Stock Market Outlook for November 3, 2020
The outperforming trend for the technology sector has been broken as investor demand for sector constituents wanes.
*** 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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Yamana Gold Inc. (TSE:YRI.TO) Seasonal Chart
Louisiana Pacific Corp. (NYSE:LPX) Seasonal Chart
Anthem, Inc. (NYSE:ANTM) Seasonal Chart
Cargojet Inc. (TSE:CJT.TO) Seasonal Chart
Marinemax, Inc. (NYSE:HZO) Seasonal Chart
Descartes Systems Group Inc. (NASD:DSGX) Seasonal Chart
BMO Low Volatility US Equity ETF (TSE:ZLU.TO) Seasonal Chart
iShares Core US Value ETF (NASD:IUSV) Seasonal Chart
Vanguard Value ETF (NYSE:VTV) Seasonal Chart
Upcoming Event:
On November 6th at 2:00pm ET, we will be presenting at the Money Show’s Virtual Expo on the topic of “Using Seasonality to Invest During a Pandemic.†Registration is free via the following link:
The Markets
Stocks shook off election uncertainty and posted significant gains on Monday, but the technology sector held the broader market back from achieving something more substantial as investors rotated towards the value names in the market. The S&P 500 Index closed higher by 1.23%, continuing to hold above horizontal support around 3200. Resistance at the now rolling over 50-day moving average provides a near-term cap on the upside. Momentum indicators continue to point lower, although the slope of the decline has certainly waned following the MACD sell signal that was triggered a couple of weeks ago. Until support at 3200 or resistance around the all-time high above 3500 are definitively broken, a range-bound trade is implied. Tuesday is election day in the US, which tends to alleviate the uncertainty that typically overhangs the market through September and October. This uncertainly has certainly been a driver through the past couple of months, but, between now and the end of the year, stocks tend to stabilize and rise once the election results are known. In our approach to investing, we don’t speculate on outcomes and rather just let the data be our guide, whether that means being early, late, or on-time. The election on Tuesday could easily create a shock event that investors may react to, but, for now, we have to play the seasonal themes that are presented to us and follow our three-pronged approach that incorporates seasonal, technical, and fundamental analysis. Want to know more about how we are playing the month(s) ahead and what to look out for, subscribe to our service and we will send you our 90-page monthly report for November. Click here to signup now.
Just Released…
Our monthly report for November was just sent out to subscribers, breaking down everything you need to know for the month(s) ahead.
Highlights in this report include:
- Equity market tendencies in the month of November
- Shift of focus on the rising level of coronavirus cases in the US
- Return of strength in the consumer going into the holiday spending season
- A healthy consumer follows a healthy labor market
- The strength in the manufacturing economy
- Our call through the back half of the year
- The impact of the presidential election on the equity market in the year ahead
- The rise of Bitcoin
- The lack of conviction to stocks ahead of the presidential election
- The potential fuel for stocks through the end of the year
- Key metric to track to determine systemic strains
- Is the rising trend of stocks stemming from the market low in March becoming sustainable?
- Time to shift focus to smaller cap stocks
- Bonds prices showing an intermediate declining trend
- The technical status of the S&P 500 Index
- Positioning for the months ahead
- Sector reviews and ratings
- Notable stocks and ETFs entering their period of strength in November
Subscribe now to receive a copy of this report.
Going into the election showdown, technology was, by far, the biggest drag on Monday. Investors sold into early strength to push the technology sector ETF (XLK) back to the flat-line on the day. Given the weight that the technology sector encompasses in most market benchmarks in the US, any strains are bound to have an outsized impact. Performance relative to the market had been trending higher since the year began, but, in the past couple of weeks, rising trendline support on the relative chart has been violated, indicating that buying demand has faded. The trend of higher-highs and higher-lows on the chart of the sector ETF that has been apparent since March has also been violated; the sector ETF is at risk of charting a lower-low below September’s low around $109. Looking simply at levels of major moving averages and areas of horizontal support, logical test is to $102, should weakness persist. This is approximately equivalent to the 200-day moving average and resistance at the February high. Confirmation of support within this zone (or higher), would reiterate that the long-term rising trend of the sector remains intact. The sector has been a significant beneficiary of this pandemic as consumers adopt a work-from-home/stay-at-home mentality. Orders for computer and electronic products have been trending well above average, but, in our recent report on industrial production, we noted some questionable data with respect to business technology production. The result presents a blemish for the sector fundamentals, but we still feel confident that the longer-term path of growth will continue. For now, despite positive seasonal tailwinds for sector constituents through year-end, the technicals and fundamentals continue to reiterate our call that we made at the start of September, which is to reduce your allocation in technology names from overweight to market-weight and wait for the better risk-reward opportunities down the road to become aggressive again.
Want to know which areas of the market to buy or sell? Our Weekly Chart Books have just been updated, providing a clear Accumulate, Avoid, or Neutral rating for currencies, cryptocurrencies, commodities, broad markets, and subsectors/industries of the market. Subscribers can login and click on the relevant links to access.
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On the economic front, a report on construction spending in the US was released during Monday’s session. The headline print of September’s report indicates that activity increased by 0.3% for the month, which was weaker than the consensus estimate that called for a 0.9% rise. The year-over-year change now sits at +1.5%. Stripping out the seasonal adjustments, construction spending in the US actually declined by 1.0% in September, which is much stronger than the 2.2% decline that is average for this time of year. The year-to-date change is higher by 21.4%, which is weaker than the seasonal norm that calls for an increase of 24.4%. We sent out further insight to subscribers intraday. Signup now.
Sentiment on Monday, as gauged by the put-call ratio, ended close to neutral at 0.98. The Dark Index, our gauge of institutional sentiment, ticked down back to the lows of the last few weeks at 40.1%. Both metrics point to the caution of investors and lack of desire to step into equity positions prior to the election. Given the hedges that investors have enacted in recent weeks to cover portfolios against a shock outcome, any certainty that the election creates or any positivity that investors can derive from it would likely lead to the alleviation of portfolio hedges and a drift higher in stocks. If an opposite scenario occurs, at least investors have some portfolio hedges intact, which will mitigate the requirement to sell.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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