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Stock Market Outlook for September 21, 2015

 

‘Tis the season for the best gains of the year for North American equity markets.

 

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:

Costco Wholesale Corporation (NASDAQ:COST) Seasonal Chart

Logitech International SA (USA) (NASDAQ:LOGI) Seasonal Chart

 

The Markets

Stocks sold off on Friday as investors settled positions ahead of quadruple expiration and the reaction to Thursday’s FOMC announcement continued.  The S&P 500 Index shed 1.62%, trading through short-term trendline support around 1960 and reversing the earlier breakout above resistance that immediately followed the release of the Fed statement.  Short-term overbought readings that had been identified prior to the Fed event have now been alleviated with RSI on the hourly chart triggering a momentum sell signal as of the 3:00pm hour on Thursday.  On a broader scale, looking at the daily chart, the test of the upper limit of the range of resistance that spans from 1970 to 2040 was arguably fulfilled; the benchmark is now, what one analyst on CNBC noted, in no man’s land, hovering between its 20 and 50-day averages after a rejection from the zone of resistance that is now overhead.  From this context and taking into account that equity markets in the the US and Canada are within what has typically been the weakest period of the year, running through the next couple of weeks, investors are left with a dilemma as to whether they should hold broad based equity market positions during this short-term period.   The easy gains in the equity market from the oversold low in August are now behind us and the period of volatility remains intact.

The move lower in equity market benchmarks follows the test of declining 50-day moving average lines of a number of sectors.  Industrials, Technology, Consumer Discretionary, and Utilities all reversed precisely at their 50-day moving average lines as traders looked to sell at this significant intermediate level of resistance.  As with the broad market, the 50-day moving average is pointing lower across the charts, implying negative intermediate trends remain firmly intact.  The broad market and the underlying sectors have a lot of base building to do in order to add stability to equity markets and kick off the strongest six months of the year from November through April.

Wednesday marks the beginning of Fall, the strongest season of the four for equity markets.  Over the past 20 years, the S&P 500 Index has gained 3.79% between the Autumnal Equinox and Winter Solstice, benefitting from, among other things, the pickup in consumer spending into the end of the year.  Positive results were realized in 15 of the past 20 periods.  While Fall has recorded the largest average gain of the four seasons, it has also realized the largest range of results with returns ranging from a loss of 29.26% in 2008 to a gain of 18.03% in 2001.  Given that the season starts with the most volatile period of the year, this should not be unexpected; it suggests that any significant weakness that results from volatile trading activity in the weeks or months ahead can lead to tremendous buying opportunities for lucrative returns through the end of the year.  Some of the more appealing trades for the Fall are Canadian banking, transportation, technology, and consumer stocks, all of which are presently outperforming the S&P 500 Index.

 

S&P 500 Index Returns During Each Season
Season Return Season Return Season Return Season Return
Spring 2014 5.49% Summer 2014 1.60% Autumn 2014 3.83% Winter 2014 0.90%
Spring 2013 2.57% Summer 2013 7.66% Autumn 2013 6.34% Winter 2013 2.33%
Spring 2012 -3.67% Summer 2012 7.52% Autumn 2012 -1.13% Winter 2012 7.25%
Spring 2011 -0.07% Summer 2011 -11.64% Autumn 2011 10.11% Winter 2011 13.35%
Spring 2010 -3.65% Summer 2010 1.50% Autumn 2010 9.94% Winter 2010 2.58%
Spring 2009 17.50% Summer 2009 15.57% Autumn 2009 3.55% Winter 2009 5.21%
Spring 2008 1.50% Summer 2008 -4.77% Autumn 2008 -29.26% Winter 2008 -11.70%
Spring 2007 7.22% Summer 2007 0.85% Autumn 2007 -2.71% Winter 2007 -12.53%
Spring 2006 -5.14% Summer 2006 6.02% Autumn 2006 7.87% Winter 2006 -0.52%
Spring 2005 2.22% Summer 2005 -0.49% Autumn 2005 4.08% Winter 2005 3.78%
Spring 2004 2.27% Summer 2004 -0.50% Autumn 2004 5.79% Winter 2004 -0.42%
Spring 2003 13.71% Summer 2003 2.72% Autumn 2003 6.44% Winter 2003 1.94%
Spring 2002 -14.01% Summer 2002 -15.99% Autumn 2002 5.96% Winter 2002 -2.24%
Spring 2001 4.47% Summer 2001 -21.04% Autumn 2001 18.03% Winter 2001 2.66%
Spring 2000 0.78% Summer 2000 -1.82% Autumn 2000 -12.72% Winter 2000 -7.43%
Spring 1999 3.35% Summer 1999 -2.41% Autumn 1999 9.38% Winter 1999 2.17%
Spring 1998 1.00% Summer 1998 -6.45% Autumn 1998 16.82% Winter 1998 8.02%
Spring 1997 14.37% Summer 1997 5.76% Autumn 1997 -0.39% Winter 1997 15.10%
Spring 1996 1.60% Summer 1996 3.77% Autumn 1996 9.00% Winter 1996 4.93%
Spring 1995 9.84% Summer 1995 6.74% Autumn 1995 4.94% Winter 1995 6.75%
Average: 3.07% -0.27% 3.79% 2.11%
Gain Frequency: 75.00% 55.00% 75.00% 70.00%

 

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.14.  Although the average true range of the ratio is no longer rising, it still remains elevated, suggesting ongoing investor uncertainty.

 

 

Sectors and Industries entering their period of seasonal strength:

^IBEX Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

TSE Composite