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Stock Market Outlook for February 28, 2020


The halt of trading on the TSX when order volume was likely the greatest is a sure-fire way to lose confidence in the Canadian market.

 

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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Dycom Industries, Inc. (NYSE:DY) Seasonal Chart

Dycom Industries, Inc. (NYSE:DY) Seasonal Chart

B&G Foods Inc. (NYSE:BGS) Seasonal Chart

B&G Foods Inc. (NYSE:BGS) Seasonal Chart

CSG Systems Intl, Inc. (NASD:CSGS) Seasonal Chart

CSG Systems Intl, Inc. (NASD:CSGS) Seasonal Chart

Evolent Health, Inc. (NYSE:EVH) Seasonal Chart

Evolent Health, Inc. (NYSE:EVH) Seasonal Chart

ProShares Short VIX Short-Term Futures ETF (NYSE:SVXY) Seasonal Chart

ProShares Short VIX Short-Term Futures ETF (NYSE:SVXY) Seasonal Chart

WhiteHorse Finance, Inc. (NASD:WHF) Seasonal Chart

WhiteHorse Finance, Inc. (NASD:WHF) Seasonal Chart

 

 

The Markets

Another brutal day for equity markets with the Dow Jones Industrial Average and S&P 500 Index recording one of the largest point declines on record.  The S&P 500 Index fell by 4.42%, slicing through its 200-day moving average, which attempted to be defended intraday.  We proposed two scenarios in yesterday’s daily outlook, the first being stabilization around the 200-day moving average and the second being a wash-out panic.  It looks like the latter scenario was just realized.  Defensive sectors were among the segments leading the market lower on the day with Utilities and REITs, falling by 4.5% and 5.3%, respectively, seeing losses greater than the market performance on the day.  The performance of the Consumer Staples sector was inline with that of the Consumer Discretionary sector, declining by around 4%.  The Gold Miners, which had been acting as a fantastic hedge in the midst of tremendous volatility, fell by 5.76%.  The Volatility Index spiked by 42% from already lofty levels to close at the highest level since August of 2015, indicating an aggressive race towards portfolio hedges.  Washout events such as this are fairly rare, but they often lead to opportunities.  We sent out further insight to subscribers intraday, providing a timely update on the appropriate action on how to position in this market. Don’t miss out on this timely guidance.  Subscribe now.

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Strains also spread to the bond market with the Investment Grade Corporate Bond ETF (LQD) shedding half of one percent, despite treasury rates touching new record lows.  In the Seasonal Advantage Portfolio  that we manage in partnership with Castlemoore, we had been hiding out in corporate bonds for the past week and a half based on evidence of deterioration on equity market technicals, something that we have been reporting on this site.  We shed those hedges during Thursday’s session based on the fact that the risk of default has risen, especially corporate bonds in the energy sector with the price of oil below $50.  The ratio of the Junk bond ETF (JNK) versus the Investment Grade ETF (LQD) continues to breakdown, suggesting strains in the credit market.

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Watch the Canadian market in the coming days.  The TSX Composite had been outperforming US counterparts over the last few sessions as a result of the defensive attributes that are encompassed within.  Gold miners and the many areas of yield presented by the large Canadian banks, REITs, and utilities have historically acted as a hedge during periods of volatility.  But with all of those areas down significantly in the US during Thursday’s session, the Canadian benchmark may take a hit.  However, we don’t actually know how the TSX performed on Thursday as a trade glitch halted activity, preventing orders from being executed at the peak of when investors were seeking to trade.  This is a sure-fire way to lose confidence in the Canadian market when the primary exchange prevents the execution of orders for end users to manage their money.  We would go so far to say that it should be illegal as it is, in our opinion, negligent to not have the systems in place to accommodate high order flows at a time when it matters most to investors.  Seasonally, the TSX tends to outperform the S&P 500 Index in January and February, then underperforms in March and April.  This is presently our bias and, as such, we have cut our exposure to the TSX Composite, fortunately just prior to the market halt.

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http://charts.equityclock.com/seasonal_charts/indexes/$TSX_RelativeToSPX.PNG

On the economic front, a report on Durable Goods Orders in the US was released before Thursday’s session.  The headline print of January’s report indicated that new orders of durable goods in the US declined by 0.2% in January, which is actually a beat versus the consensus analyst estimate that called for a decline of 1.2%. Core capital goods were higher by 1.1%, which was much stronger than the 0.3% increase that was forecast. Stripping out the seasonal adjustments, the value of manufacturers’ new orders for durable goods industries actually declined by 9.0% in January, which is stronger than the 13.1% decline that is average for the first month of the year. Last year, durable goods orders were down by 3.4%, which is the weakest pace since the last recession and a negative divergence compared to the 2.1% increase that is average for the calendar year.  We sent out further insight to subscribers intraday, including what the results mean for supply chains that have investors concerned.  Subscribe now and we’ll send you this report.

Value of Manufacturers' New Orders for Durable Goods Industries Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.35.

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Seasonal charts of companies reporting earnings today:

ENI S.p.A. Seasonal Chart The AES Corporation Seasonal Chart Wayfair Inc. Seasonal Chart Spirit Aerosystems Holdings, Inc. Seasonal Chart PNM Resources, Inc. (Holding Co.) Seasonal Chart Foot Locker, Inc. Seasonal Chart Strategic Education, Inc. Seasonal Chart Service Properties Trust Seasonal Chart Colony Capital, Inc. Seasonal Chart Vector Group Ltd. Seasonal Chart Gibraltar Industries, Inc. Seasonal Chart Magellan Health, Inc. Seasonal Chart E.W. Scripps Company (The) Seasonal Chart Sangamo Therapeutics, Inc. Seasonal Chart Summit Midstream Partners, LP Seasonal Chart MTBC, Inc. Seasonal Chart Superior Industries International, Inc. Seasonal Chart inTest Corporation Seasonal Chart Independence Contract Drilling, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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