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Stock Market Outlook for September 18, 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 ended mixed on Thursday as investors reacted to the statement from the FOMC.  As per the consensus expectation, the Fed held firm, keeping the overnight rate steady between 0 and 0.25% amidst declining inflationary pressures.  Following the event, bond prices instantly recouped early week losses, while equity markets gyrated between positive and negative territory.  Interest rate sensitive equities, such as Utilities and REITS, received a bid as investors accumulated positions in shares that had been sold off in recent weeks in anticipation of the Fed event.  Both the Utilities Sector ETF (XLU) and the iShares Real Estate ETF (IYR) are testing resistance presented by their respective 50-day moving averages.  Major moving averages for the two are leaning negative, presenting concern for the short, intermediate, and long-term trends.   Seasonally, REITs conclude their period of seasonal strength on September 19th, on average, while Utilities exit their period of strength on October 3rd.

UTILITIES Relative to the S&P 500

IYR Relative to the S&P 500

But perhaps the more notable move was in the US Dollar Index, which fell over 1%, breaking below its 200-day moving average.  The chart seems to suggest the formation of a head-and-shoulders topping pattern with the right shoulder peaking around the September high of 96.64; a break below support around 93 would target a move towards 88, or another 7% below present levels.  The dollar has been a major burden on corporate profits over the past three quarters, Oracle being the latest company blaming this headwind for its lacklustre results.  A reprieve in the US Dollar would be conducive to strength in US earnings, as well as an improvement in commodity prices, which is a significant factor in the declining inflation statistics.  Seasonally, the US Dollar index remains in the weakest period of the year, running through to the end of October and continuing in the month of December.   October and December have shown declines in the US Dollar Index 70% of the time over over the past 20 years, averaging a loss of 0.1% and 0.7%, respectively, on top of the average decline of 0.6% for September.

Today is Quadruple Witching, and its worthwhile to review the study we published earlier in the week.

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%

 

On the economic front, data pertaining to housing starts and manufacturing provided further reason to be concerned of the strength of the economy going into the fourth quarter.  Housing starts were reported at a seasonally adjusted annual rate of 1.126 million, or a decline of 3.0%, missing estimates calling for 1.168 million.  Stripping out seasonal adjustments, starts actually declined by 7.9%, significantly larger than the average August decline of 1.9%.  The year-to-date change had been hovering around the average trend through the spring and summer months, closing the gap that was created during the winter months, but now that underperformance is returning.  Weakness in the Northeast, Midwest, and West regions contributed to the weakness, while the South reported an abnormal increase.  Building Permits, which typically rise by 1.7%, on average, declined by 3.6%.  Housing units completed is currently hovering around the average trend.

Meanwhile, the Philadelphia Fed Business Outlook Survey confirmed the weakness that is apparent in the manufacturing sector. The headline print came in at –6.0, the opposite end of the spectrum from the consensus estimate of +6.3.  The non-seasonally adjusted level was 1.3, well below the 46-year average for the month of August of 25.9.  It remains unclear as of present whether the later than average Labour day holiday and variations in the timing of factory shutdowns played a role in depressing the result of this report.  Overall, the setup for the fourth quarter is less than encouraging.

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.92.

 

 

 

 

Seasonal charts of companies reporting earnings today:

  • No significant earnings reports today

 

S&P 500 Index

 

 

TSE Composite