Tech Talk Financial Network
0
All posts from Tech Talk Financial Network
Tech Talk Financial Network in Equity Clock,

Stock Market Outlook for December 7, 2016

 

VIX suggesting complacency as it falls below 12.

 

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:

Quebecor, Inc. (TSE:QBR.B) Seasonal Chart

 

 

The Markets

Another day, another set of new all-time highs.  The Dow Jones Industrial Average closed higher by almost two-tenths of one percent, continuing its string of all-time high closes.  The achievement was shared by the small-cap Russell 2000 index, which continues to outperform the broader equity market.  Both benchmarks remain significantly overbought, but have yet to show signs of peaking.  The small cap benchmark seasonally outperforms the large-cap S&P 500 Index between November and March, on average.

^RUT Relative to the S&P 500

As benchmarks in the US continue on their path to new highs, other benchmarks around the globe are finally joining in the charge.  The Italian FTSE MIB and French CAC are breaking above levels of resistance that kept stocks in the regions constrained for the past few months.  Momentum indicators and strength relative to the US market are showing emerging signs of moving higher.  Many of the European equity indices follow the same seasonal pattern as benchmarks closer to home, gaining between October and May; the DAX, CAC, and FTSE MIB outperform the S&P 500 Index, on average, between now and April.

A word of caution amidst the all-time high euphoria.  The volatility index, or the so-called “fear gauge,” fell to the lowest level since August, closing below 12.  As we have indicated in the past, be cautious when the VIX falls and bottoms below 12, and become opportunistic when the index peaks above 21.  We should call it the “1-2” rule.  The strategy has been incredibly effective over the past few years as it has enabled investors to take advantage of favourable buying opportunities when stocks chart their lows while the rest of the market panics and, conversely, it has enabled investors to protect portfolios when the market becomes complacent.  The indicator, just on its own, would have gotten you out of the S&P 500 Index early in August and back invested early in November, sidestepping a shallow decline and re-exposed to the rally that followed.  While the VIX hasn’t bottomed yet, the sub-12 print suggests that portfolio protection is cheap as complacency creeps higher, suggesting that the risk may outweigh the reward at the present time.  The “1-2” rule will eventually trigger an incorrect signal as no individual system is perfect, but as long as the VIX remains predominantly in this range between 12 and 21, taking advantage of the extreme readings could continue to properly position investors for the level of risk present in the market.

On the economic front, a report on factory orders was released during Tuesday’s session.  The headline print indicated that orders increased by 2.7% in October, matching the consensus analyst estimate.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries fell by 0.5%, much less than the 1.9% decline that is average for the month of October.  The year-to-date trend remains below the seasonal average with just two months left to be reported until results for 2017 start being released.  While the change in November’s orders was above average, shipments did not show the same, declining 2.9% in the month versus the –1.6% norm.  This is the result of some notable divergences, including the decline in pharmaceutical and commodity related shipments at a time when they typically rise ahead of the critical fourth quarter consumer spending season.  Shipments and orders have shown significant improvement versus the trend set last year, but the strain still remains apparent as a rising dollar and sluggish export activity weighs on manufacturing conditions.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.83.

 

 

 

 

Sectors and Industries entering their period of seasonal strength:


 


 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite