S&P 500 Index closed within the gap opened on Thursday as the benchmark realized the best single session gain since October of 2008.

Stock Market Outlook for March 16, 2020

S&P 500 Index closed within the gap opened on Thursday as the benchmark realized the best single session gain since October of 2008.

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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Principal Financial Group (NASD:PFG) Seasonal Chart

BP Prudhoe Bay Royalty Trust (NYSE:BPT) Seasonal Chart

ICON PLC (NASD:ICLR) Seasonal Chart

Casella Waste Systems, Inc. (NASD:CWST) Seasonal Chart

Franklin Covey Co. (NYSE:FC) Seasonal Chart

Heroux, Inc. (TSE:HRX.TO) Seasonal Chart

Manulife Financial Corp. (NYSE:MFC) Seasonal Chart

Restaurant Brands International Inc. (NYSE:QSR) Seasonal Chart

iShares Global Utilities ETF (NYSE:JXI) Seasonal Chart

VelocityShares Daily Inverse VIX Medium Term ETN (NASD:ZIV) Seasonal Chart

Anworth Asset Mortgage Corp. (NYSE:ANH) Seasonal Chart

Invesco Frontier Markets ETF (NYSE:FRN) Seasonal Chart

The Markets

Stocks surged into the close of the week, continuing a pattern of short-covering in the final half hour of Friday’s session that has lifted stocks off of their lows in the past three weeks. The S&P 500 Index jumped by 9.29%, realizing the strongest single session return since October 28 of 2008. The benchmark has moved into the gap that was opened on Thursday between 2630 and 2735, presenting a hurdle for traders to chop through before a sustainable upside move can be achieved. The benchmark closed precisely at short-term declining trendline resistance and the short-term trend remains that of lower-lows and lower-highs.

The daily return comparison to October 28 low in 2008 is a rather interesting one as it was a low in the midst of a recessionary decline. However, it was not THE low that we have all come to know for the bear market that ended on March 6 of 2009. Back then, in 2008, the benchmark rallied for about a week into the new month, but the bears reloaded on their negative bets a few days into November to send the benchmark lower by an additional 11% below the prior low. The extreme moves, such as what has been experienced in the past couple of sessions, are characteristic of bear market declines. The benchmark is attempting to rebound from oversold levels on the daily chart, but it is still difficult to conclude that we’ve seen is THE low. We provide further commentary on what is likely to provide the best chance for a sustainable rebound attempt in stocks. Don’t miss this subscriber exclusive content delivered right to your inbox. Signup now.

For the week, the S&P 500 Index was down by 8.79%, closing above the 200-week moving average that we highlighted in our last report. Despite the intraweek breach, there is still a possibility that it acts as a position of support to stem the tide of selling, as it has done in previous pronounced declines throughout the bull market trend. Momentum indicators on this weekly look continue to point lower with the relative strength index (RSI) flirting with oversold territory around 30, the lowest level since December 2018. Last week’s candlestick shows a significantly long lower tail, an encouraging setup as it suggests that a bottoming process may be underway.

We’ve highlighted in recent reports that this panic decline in the market has presented a battle between stocks and bonds. Stocks have obviously recorded sharp declines over the past month, while bonds have gained. The action in the bond market was/is likely to precede a move in stocks. US treasury yields bottomed on Monday and have moved higher throughout the course of the week, despite equity markets continuing to push towards the downside. Yields had moved lower in a parabolic manner through the past month, becoming the most oversold on record, suggesting an unsustainable trend. A test of overhead resistance for the 10-year treasury at the 20 and 50-day moving averages around 1.1% and 1.5% seems logical; prices should test support around the equivalent variable hurdles. Defensive trades have been selling off hard over the past few sessions, including further pronounced declines in gold miners. The underperformance in REITs, Utilities, and Consumer Staples suggests that the defensive trade has, at least temporarily, fallen out of demand. Some of this is the market being taken down to a new normal and the rest is the result of portfolio reallocations that see funds flow from defense to risk. These are the type of indications that you want to see in a bottoming process. Before THE low in stocks is realized, it would not be surprising to see investors attempt to nibble again at these defensive bets, perhaps in a retest of the low for the broader market, at which point a solid base for the rebound rally could be confirmed. Bottom line is that we are encouraged by the action over the past few sessions as weak hands are shaken out, but we cannot say with confidence that THE low for stocks is in.

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.27. We want to continue to see bearish option positioning into a low as it would indicate that investors are hedging their bets, therefore mitigating the likelihood that they will sell positions should stocks fall further. We’ve seen a number of indications of excessive pessimism, pretty much the opposite of what we observed a month ago, which was that excessive optimism/complacency made stocks vulnerable to a shock event…and here we are. Excessive bearish positioning has always preceded significant lows in equity markets.