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Stock Market Outlook for November 19, 2015

 

Housing starts plunge 18% in October, but the housing units completed suggest the industry is inline with historic norms.

 

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:

Norbord Inc (TSE:NBD) Seasonal Chart

Guess?, Inc. (NYSE:GES) Seasonal Chart

 

The Markets

Stocks rallied on Wednesday following the release of the latest FOMC minutes, which indicated a number of individuals believed conditions would be favourable for a December rate hike.  The S&P 500 Index broke back above its 200-day moving average as momentum indicators hook positive once again.  The benchmark appears poised for another run at the all-time highs around 2130.  Financials led the move higher as investors perceive the looming rate hike as being positive for net interest margins.  The SPDR KBW Bank Index ETF (KBE) surged by 1.66%, remaining on a path of outperformance versus the market that was initiated following the Fed meeting itself.  Seasonally, the strength in the US banking sector is triggering exactly on queue.  The industry seasonally gains between November 22nd through to June 4th, on average, although the varying exposure of the different companies can result in a later start or earlier finish.  Financial institutions that are more focussed on lending, such as the banks, would be expected to benefit in a rising rate environment, while financials that are more focussed on borrowing, such as REITs, would be expected to suffer.  Resistance for the KBW Bank ETF (KBE) is apparent around $37.

While REITs lagged the broad market move on Wednesday, home construction stocks outperformed as investors were seemingly undeterred by the latest housing starts report.  The headline print showed that starts declined to a seasonally adjusted annual rate of 1.060 million, down from the previously revised 1.191 million.  The consensus estimate for starts was 1.162 million.   Stripping out seasonal adjustments, starts were actually down by 18%, a significant shift when compared to the 2.3% average gain for October, based on data from the past 50 years.  The year-to-date trend of starts is back below the average trend, a position it held prior to the upbeat September report.  Looking at the regions, a significant plunge in the South and the West appears culprit for the weakness in the overall report; starts were down 26.5% and 25.3%, respectively, well below average.  Only the North-east region is showing a year-to-date change that is above average through the end of October, however, the region is of little influence given its small size relative to the others.  Meanwhile, housing units completed remains inline with the average trend, suggesting a steady supply coming to market that the housing starts figure doesn’t necessarily represent.   Units authorized but not started remains well above average, meaning builders could ramp up starts at any time in response to greater demand.  Reports on existing and new home sales will be provided next week, offering a glimpse into the demand side of the equation.  Home building stocks seasonally gain between now and mid-February, on average.

In other news, oil inventories continued to rise in the latest week, this time by a meagre 300,000 barrels.  The days of supply of oil ticked lower by almost half of a day to 30.8, continuing to show signs of peaking now that the holiday season is nearing.  The price of WTI Crude ended relatively flat on the day, remaining above support presented by the August low at $37.75.  On the flip-side, gasoline days of supply ticked higher to 23.2 following a 1 million barrel build in inventories.  The price of gasoline is attempting to maintain support at the 2015 low of $1.23.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.02.

 

 

 

 

Sectors and Industries entering their period of seasonal strength:

MATERIALS Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite