Outside reversal candlestick on the Nasdaq 100 offsetting the positive move on the Dow.
**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:
A mixed session for stocks had major benchmarks in the US moving in opposite directions on Thursday. The Dow Jones Industrial Average posted another solid gain, closing at a new all-time high, while the technology heavy Nasdaq Composite ended firmly in the red, still unable to overcome the hurdle presented by its declining 50-day moving average. The Nasdaq 100 index, which tracks the 100 largest constituents of the composite index, charted an outside reversal on the day, opening above Wednesday’s trading range then closing below it. Typically, this engulfing candlestick pattern is a bearish setup, which could suggest further downside ahead. The benchmark opened gap on Monday between 4660 and 4730, a range from which it bounced from at the lows of Thursday’s session. A break of this range of support would chart what appears to be a head-and-shoulders topping pattern, the downside target of which points to around 4450, or around 6.3% below present levels. Now, don’t get ahead of yourself, gap support remains intact and a rather pronounced momentum surge to the downside would be required to fulfill the bearish pattern. With other benchmarks at or near all-time highs, it is difficult at present to reconcile a divergence of this nature. Seasonally, the technology sector and the Nasdaq 100 remain in a period of seasonal strength into the month of December.
And as investors continue to pick through the potential winners and losers under a Trump presidency (the winner sectors highlighted at the top of yesterday’s report), investors are also targeting emerging markets, albeit to the downside. The Emerging Market ETF (EEM) broke support around $35.85 to complete a topping pattern that projects downside potential to around $34.00, or an additional 3.4% below present levels. The impact is taking a toll on the MSCI World ex-US Index, which continues to hold below its declining 20-day moving average, unable to benefit from the strength in stocks in the US. These global benchmarks had been outperforming the S&P 500 Index since the summer, but the protectionist policies that may be implemented under a Trump presidency is forcing investors to unwind that trade. International equities, particularly emerging markets, can be a good gauge of global risk-sentiment and it can often be difficult for benchmarks in North America to move firmly higher without participation from stocks overseas. The MSCI World ex-US has been underperforming the S&P 500 Index for some time, but the correlation with benchmarks closer to home have remained generally high. International stock indices follow a similar profile as those in the US and Canada.
On the economic front, the weekly report on jobless claims came in lower than expected. Initial claims fell by 11,000 to 254,000, beating estimates calling for 263,000. Stripping out the seasonal adjustments, claims by the newly unemployed increased by 13,031, holding to a path higher according to the seasonal norms for the last three months of the year. The year-to-date change remains mildly above the seasonal average. As for continuing claims, the count ticked higher by 26,145, still maintaining a below average change through the end of October. Similar to initial claims, continuing claims rise, on average, through the last three months of the year.
Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.89.
Seasonal charts of companies reporting earnings today:
S&P 500 Index