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Stock Market Outlook for March 23, 2020


S&P 500 Index has broken below long-term rising trend-channel support.

 

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:

Subscribers – Click on the relevant link to view the full profile. Not a subscriber? Signup here.

Boeing Co. (NYSE:BA) Seasonal Chart

Boeing Co. (NYSE:BA) Seasonal Chart

Oil States Intl (NYSE:OIS) Seasonal Chart

Oil States Intl (NYSE:OIS) Seasonal Chart

Polaris Inds, Inc. (NYSE:PII) Seasonal Chart

Polaris Inds, Inc. (NYSE:PII) Seasonal Chart

AZZ, Inc. (NYSE:AZZ) Seasonal Chart

AZZ, Inc. (NYSE:AZZ) Seasonal Chart

Cryolife, Inc. (NYSE:CRY) Seasonal Chart

Cryolife, Inc. (NYSE:CRY) Seasonal Chart

Movado Group, Inc. (NYSE:MOV) Seasonal Chart

Movado Group, Inc. (NYSE:MOV) Seasonal Chart

Petrochina Co. (NYSE:PTR) Seasonal Chart

Petrochina Co. (NYSE:PTR) Seasonal Chart

VanEck Vectors Morningstar Wide Moat ETF (AMEX:MOAT) Seasonal Chart

VanEck Vectors Morningstar Wide Moat ETF (AMEX:MOAT) Seasonal Chart

SPDR S&P 600 Small Cap Growth ETF (NYSE:SLYG) Seasonal Chart

SPDR S&P 600 Small Cap Growth ETF (NYSE:SLYG) Seasonal Chart

ProShares Russell 2000 Dividend Growers ETF (NYSE:SMDV) Seasonal Chart

ProShares Russell 2000 Dividend Growers ETF (NYSE:SMDV) Seasonal Chart

 

 

The Markets

Markets failed to deliver their end of Friday ramp that traders had become accustomed to for the past few weeks.  The S&P 500 Index traded down by 4.34%, giving up gains recorded earlier in the session.  Up until this point, horizontal support around 2350, representing the December 2018 low, had been maintained on a closing basis as a level of support.  A break below this hurdle on a daily and weekly basis opens the door to the next level of significance: 2135.  The horizontal level represents the highs from 2015 from which the benchmark consolidated over the course of many months before breaking out in 2016.  The decline in stocks over the past few weeks remains unprecedented given the sheer panic that has persisted amidst the rapid spread of the coronavirus.  At some point, a massive rebound rally will play out, but from which level we can only speculate.  Subscribers to our service know how we are intending to play it and when.  Want to follow along?  Subscribe now and we’ll set you up with everything you need to know.

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For the week, the large-cap benchmark was down by almost 15%, confirming a break of long-term rising trendline support that had maintained the bull market trend for stocks from the 2009 low.  The benchmark closed well below its 200-week moving average, a level that had previously acted as support to every significant pullback in the long-term trend over the past decade.  The benchmark is presently the most oversold on this weekly look since October of 2018.  It is very difficult to maintain a stretched position as significant as this, whether it be higher or lower, for a sustained amount of time.  For this pronounced negative path to be maintained at the present rate, the catalyst has to be significantly negative on a consistent basis.  Given the escalation of the spread of the virus, this has not been hard to achieve, but once the market wakes up to the fact that this is not the end of the world, stability will be achieved, at some point.  However, the initial panic reaction lower in equity markets is typically not indicative of the true weakness of the market and/or the economy as it is often based of irrational trading (eg. shoot first, ask questions later).  The real test will be the magnitude of the rebound as this will either provide conclusive evidence that the trend of the market has shifted to lower-lows and lower-highs or merely a blemish (albeit a significant one) on the long-term positive path.

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The rotation that was observed during Thursday’s session continued into Friday as investors rebalanced portfolios from defensive sectors that had outperformed during the market decline to cyclicals.  The S&P 500 Consumer Staples sector index fell 6.53%, while the Utilities sector benchmark shed a whopping 8.18% as everything is taken down to a new normal.  Rebalancing around the end of the quarter is notorious for causing these gyrations.  However, should markets remain risk averse into the new period, the money is likely to come back, bidding up these defensive bets as traders look to reload on risk-off.  Seasonally, both consumer staples and utilities have historically performed well versus the market going into the spring.

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Consumer Staples Sector Seasonal Chart

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Utilities Sector Seasonal Chart

Gyrations in equity markets in recent weeks has led to a test of an important juncture in the relative trend of the S&P 500 Index versus the MSCI World ex-US Index.  The US benchmark has been outperforming the rest of the world for the past decade, maintaining a fairly defined range throughout.   When the ratio of the two gets to the lower or upper bound of the span, reaction higher or lower typically results.  In the past couple of weeks, the ratio surpassed the upper limit of the rising span for the first time in the decade-long run, but the ratio corrected back toward its rising zone in the most recent week.  If past history holds true, a period of outperformance of global benchmarks may follow, at least for the short-term.  Seasonally, it is typical for global benchmarks to outperform the US into the month of May.

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On the economic front, a report on Existing Homes Sales was released during Friday’s session.  The headline print of February’s report indicates that activity increased by 6.5% to a seasonally adjusted annualized rate of 5.77 million. Analysts were expecting a 1.5% increase to a rate of 5.50 million. The year-over-year change peeled back from +8.8% in January to +7.2% today. Stripping out the seasonal adjustments, existing home sales actually increased by 5.7% in February, which is marginally stronger than the 5.3% increase that is average for the month. The year-to-date change is now a mere 0.9% above the seasonal average trend, significantly weaker than the 6.2% above average pace seen through the first two months of 2019. Last year saw a 15.1% increase in sales, which was the best pace in at least two decades.  Subscribe now and we’ll tell you what this all means and give you insight on the implications for the broader economy through the remainder of the year.

Existing Home Sales Seasonal Chart

Further on the economic front, Statscan released retail sales data for the month of January.  The headline print indicated that Canadian Retail Sales increased by 0.4% in the first month of the year, which is inline with the consensus analyst estimate.  The year-over-year change increased from +2.4% as of the end of December to +3.4% for January.  Stripping out the seasonal adjustments, retail sales in this country actually fell by 19.6%, which is much stronger than the 25.7% decline that is average for the first month of the year.  This is the strongest start to the year for Canadian retail trade on record.  The result follows a weak December read, suggesting some holiday sales were delayed until after the end of the year.  In past reports on retail sales activity we have argued that the curve for retail sales is flattening, becoming less dramatic in the historically strong month of December and becoming more stable throughout the year as consumer buying habits evolve.  This is just further evidence of this contention and it has the potential to alter average historical patterns for stocks as well.  As we’ve seen throughout history, as the economy evolves so to do average seasonal patterns.  Subscribers can login to the chart database to view the remaining charts to this report at the following link: https://charts.equityclock.com/canada-retail-trade-sales

Retail trade Seasonal Chart

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.23.

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Seasonal charts of companies reporting earnings today:

Phoenix New Media Limited Seasonal Chart Pangaea Logistics Solutions Ltd. Seasonal Chart DiaMedica Therapeutics Inc. Seasonal Chart AudioEye, Inc. Seasonal Chart VirTra, Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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