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Stock Market Outlook for October 26, 2015

 

Investors leaning bullish, taking off portfolio protection and leaving markets vulnerable.

 

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:

Pulte Homes, Inc. (NYSE:PHM) Seasonal Chart

Monsanto Company (NYSE:MON) Seasonal Chart

BHP Billiton Limited (ADR) (NYSE:BHP) Seasonal Chart

Magna International Inc. (USA) (NYSE:MGA, TSE:MG) Seasonal Chart

Toll Brothers, Inc. (NYSE:TOL) Seasonal Chart

Weyerhaeuser Company (NYSE:WY) Seasonal Chart

Verizon Communications Inc. (NYSE:VZ) Seasonal Chart

T. Rowe Price Group, Inc. (NASDAQ:TROW) Seasonal Chart

Illinois Tool Works Inc. (NYSE:ITW) Seasonal Chart

International Flavors & Fragrances Inc. (NYSE:IFF) Seasonal Chart

International Business Machines Corp. (NYSE:IBM) Seasonal Chart

Fiserv, Inc. (NASDAQ:FISV) Seasonal Chart

The Estee Lauder Companies Inc. (NYSE:EL) Seasonal Chart

Comcast Corporation (NASDAQ:CMCSA) Seasonal Chart

Airgas, Inc. (NYSE:ARG) Seasonal Chart

Universal Corporation (NYSE:UVV) Seasonal Chart

WestJet Airlines Ltd. (TSE:WJA) Seasonal Chart

Staples, Inc. (NASDAQ:SPLS) Seasonal Chart

Public Storage (NYSE:PSA) Seasonal Chart

McCormick & Company, Incorporated (NYSE:MKC) Seasonal Chart

The Home Depot, Inc. (NYSE:HD) Seasonal Chart

D.R. Horton, Inc. (NYSE:DHI) Seasonal Chart

Eaton Corporation (NYSE:ETN) Seasonal Chart

Dover Corporation (NYSE:DOV) Seasonal Chart

Bemis Company, Inc. (NYSE:BMS) Seasonal Chart

 

The Markets

Stocks surged for a second day on Friday as shares of Technology companies rallied to new multi-year and all-time highs.  The S&P 500 Technology Sector broke-out to close at a new 52-week high.   Investors can thank the better than expected results from Microsoft, Amazon, and Alphabet for the breakout, which pushed major benchmarks above their respective 200-day moving averages.    Since the start of the period of seasonal strength for Technology, which was triggered with the double-bottom low charted at the end of September, the sector is up a massive 13.5% in less than a month.  Outperformance has been evident since the end of August, highlighting the demand for stocks in this market segment well ahead of the recent surge.  The Relative Strength Index (RSI) for the sector benchmark is now firmly embedded in overbought territory, potentially exhausting upside momentum over the near term.  Support, upon a retracement, would be expected around the now broken 200-day moving average, or around 5% below present levels.  Seasonally, October and November are two of the strongest months of the year for the sector and investors subsequently digest the gains in December.  It will be difficult for November to top the gains that have already been realized in October.

TECHNOLOGY Relative to the S&P 500

The surge in Technology, which is the largest sector amongst many of the market benchmarks, fuelled a breakout above 200-day moving average lines for the S&P 500 Index, Nasdaq Composite, and Dow Jones Industrial Average.  Investors have quickly put aside concerns that were prominent in August pertaining to China, particularly now that the People’s Bank of China unexpectedly dropped its benchmark interest rates.  The positive catalysts with respect to earnings and central bank announcements over the past two sessions have forced investors out of safe-haven bond positions and back into stocks, quickly eliminating the vast majority of the late summer weakness.  The S&P 500 Index is now less than 3% away from all-time highs.  While not as overbought as the technology sector, the large-cap benchmark has charted a significant move over a short period of time and a retracement should still be expected at some point.  Investors that are still waiting on the sidelines may want to wait to commit new capital, depending on their risk tolerances and time horizon.  The average start to the period of seasonal strength for the broad market is Wednesday, but don’t be surprised if the period starts with a whimper rather than a roar.

Looking at sentiment, Friday’s session certainly leaned bullish.  The put-call ratio closed at 0.77, the lowest level since the August 10th low that signalled complacency in the market was significant, well ahead of the plunge in equity prices that followed just a week after.  Although not the lows of the year, Friday’s put-call ratio suggests that portfolio protection is low at the present highs in equity indices, leaving the market vulnerable should a shock event occur.

 

Sectors and Industries entering their period of seasonal strength:

FUTURE_LB1 Relative to the S&P 500

S5FRST Index Relative to the S&P 500

S5HOME Index Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite