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Stock Market Outlook for November 13, 2017

Corporate bond market showing caution. 

 

Real Time Economic Calendar provided by Investing.com.

 

*** 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:

Corus Entertainment Inc. (TSE:CJR.B) Seasonal Chart

Louisiana-Pacific Corporation (NYSE:LPX) Seasonal Chart

Sotheby’s (NYSE:BID) Seasonal Chart

Boston Pizza Royalties Income Fund (TSE:BPF-UN) Seasonal Chart

Keg Royalties Income Fund (TSE:KEG-UN) Seasonal Chart

Annaly Capital Management, Inc. (NYSE:NLY) Seasonal Chart

Honda Motor Co. Ltd. (NYSE:HMC) Seasonal Chart

Clean Harbors, Inc. (NYSE:CLH) Seasonal Chart

Enbridge Income Fund Holdings (TSE:ENF) Seasonal Chart

Chartwell Retirement (TSE:CSH-UN) Seasonal Chart

Canadian Apartment REIT (TSE:CAR-UN) Seasonal Chart

H&R REIT (TSE:HR-UN) Seasonal Chart

Cogeco Cable Inc. (TSE:CCA) Seasonal Chart

Medical Facilities (TSE:DR) Seasonal Chart

Ag Growth International Inc. (TSE:AFN) Seasonal Chart

Becton, Dickinson and Co. (NYSE:BDX) Seasonal Chart

AGCO Corporation (NYSE:AGCO) Seasonal Chart

 

 

The Markets

Stocks closed marginally lower on Friday as concerns pertaining to the rollout of the Trump tax reform package persisted.  The S&P 500 Index shed just less than a tenth of a percent, continuing to hover just above its rising 20-day moving average.  For the week, the large-cap benchmark saw its first weekly decline since the start of September, bringing an end to the longest stretch of weekly gains in four years.  The benchmark remains overbought on this weekly look and momentum indicators are showing early signs of rolling over.  Rising 20-week moving average support comes in around 2496.  As noted at the start of last week, the period between November 6th and November 20th is typically the weakest period in November and the second weakest two-week period in the fourth quarter.  The S&P 500 Index has shed an average of 0.45% over this timeframe with negative results realized in 22 of the past 50 periods.  The earnings season catalyst has come to an end, forcing investors to look for other drivers of equity market direction, such as fiscal and monetary policy.  Signs of risk aversion are becoming apparent, as indicated by the healthy gains in the consumer staples and utilities sectors, evidence that investors may be preparing for a retracement ahead by taking down risk within portfolios.

Further signs that the equity market has lost momentum can be seen in the number of stocks listed on the NYSE charting new 52-week highs and the NYSE cumulative advance-decline line.  The number of stocks charting 52-week highs has been hovering over 120 for the past couple of months, but that level fell to 75 at the end of last week, recording the lowest level since August’s volatility.  Over the past year, the level of new highs has charted lower-highs as fewer and fewer stocks drive the market higher.  This is also evident in the advance-decline line, which has been rolling over for the past few weeks.  The longer-term trend, however, continues to be that of higher-highs and higher lows.  The NYSE Composite is already trading below its 20-day moving average, testing support in recent days at the 50-day.  Momentum indicators are pointing lower.  Seasonally, the NYSE Composite tends to underperform the S&P 500 Index through to mid-December.

^NYA Relative to the S&P 500

One of the areas that is providing investors concern is the performance of corporate bonds, particularly high yield.  The iShares High Yield Corporate Bond ETF (HYG) crashed through support around its 50-day moving average, now on track to test its 200-day moving average as support for the first time since June of 2015.  As it did back then, the performance of the high yield bond market often provides leading indication to the performance of the equity market.  Even the higher quality corporate bonds, as represented by the investment grade corporate bond ETF (LQD), is showing signs of breaking down, gapping below its 20 and 50-day moving averages to close the week.  The ratio of the high yield ETF (HYG) versus the investment grade ETF (LQD), a gauge of investor risk sentiment, has been declining since the first quarter of 2017, certainly not indicative of investor confidence in the corporate bond market.  It raises the question, “what are fixed income investors seeing that is causing concerns pertaining to corporate fundamentals that equity investors are not?”  The period of seasonal strength for the ratio of High Yield over Investment Grade bond prices is between December and April.

And finally for today, one of the hot trades in recent years has been to short volatility via one of the inverse VIX ETFs, such as XIV.  Had XIV been purchased at the start of this year, a trader would have realized a gain of just over 130% through the end of last week.  Well the inverse volatility index ETF is similarly showing signs of rolling over as equity market momentum wanes, prompting some caution.  The decline in XIV itself could fuel some volatility as investors flee these speculative products.  This is coming at a time when volatility has typically moved lower entering the stronger six months of the year for stocks.  The 50-day moving average for the ETF is over 7% below present levels, providing a likely target as the longs unwind.  Daily momentum indicators are negatively diverging from price, much like broad equity benchmarks.

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.18.  This is the fourth highest reading of the year and is indicative of investors hedging their portfolios amidst some of the uncertainties that are taking hold of equity market activity.  Fortunately for  the market, hedges tend to mitigate the negative performance attributed to a shock event, should one be realized, as investors are not forced to sell in the instance of a swift market decline.

 

 

 

Sectors and Industries entering their period of seasonal strength:

^N225 Relative to the S&P 500

 

 

 

Seasonal charts of companies reporting earnings today:

         

 

 

S&P 500 Index

 

 

TSE Composite