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Stock Market Outlook for November 3, 2017

Outside reversal candlestick on Home Construction ETF suggests caution.

 

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 closed relatively flat on Thursday as investors got their first look at the Republican tax bill.  The S&P 500 added 0.02%, bookended by financials and consumer discretionary as investors picked the winners and losers from the proposed tax plan.  Home builders were particularly targeted given the cut in the mortgage interest deduction limit, which the the National Association of Homebuilders views as “particularly disappointing.”  The home construction ETF (ITB) shed nearly 3% at the lows of the session, ending the day down 2.4%.  Seasonally, home building stocks are typically strong between mid-October and early-February, strengthening amidst the run-up to the spring selling season.  The ETF that tracks the industry had been showing notable strength over the past couple of months, outperforming the market given the benefits that would be expected from the rebuilding effort in hurricane damaged areas, but an outside reversal candlestick on the chart gives caution.  The candlestick pattern, which is derived from a higher open and a lower close than the previous session’s range, is typically an indication of buying exhaustion, often leading to further declines to follow.  Initial support can be seen at the 20-day moving average at $38.34, followed by the 50-day average closer to $36.  The ETF had become significantly overbought in recent sessions with RSI touching the highest level in the history of this product, so a giveback to alleviate the significantly stretched condition is certainly not out of the question.  Momentum sell signals have yet to be triggered.


The sluggish activity of a number of sectors in recent days is weighing on the large-cap S&P 500 Index.  Momentum indicators are showing signs of rolling over, the first time since August, negatively diverging from price.  Support remains intact at the 20-day moving average, but a break of this short-term level would likely coincide with a swift move lower towards the 50-day around 2520.  Seasonal tendencies for the large-cap benchmark remain positive through the end of the year.

On Friday, the latest read of employment activity will be released with the monthly BLS Employment Situation report.  The below average change in September attributed to the hurricanes that struck the southern states is expected to be recouped in this subsequent month with analysts expecting an increase in payrolls of a whopping 325,000.  On average, payrolls have historically increased by 0.5%, before the seasonal adjustments, in the month of October, which would suggest an actual increase in payrolls of 734,400.  Through the first three quarters of the year, payroll growth is running 0.3% below average, but it is still unclear whether that gap will close with the post-hurricane rebound.  Thursday’s report on jobless claims provides some clues.  Initial claims remain fairly steady, close to the lows of the year, and the year-to-date trend is inline with the seasonal average.  This result closes a gap that was produced in the days surrounding Hurricane Harvey and Irma when the claimant count spiked due to workers displaced by the storm.  While nothing in the claimant count suggests a monthly payroll result that is an outlier to the recent trend, recent volatility in the seasonal adjustment factor suggests anything is possible.  We’ll have the complete breakdown of the report, from a seasonal perspective, in our next report.

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.87.

 

 

 

Seasonal charts of companies reporting earnings today:

   

 

 

S&P 500 Index

 

 

TSE Composite