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Stock Market Outlook for November 21, 2016

 

30-Day Correlation of the MSCI World ex-US Index and S&P 500 Index at lowest level since 2008.

 

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:

DENTSPLY International Inc. (NASDAQ:XRAY) Seasonal Chart

Red Hat, Inc. (NYSE:RHT) Seasonal Chart

ProLogis (NYSE:PLD) Seasonal Chart

CIGNA Corporation (NYSE:CI) Seasonal Chart

Cemex SAB de CV (ADR) (NYSE:CX) Seasonal Chart

Oshkosh Corporation (NYSE:OSK) Seasonal Chart

Northern Trust Corporation (NASDAQ:NTRS) Seasonal Chart

Leucadia National Corp. (NYSE:LUK) Seasonal Chart

Jacobs Engineering Group Inc. (NYSE:JEC) Seasonal Chart

AK Steel Holding Corporation (NYSE:AKS) Seasonal Chart

 

 

The Markets

Stocks ended marginally lower on Friday as investors digested the gains accumulated over the past couple of weeks.  The S&P 500 Index ended lower by less than a quarter of one percent, continuing to hover just below the all-time high at 2193.81.  Previous minor resistance at 2180 is now providing support.  Momentum indictors are showing early signs of rolling over, but sell signals have yet to be triggered.  Downside risks are suspected back to the 50-day moving average (2150), upon any retracement attempt, while upside potential is towards 2260, should the breakout to new highs become confirmed.  From this context, the risk-reward of the market remains favourable going into the end of the year, particularly with positive seasonal tendencies acting as a tailwind.  The large-cap benchmark has a tendency of producing gains in the holiday week ahead as traders step out of the office for a few days.  Given the pronounced momentum burst in the first half of the month, it is possible that the fuel to this historical tendency has been spent, but there is little to suggest that the ongoing positive trend is set to reverse.  Tendencies remain positive into the start of December, at which time the tax loss selling period can typically take some steam out of the market through to mid-month.

 

S&P 500 Index Returns around the US Thanksgiving
Year Thanksgiving Week Wednesday before Thanksgiving Friday after Thanksgiving
2015 0.05% -0.01% 0.06%
2014 0.20% 0.28% -0.25%
2013 0.06% 0.25% -0.08%
2012 3.62% 0.23% 1.30%
2011 -4.69% -2.21% -0.27%
2010 -0.86% 1.49% -0.75%
2009 0.01% 0.45% -1.72%
2008 12.03% 3.53% 0.96%
2007 -1.24% -1.59% 1.69%
2006 -0.02% 0.23% -0.37%
2005 1.60% 0.35% 0.21%
2004 1.05% 0.41% 0.08%
2003 2.21% 0.43% -0.02%
2002 0.62% 2.80% -0.27%
2001 1.03% -0.49% 1.17%
2000 -1.90% -1.85% 1.47%
1999 -0.38% 0.89% -0.03%
1998 2.47% 0.33% 0.46%
1997 -0.80% 0.09% 0.40%
1996 1.11% -0.13% 0.27%
1995 -0.02% -0.31% 0.26%
1994 -1.99% -0.04% 0.52%
1993 0.10% 0.29% 0.15%
1992 0.82% 0.37% 0.23%
1991 -0.24% -0.37% -0.35%
1990 -0.64% 0.23% -0.29%
1989 0.69% 0.68% 0.60%
1988 0.29% 0.67% -0.66%
1987 -0.69% -0.93% -1.54%
1986 1.37% 0.24% 0.18%
1985 0.32% 0.93% -0.18%
1984 1.72% 0.20% 1.46%
1983 1.27% 0.07% 0.13%
1982 -1.56% 0.71% 0.75%
1981 2.78% 0.44% 0.84%
1980 1.01% 0.60% 0.25%
1979 0.85% 0.19% 0.75%
1978 1.45% 0.49% 0.32%
1977 1.43% 0.42% 0.21%
1976 1.21% 0.44% 0.72%
1975 1.91% 0.25% 0.33%
1974 1.55% 0.68% 0.04%
1973 -4.27% 1.11% -0.32%
1972 1.54% 0.59% 0.32%
1971 0.36% 0.19% 1.78%
1970 2.64% 0.37% 0.99%
1969 -0.54% 0.36% 0.58%
1968 1.95% 0.47% 0.57%
1967 1.16% 0.59% 0.27%
1966 -0.50% 0.68% 0.80%
1965 -0.23% 0.17% 0.10%
1964 -1.30% -0.34% -0.33%
1963 5.20% -0.18% 1.36%
1962 2.29% 0.60% 1.20%
1961 0.31% -0.11% 0.20%
1960 0.56% 0.14% 0.59%
1959 1.28% 0.16% 0.45%
1958 -0.42% 1.72% 1.12%
1957 2.08% 2.89% 1.14%
1956 -1.31% -0.49% 1.05%
1955 0.31% 0.13% -0.09%
1954 3.29% 0.56% 0.96%
1953 0.90% 0.08% 0.57%
1952 1.54% 0.63% 0.55%
1951 -1.84% -0.18% -1.06%
1950 2.32% 1.41% 0.79%
Average 0.71% 0.35% 0.34%
Gain Frequency 68.18% 77.27% 72.73%

 

While US Indices benefit from the “Trump Bump,” grinding higher on prospects of a reinvigorated economy under the Republican rule, a gauge of equity market performance outside of the US continues to grind lower.  The MSCI World Ex-US Index lost another 1.07% on Friday, closing at the lowest level in over four months.  Price and momentum indicators have charted a series of lower highs and lower lows since early September.  A head-and-shoulders bottoming pattern has been violated with a move back below neckline resistance.  The 30-day correlation of the international market gauge has fallen to the lowest level since mid-2008 at –0.33, and it is showing no signs of bottoming.  Generally, stocks around the globe will show positive correlation with one another, impacted by the global economic cycle.  When correlation breaks down, a push and pull trading activity develops whereby stocks domestically are either being dragged upon by lacklustre activity in other markets around the globe or, conversely, stocks domestically influence the global market lower.  Either way, it has typically been indicative of a major turning point.  Back in 2013 when a similar plunge in correlation was realized, stocks in the US took off, rallying over the year that followed to the top of the recent range that has spanned the past couple of years.  And, of course, the comparison of the 2008 decline in correlation saw equity markets around the globe lose half of their value in a matter of months.  Indications suggest the present scenario is more reminiscent of the 2013 scenario, however, upside potential is nowhere near pronounced as what the S&P 500 Index delivered between 2013 and 2015.  The bad news is that the present push higher could present a blow off top situation that draws investors in, off the sidelines, leading to a steep rise in prices only to become exhausted by the lack of global participation, then resulting in sharp declines.  This is currently speculation and the timing of this is undetermined, but, if applying a seasonal overlay, the most probable timing of the peak would be realized by the end of the period of strength for stocks in April/May.

One of the major drags on the global equity benchmark is the performance of emerging markets, which, according to the emerging market ETF (EEM), is down almost 8% since US election day.  The strengthening US dollar has certainly been a factor.  The emerging market ETF is presently consolidating following its recent rapid decline, showing what appears to be a bear flag pattern.  A break of support around the 200-day moving average could lead to a test of the mid-year lows around $31.50. 

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.94.

 

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