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Stock Market Outlook for February 26, 2020


Put-call ratio at the highest level since October 3rd, which proved to be an excellent opportunity to add to risk assets (stocks).

 

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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American Fncl Group, Inc. (NYSE:AFG) Seasonal Chart

American Fncl Group, Inc. (NYSE:AFG) Seasonal Chart

Willis Towers Watson Public Ltd. Co. (NASD:WLTW) Seasonal Chart

Willis Towers Watson Public Ltd. Co. (NASD:WLTW) Seasonal Chart

Ardmore Shipping Corp. (NYSE:ASC) Seasonal Chart

Ardmore Shipping Corp. (NYSE:ASC) Seasonal Chart

iShares S&P-TSX Capped Utilities Index ETF (TSE:XUT.TO) Seasonal Chart

iShares S&P-TSX Capped Utilities Index ETF (TSE:XUT.TO) Seasonal Chart

Calamos Dynamic Convertible & Income Fund (NASD:CCD) Seasonal Chart

Calamos Dynamic Convertible & Income Fund (NASD:CCD) Seasonal Chart

WisdomTree International Dividend ex-Financials Fund (NYSE:DOO) Seasonal Chart

WisdomTree International Dividend ex-Financials Fund (NYSE:DOO) Seasonal Chart

Alerian Energy Infrastructure ETF (AMEX:ENFR) Seasonal Chart

Alerian Energy Infrastructure ETF (AMEX:ENFR) Seasonal Chart

iShares Convertible Bond ETF (AMEX:ICVT) Seasonal Chart

iShares Convertible Bond ETF (AMEX:ICVT) Seasonal Chart

Vanguard Communication Services ETF (NYSE:VOX) Seasonal Chart

Vanguard Communication Services ETF (NYSE:VOX) Seasonal Chart

 

 

The Markets

Stocks closed another day deeply in the red as fears concerning the spread of the coronavirus continue to proliferate.  The S&P 500 Index closed down by 3.03%, bringing the three-day decline for the large-cap benchmark to 7.26%.  Cyclical sectors continue to lead the decline with energy, industrials, and materials charting losses in excess of 4% on Tuesday.  The sector benchmarks for each of these core cyclical bets are below long-term levels of support presented by their 200-day moving averages.  This performance is rather atypical for this time of year.  Seasonal tendencies suggest that these sectors should be strengthening into the spring as the ramp up in manufacturing activity following the winter fuels demand.  The demand side of the equation, obviously, has a big question mark overhanging it as coronavirus fears bring the economy to a halt.  While the coronavirus does not factor into our seasonal models, we have chosen to limit exposure to these areas in the Seasonal Advantage Portfolio that we manage in partnership with Castlemoore given the uncertainty as to the strength of demand given the sluggish performance of the manufacturing sector over the past year.  However, these core cyclical bets could present an opportunity to buy on weakness should virus fears fade.  We’ll provide more insight in our monthly report to subscribers that is due to be released in the coming days.  Subscribe now.

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Materials Sector Seasonal Chart

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Industrials Sector Seasonal Chart

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Energy Sector Seasonal Chart

The ongoing plunge in equities has caused the S&P 500 Index to slice through the 20-week moving average (approximately the 100-day moving average), a level that we had been watching as an enticing level to add equity exposure.  The lack of support identified around this zone makes it difficult to suggest catching the falling knife until signs of buying demand materialize.  The next level to the downside is a big one.  The 200-day moving average currently hovers around 3044, now only 2.7% below present levels.  The benchmark, which was significantly overbought just over a month ago is now into oversold territory.  The Relative Strength Index (RSI) is below 30 and MACD has turned negative.

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On the hourly chart, the benchmark is presently the most oversold according to the Relative Strength Index (RSI) since February of 2018, the last time a significant plunge decline was recorded.  The fact that the pronounced decline back then was also realized during the so-called “best six months of the year for stocks” is not lost on us.  The oversold condition suggests that price is unsustainably stretched to the downside, but, as mentioned, evidence of buying demand, as would be indicated by waning negative momentum, remains absent.  Tuesday’s downfall broke a level of short-term support at 3215.  Looking at the breakdown in the context of a double top pattern, a 175-point decline below the breakdown point is the theoretical downside projection.  That would suggest a target of approximately 3040, close to the next major level of support at the 200-day moving average.  Obviously, the situation remains fluid, but based on a past report released to subscribers showing the precedent past outbreak events, it must be expected that the impact of this event will also be short-term in nature and not have a prolonged impact on the economy or stocks.  Subscribers can login and view the report released one month ago in our report archive at the following link: https://charts.equityclock.com/featured/special-report-january-27-2020

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On the economic front, Case-Shiller released their final look at home prices for 2019.  In the last report for the year, home prices are indicated to have increased by 0.4% in December, just shy of the consensus analyst estimate that called for a rise of 0.5%.  Stripping out the seasonal adjustments, home prices were actually unchanged, which is stronger than the 0.3% decline that is average for the last month of the year.  The calendar year change was higher by 2.9%, which is weaker than the 4.0% increase that has been average over the past 17 years.  Subscribers can view the other charts  for this report at the following link: https://charts.equityclock.com/sp-corelogic-case-shiller-home-price-index-city-breakdown

S&P/Case-Shiller 20-City Composite Home Price Index Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.31.  This is the highest level since October 3rd, which proved to be an excellent time to accumulate risk assets (stocks).  Recall, back on October 3rd, an abrupt dip to start the month of October led to a test of the rising 200-day moving average, resulting in a reversal candlestick that suggested buying demand around the long-term hurdle.  A similar outcome this time around would be ideal, but we have to be prepared for a curve-ball of some sort.

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Seasonal charts of companies reporting earnings today:

Coca Cola Femsa S.A.B. de C.V. Seasonal Chart Lowe's Companies, Inc. Seasonal Chart Booking Holdings Inc. Seasonal Chart TJX Companies, Inc. (The) Seasonal Chart Crown Castle International Corporation Seasonal Chart Marriott International Seasonal Chart NetEase, Inc. Seasonal Chart Canadian Imperial Bank of Commerce Seasonal Chart Square, Inc. Seasonal Chart Public Service Enterprise Group Incorporated Seasonal Chart ANSYS, Inc. Seasonal Chart Ameren Corporation Seasonal Chart BioMarin Pharmaceutical Inc. Seasonal Chart J.M. Smucker Company (The) Seasonal Chart Universal Health Services, Inc. Seasonal Chart NiSource, Inc Seasonal Chart VEREIT Inc. Seasonal Chart Liberty Media Corporation Seasonal Chart Apache Corporation Seasonal Chart Liberty Media Corporation Seasonal Chart Weibo Corporation Seasonal Chart Sarepta Therapeutics, Inc. Seasonal Chart Continental Resources, Inc. Seasonal Chart Teladoc Health, Inc. Seasonal Chart Ionis Pharmaceuticals, Inc. Seasonal Chart TechnipFMC plc Seasonal Chart L Brands, Inc. Seasonal Chart ACADIA Pharmaceuticals Inc. Seasonal Chart Horizon Therapeutics Public Limited Company Seasonal Chart Moderna, Inc. Seasonal Chart Churchill Downs, Incorporated Seasonal Chart The Middleby Corporation Seasonal Chart Etsy, Inc. Seasonal Chart Curtiss-Wright Corporation Seasonal Chart Sabre Corporation Seasonal Chart Eaton Vance Corporation Seasonal Chart Nexstar Media Group, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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