, Inc. (TSE:SJR/B.TO) Seasonal Chart

Cullen Frost Bankers Inc. (NYSE:CFR) Seasonal Chart

Cullen Frost Bankers Inc. (NYSE:CFR) Seasonal Chart

Wabtec (NYSE:WAB) Seasonal Chart

Wabtec (NYSE:WAB) Seasonal Chart

First Asset Active Canadian Dividend ETF (TSE:FDV.TO) Seasonal Chart

First Asset Active Canadian Dividend ETF (TSE:FDV.TO) Seasonal Chart

PIMCO Global Income Opportunities Fund (TSE:PGI-UN.TO) Seasonal Chart

PIMCO Global Income Opportunities Fund (TSE:PGI-UN.TO) Seasonal Chart

Invesco S&P High Income Infrastructure ETF (AMEX:GHII) Seasonal Chart

Invesco S&P High Income Infrastructure ETF (AMEX:GHII) Seasonal Chart

 

 

The Markets

Stocks dipped on Monday as investors grew concerned over the spread of the coronavirus outside of China.  The S&P 500 Index fell 3.35%, charting the worst percentage decline in over two years.  Investors would have to look back to February 8 2018 to see a comparable decline.  Back then, a similar parabolic rise to start the year eventually resulted in a retracement back to the benchmark’s 200-day moving average before a buying opportunity was presented.  The benchmark would have to decline another 5.7% to achieve a similar test of long-term support.  The abrupt downtick opened a gap between 3260 and 3330, which, in addition to the 50-day moving average, is in a position of resistance that may cap market momentum in the short-term.  Confirmation of resistance at the 50-day moving average would present negative intermediate-term implications.  As mentioned in our outlook for Monday, the 20 week, approximately the 100 day, moving average, now at 3197, is an enticing target, a level that is only a mere nine-tenths of a percent below Monday’s close.  This is an appealing risk-reward level, but investors have to be aware of what the risk-reward levels are.  Downside risks are to last summer’s broken resistance at 3025.  Upside reward is back to the all-time high, and perhaps beyond, so long as the economy remains on a path of growth and forward expectations for earnings remain positive.  This would suggest that at the 20-week moving average that the downside risk and upside reward are approximately balanced around 5% to 6% a piece (5% downside risk, 6% potential upside reward).  This plays to our thesis that the risk-reward of the market shifts in a favourable manner around this hurdle.

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While the daily percent decline has easily been rivalled in the past, the actual point decline has seen little precedent.  The 111.86 point drop is is the second largest point decline on record.  Only the 113.19 point decline on February 5 2018 was larger, albeit not by much.  Of course, this pullback should be no surprise to our subscribers as we have been highlighting waning momentum and breadth as providing “the highest likelihood of a pullback” that we’ve seen in quite a while.  If you are not excited by the opportunities that this pullback presents, you are either too exposed to risk for your own tolerance and/or not the correct individual to manage your portfolio on your own.  Rather than letting fear dominate, as we saw on a wide scale on Monday with a number of benchmarks selling off to the tune of 3% to 5%, the pullback should be interpreted as an opportunity to redeploy risk once signs of stabilization become apparent.  In the Seasonal Advantage Portfolio that we manage in partnership with Castlemoore, we took down risk in equities early last week, trimming exposure to US bank stocks upon signs of resistance and deploying the capital to corporate bonds.  Corporate bond prices have produced impressive returns since the year began, benefitting from the downfall in yields.  The rotation continues to respect our three-pronged approach, which incorporated seasonal, technical, and fundamental analysis.  We are now looking for opportunities to take off portfolio hedges and ramp up risk, when appropriate.   Looking for a playbook for the month ahead?  We are busy preparing our monthly outlook for March, which will provide a run-down of what to look out for in the month(s) ahead.  Want a copy?  Subscribe now to be included on our list.

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Investors had been complacent coming into this abrupt pullback and all that was required was a shock event to shake investors loose of bullish positioning.  One of the things we will be seeking to determine that weak hands have been washed out is the re-adoption of bearish bets.  The action of the volatility index (VIX) can provide clue.  We have been proponents of a simple strategy involving the VIX using two levels.  The strategy entails being opportunistic in risk assets when the VIX peaks above 21 or, conversely, become cautious when the VIX bottoms below 12.  This 21-12 strategy has enabled a binary way of deploying risk assets.  The VIX bottomed below 12 on January 17th and has traded higher since, even as equity prices went on to chart a higher-high.  Now the VIX is above 21, but we have yet to confirm a peak; a move back below 21 would be conducive to suggesting the peak is in.  Seasonally, the VIX tends to decline from a peak charted in the month of February, eventually finding a floor in the month of May.

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Volatility Index (VIX) Seasonality

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.09.  Despite the sharp increase in fear/panic on Monday, the ratio of puts to calls actually declined from Friday’s closing level.  It is difficult to conclude a shakeout of complacency when the put-call ratio remains rather subdued during a panic session.

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Seasonal charts of companies reporting earnings today:

Home Depot, Inc. (The) Seasonal Chart Salesforce.com Inc Seasonal Chart American Tower Corporation (REIT) Seasonal Chart Bank of Nova Scotia (The) Seasonal Chart Bank Of Montreal Seasonal Chart Ecopetrol S.A. Seasonal Chart Thomson Reuters Corp Seasonal Chart Public Storage Seasonal Chart CoStar Group, Inc. Seasonal Chart Avangrid, Inc. Seasonal Chart Heico Corporation Seasonal Chart Cheniere Energy, Inc. Seasonal Chart Insulet Corporation Seasonal Chart Caesars Entertainment Corporation Seasonal Chart Planet Fitness, Inc. Seasonal Chart Jazz Pharmaceuticals plc Seasonal Chart STARWOOD PROPERTY TRUST, INC. Seasonal Chart Penumbra, Inc. Seasonal Chart Amarin Corporation plc Seasonal Chart Exelixis, Inc. Seasonal Chart Toll Brothers, Inc. Seasonal Chart Spirit Realty Capital, Inc. Seasonal Chart Macy's Inc Seasonal Chart Ryman Hospitality Properties, Inc. Seasonal Chart Millicom International Cellular S.A. Seasonal Chart FTI Consulting, Inc. Seasonal Chart Darling Ingredients Inc. Seasonal Chart Ormat Technologies, Inc. Seasonal Chart LendingTree, Inc. Seasonal Chart OUTFRONT Media Inc. Seasonal Chart Nevro Corp. Seasonal Chart TopBuild Corp. Seasonal Chart Cracker Barrel Old Country Store, Inc. Seasonal Chart Weingarten Realty Investors Seasonal Chart Iridium Communications Inc Seasonal Chart Macquarie Infrastructure Corporation Seasonal Chart GW Pharmaceuticals Plc Seasonal Chart Univar Solutions Inc. Seasonal Chart Qurate Retail, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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