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Stock Market Outlook for November 3, 2015

 

Russell 2000 Small Cap Index moving above a head-and-shoulders bottoming pattern.

 

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 recorded a massive risk-on session on Monday, with the Nasdaq 100 Index closing within 1-point from its all-time closing high charted back in 2000.  The S&P 500 Index continues to push towards the all-time highs presented around 2130.  The most notable activity was in the performance of the Russell 2000 Small Cap Index, which moved above a head-and-shoulders bottoming pattern.  The bullish setup targets an upside move towards the all-time highs below 1300.  Small caps have been underperforming the market since the end of June, highlighting the risk aversion present within the market leading up to the equity plunge in the month of August.  While the 20-day moving average of the relative trend continues to point lower, the bullish chart pattern may turn some heads, leading to increased risk-taking into the end of the year.  Seasonally, the Russell 2000 Small Cap Index starts to outperform the S&P 500 Large-Cap Index in the month of November, running through to March of the following year.  The small-cap Index has shown a high frequency of gains in the last two months of the year.  While the S&P 500 Index has realized gains 75% of the time in November and December, over the past 20 years, the small cap index has gained 80% and 90% of the time, respectively, as investors show their willingness to take on risk as the best six months of the year for stocks gets underway.

^RUT Relative to the S&P 500

Reverting back to the S&P 500 Index, Monday’s move higher in equity prices to start the month of November resulted in a bounce for the large cap index precisely from the short-term rising trendline that has lifted the benchmark throughout October.  But as mentioned in a previous report, this rising trendline also forms the basis of the lower limit of a rising wedge pattern, the upper limit of which is presently being tested.   A break of the lower bound, now around 2090, would initiate a retracement of the 5-week old trend.

Monday’s equity gains in North American indices were seemingly fuelled by strength in European markets following better than expected manufacturing data for October.  Back in the US, manufacturing activity, as gauged by the ISM Index, came in at a rather lacklustre 50.1, neither indicating expansion nor contraction.  Elsewhere, a report on Construction Spending in the US suggests an extension to the typical construction season that runs from March through to August.  Headline print indicated that construction spending rose by 0.6% in September, better than the consensus estimate of a gain of 0.4%.  Stripping out seasonal adjustments, construction spending actually grew by 0.8%, a significant shift from the average contraction of 1.8% in the month of September, based on data from the past 20 years.  Typically , the last four months of the year sees declines in construction spending as projects wrap-up ahead of the winter season.  Strength was driven by the residential components of the report, something that was apparent in the recent report on housing starts.  While some of the home-building stocks continue to lag the broad market, the Global Timber and Forestry Index Fund (WOOD) popped on Monday, moving above a head-and-shoulders bottoming pattern.  Seasonally, forest product stocks tend to gain on an absolute and relative basis starting in November, running up to the start of the home construction season in the spring.

S5FRST Index Relative to the S&P 500

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.88.

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

TSE Composite