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Stock Market Outlook for September 14, 2016

 

September Quad Witching historically a volatile event, but next week may be of greater concern.

 

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:

  • No stocks identified for today

 

 

The Markets

Stocks continued their push lower on Tuesday, reversing the gain realized in the previous session.  Major benchmarks were generally lower between 1.5% and 2%, many falling under the weight of slumping commodity prices as the dollar strengthened amidst rising rates.  The prices of a number of commodities saw price declines that outpaced the equity market return, including oil.  The decline in the energy commodity comes around the average peak to the period of seasonal strength in the energy market, leading to declines in the price of oil through the fourth quarter as demand wanes following the conclusion of the summer driving season.  We’ll have a more thorough analysis of the commodity in tomorrow’s report, once the EIA releases their weekly inventory numbers.

Turning to the S&P 500 Index, the benchmark continues to bump against support at 2120, representing the upper limit of the range from which the benchmark broke out to new highs in July.  Momentum indicators on the hourly chart are attempting to rebound from the oversold lows charted during Friday’s session as the bulls attempt to hold the critical breakout point.  This Friday is Quadruple Witching day, which sees the expiration of quarterly option and futures contracts at the close of the session.  Generally, investors will have settled open positions by the close of Wednesday, but don’t be surprised to see the push and pull price activity in stocks through the remainder of the week as investors position for the next contract period.  Typically, it is the week that follows the quarterly expiration date that equities tend to weaken.  While the Quad Witching week itself has typically realized a gain on the S&P 500 Index 65% of the time over the past 51 years, the week that follows has realized a loss around 69% of the time over the same timespan, averaging a decline of 0.85%.  Currently, the max pain on S&P 500 Index ETF (SPY) options for this Friday is 215, or approximately 2150 on the benchmark itself, suggesting we may see price pinned to around present levels through the end of the week, or at least until open/expiring contracts are settled.

S&P 500 Index Returns in the
 weeks surrounding September
 Quadruple Witching
Year Expiration Week Returns Post Expiration Week Returns
2015 -0.15% -1.36%
2014 1.25% -1.37%
2013 1.30% -1.06%
2012 -0.38% -1.33%
2011 5.35% -6.54%
2010 1.45% 2.05%
2009 2.45% -2.24%
2008 0.27% -3.33%
2007 2.80% 0.07%
2006 1.60% -0.37%
2005 -0.29% -1.83%
2004 0.41% -1.63%
2003 1.73% -3.81%
2002 -4.99% -2.13%
2001 -11.60% 7.78%
2000 -1.92% -1.17%
1999 -1.20% -4.35%
1998 1.09% 2.42%
1997 2.88% -0.56%
1996 0.95% -0.12%
1995 1.86% -0.28%
1994 0.64% -2.44%
1993 -0.63% -0.26%
1992 0.80% -2.03%
1991 1.13% -0.52%
1990 -1.74% -1.69%
1989 -1.06% 0.58%
1988 1.43% -0.33%
1987 -2.21% 1.68%
1986 0.67% 0.01%
1985 -0.47% -0.42%
1984 -1.84% 0.26%
1983 -0.40% 1.96%
1982 1.31% 0.63%
1981 -4.40% -3.00%
1980 2.96% -2.24%
1979 1.57% -1.04%
1978 -2.50% -2.19%
1977 0.11% -1.49%
1976 1.55% 0.50%
1975 3.10% 0.36%
1974 7.58% -7.41%
1973 2.64% 1.15%
1972 -1.22% -0.27%
1971 -0.46% -1.81%
1970 0.12% 0.25%
1969 1.13% -1.08%
1968 0.79% 0.64%
1967 2.02% 0.76%
1966 4.85% -2.90%
1965 1.04% -0.03%
Average: 0.46% -0.85%
Gain Frequency: 64.71% 31.37%

 

While stocks hug their lows from Friday, treasury prices continue to push below them, moving back towards the upper limit of the trading range charted in the first half of the year.  Looking at the 7-10 year treasury ETF (IEF), it gapped lower on Friday, cementing a level of resistance at previous support around $111.30.  Previous resistance from the February through to May highs at $110.30 was tested during Tuesday’s session.  A break of this horizontal level could see a swift move to its rising 200-day moving average and long-term trendline support around $109.30.  This is a critical level to watch as fixed income investors start to become twitchy in treasury positions.  Seasonally, treasury bond prices typically strengthen in September and October as equity market volatility drives investors towards these historically safe-haven assets.  But with speculation prevailing that we’ll see a Fed Funds rate increase before the end of the year, the fundamental and technical basis for holding the investment is weak.  The 50-day moving average of IEF is showing signs of rolling over, suggesting a negative intermediate-term trend.  Momentum indicators have been trending lower since early July.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.98.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite