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Stock Market Outlook for November 2, 2015

 

S&P 500 Index averages a gain of 1.2% in November, positive 66% of the time.

 

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:

Express Scripts, Inc. (NASDAQ:ESRX) Seasonal Chart

Canfor Corporation (TSE:CFP) Seasonal Chart

Molina Healthcare, Inc. (NYSE:MOH) Seasonal Chart

 

The Markets

Stocks closed lower on Friday with the S&P 500 Index shedding around half of one percent.  Despite the loss on the day, major benchmarks in the US still managed to realize the best monthly gain in 4 years.  For the month of October, the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite all managed to post gains greater than 8%, starting the period of seasonal strength for the broad equity market on a solid footing.  All three benchmarks are now fighting with resistance around the summer highs, attempting to overcome the tremendous supply that remains apparent based on the approximately six-month trading range that preceded the August plunge.  Momentum indicators are showing early signs of rolling over as investors digest the prominent one-month return.  Horizontal support for the S&P 500, below variable support presented by the 200-day moving average, can be found around 2000, which would represent a retracement of around 4%, if fulfilled.

While the return for the S&P 500 Index certainly topped the average gain for October of 0.9%, based on data from the past 50 years, the month of November typically continues the positive trend as the best six months of the year gets underway.  For the S&P 500 Index, November has averaged a gain of 1.2% in this second to last month of the calendar year and the frequency of positive results since 1965 is 66%.  Returns have ranged from a high of 10.2% realized in 1980 to a low of –11.4% realized in 1973.  Gains in November tend to be realized in the first and last weeks of the month as fund inflows and year-end holidays drive broad market returns.  Looking at the sectors, Materials, Industrials, Consumer Discretionary, and Technology have posted the best returns over the past 20 years, each averaging a gain of over 2.5%.  Meanwhile, Financials and Utilities have been the weakest, averaging returns of 0.8% and 0.0%, respectively, and showing positive results only 60% of the time.  The market has reached the time of year when cyclicals tend to dominate market performance, promoting risk taking amongst investment managers.

Monthly Averages for the S&P 500 Index:

Touching briefly on the risk sentiment within the equity sectors, October was driven by superior performance in a number of economically sensitive areas, including Technology and Materials, while defensive sectors of Staples and Utilities fell out of favour as investors rotated away from the lower beta bets.  Comparing the S&P 500 Consumer Discretionary sector with the S&P 500 Consumer Staples sector, the ratio between the two hit the highest level since 2001 on Friday, emphasizing the risk-on trend that has persisted over the past six years.  Generally, this risk-on trend is conducive to higher equity prices.  Bonds, the ultimate risk averse trade, remain close to all-time highs and a shift in this asset class towards investments further out along the risk spectrum would have the power to provide the fuel to equity markets for some time to come.  Of course, the dependency on the Fed cannot be denied.   The Fed will get its next clue as to the strength of the economy when the monthly employment report is released this Friday.

Sentiment on Friday, as gauged by the put-call ratio, ended close to neutral at 0.95.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

TSE Composite