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Stock Market Outlook for September 14, 2015

 

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 advanced on Friday, capping off what amounted to the best weekly gain for broad US market benchmarks since July.  The S&P 500 and Dow Jones Industrial Average closed higher by 2.1%, while the Nasdaq Composite climbed 3.0%.  The S&P 500 Large-cap index is presently pushing up against its 100-week moving average, while the Nasdaq is pressuring the 50-week.  Momentum indicators on the weekly charts for all benchmarks continue to roll over after trending in bullish territory for the past few years.

The week ahead is bound to be a significant one for investors with a full slate of market moving events.  A number of economic reports and the widely anticipated FOMC meeting are bound to be the focus for investors, but other events may also have an impact.   Earnings on Wednesday from two industry titans, FedEx and Oracle, could provide an early glimpse of the strength of the Industrial and Technology sectors going into the period of seasonal strength that starts in October.  Both stocks have realized significant losses since peaking in June, influenced by the pressures imposed by the broader market.

The other event likely to impact market performance in the week ahead is Quadruple Witching, which sees the expiration of various stock index futures, stock index options, stock options, and single stock futures.  Quadruple witching weeks are typically positive for broad market benchmarks, with the S&P 500 Index gaining 66% of the time over the five-day period and averaging a return of 0.47%, based on data from the past 50 years.  But the event itself tends to act as a pivot point to the direction of the market, initiating what is seasonally deemed as the weakest period of the year.   The week following quadruple witching has seen declines on the S&P 500 Index 68% of the time over the past 50 years, averaging a loss of 0.84%; in the past 25 years, 84% of post quadruple witching weeks have seen negative returns, averaging a loss of 1.07%.  This period also corresponds to the most volatile time of year for equity markets, making this timeframe a period that is best to be cautious of.

 

S&P 500 Index Returns in the
 weeks surrounding September
 Quadruple Witching
Year Expiration Week Returns Post Expiration Week Returns
2014 1.25% -1.37%
2013 1.30% -1.06%
2012 -0.38% -1.33%
2011 5.35% -6.54%
2010 1.45% 2.05%
2009 2.45% -2.24%
2008 0.27% -3.33%
2007 2.80% 0.07%
2006 1.60% -0.37%
2005 -0.29% -1.83%
2004 0.41% -1.63%
2003 1.73% -3.81%
2002 -4.99% -2.13%
2001 -11.60% 7.78%
2000 -1.92% -1.17%
1999 -1.20% -4.35%
1998 1.09% 2.42%
1997 2.88% -0.56%
1996 0.95% -0.12%
1995 1.86% -0.28%
1994 0.64% -2.44%
1993 -0.63% -0.26%
1992 0.80% -2.03%
1991 1.13% -0.52%
1990 -1.74% -1.69%
1989 -1.06% 0.58%
1988 1.43% -0.33%
1987 -2.21% 1.68%
1986 0.67% 0.01%
1985 -0.47% -0.42%
1984 -1.84% 0.26%
1983 -0.40% 1.96%
1982 1.31% 0.63%
1981 -4.40% -3.00%
1980 2.96% -2.24%
1979 1.57% -1.04%
1978 -2.50% -2.19%
1977 0.11% -1.49%
1976 1.55% 0.50%
1975 3.10% 0.36%
1974 7.58% -7.41%
1973 2.64% 1.15%
1972 -1.22% -0.27%
1971 -0.46% -1.81%
1970 0.12% 0.25%
1969 1.13% -1.08%
1968 0.79% 0.64%
1967 2.02% 0.76%
1966 4.85% -2.90%
1965 1.04% -0.03%
Average: 0.47% -0.84%
Gain Frequency: 66.00% 16.00%

 

Looking at the risk sentiment of investors going into this volatile period, it is surprisingly positive.  Cyclical sectors, including Industrials, Consumer Discretionary, and Technology, have been outperforming the market for the past month.  Meanwhile defensive sectors of Consumer Staples, Health Care, and Utilities have been market perform, at best.  Looking at the ratio of the Consumer Discretionary ETF (XLY) versus the Consumer Staples ETF (XLP), the short-term trend has shifted positive over the past few weeks.   The ratio is currently bumping up against resistance around the summer highs, so far failing to realize the typical summer tendency of underperformance in discretionary stocks.  A report on Retail Sales for August will be released on Tuesday, providing insight into the period of seasonal strength for the Consumer Discretionary sector that starts in October.  The positive risk sentiment suggests that investors are willing to hold these higher beta assets into the uncertain events ahead, potentially gambling on a favourable outcome.

But probably what warrants the most attention in the week ahead, around the FOMC event, is the US Dollar, which has been consolidating above long-term resistance, according to the US Dollar Index.  The US currency benchmark has gained substantially since mid-2014 in anticipation of a rate increase, but more recently it has traded within a range between 92 and 98 as uncertainty prevails as to the timing of the first rate hike since the economy exited recession.  The strength of the dollar has had a significant impact on earnings and commodity prices for over a year, therefore the reaction to the FOMC statement in the currency market is bound to play an influential role on equity and commodity prices moving forward, depending on the direction of the break from the short-term range.   Seasonally, September is the weakest month of the year for the US Dollar Index, declining 64% of the time for an average loss of 0.4%; October is not much better with losses realized 60% of the time over the past 42 years, averaging a loss of 0.2%.

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.21.

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite