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Stock Market Outlook for September 23, 2015

 

First full day of Autumn is not favourable to stocks with the S&P 500 Index declining 79% of the time for an average loss of 0.54%.

 

Real Time Economic Calendar provided by Investing.com.

 

**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates.   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:

Canadian Tire Corp. Ltd. (TSE:CTC) Seasonal Chart

 

The Markets

Stocks recorded heavy losses on Tuesday, fuelled by weakness in markets overseas.  Major benchmarks in the US dipped below their respective 20-day moving average lines, seemingly poised to attempt a retest of the August lows.  As highlighted in a previous report, bear flag patterns on the charts of a number of US benchmarks suggests downside potential remains, implying a break, at some point, below the oversold levels of August.  With only one month into the present market downturn, history suggests that it may take another month to hash things out, allowing stocks to find a floor from which investors are enticed to buy.  Fortunately, for seasonal investors, this lines up well for the average start to the period of seasonal strength for the broad market on October 28, however, further monitoring of the technical status of the market is required.  Typically, when the 200-day moving average is pointing lower, as it is now for the S&P 500 Index, a certain amount of caution is warranted.

The prospects for gains in equity benchmarks later this week may not be much better.  Wednesday is the first day of Autumn, and while the tendency for gains on this day is average, the first full day of fall, which occurs the day after the Autumnal Equinox, is typically negative.   Over the past 20 years when the first full day of Autumn “falls” on a weekday, the S&P 500 Index has declined 79% of the time for a loss of 0.54%, on average.   While this phenomena corresponding with the change in the season may seem like a fluke, similar tendencies have been seen on the first full day of Spring and the first full day of Summer with losses recorded 65% of the time and 70% of the time, respectively.  Meanwhile, the first full day of winter shows an opposite tendency with 92% of sessions showing gains, averaging a return of 0.63%.   A number of theories are applicable to explain this tendency, including end of quarter portfolio positioning, which will dominate equity market activity through the end of this week.  Managers will often reshuffle portfolios ahead of the quarterly reporting period, as well as the upcoming earnings season.

While investors position for the quarter ahead, another economic report has failed to provide optimism that the period will be a strong one.   The Richmond Fed Manufacturing Index not only missed expectations of a print of 3, it also came in outside of the expected range between 2 and 5.  September’s reading of –5 suggests that the manufacturing sector is struggling, a fact that a number of regions have reported over the past couple of months.   Stripping out seasonal adjustments, the new orders component came in at –6 and the shipments component recorded a print of 0; average for the two components in the month of September are 5.8 and 8.45.  As a result of the weakness in this segment of the economy, material stocks continue to weaken, underperforming the market within the period of seasonal weakness for the sector.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.16.

 

 

Sectors and Industries entering their period of seasonal strength:

Swiss Market Index

^SSMI Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

TSE Composite