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Stock Market Outlook for May 19, 2020


Relative performance of the Utilities sector has fallen to the lowest level in over a year as investors abandon the former defensive bet.

 

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:

Subscribers – Click on the relevant link to view the full profile. Not a subscriber? Signup here.

Skyworks Solutions Inc. (NASD:SWKS) Seasonal Chart

WD-40 Co. (NASD:WDFC) Seasonal Chart

Acadia Realty Trust (NYSE:AKR) Seasonal Chart

Firstenergy Corp. (NYSE:FE) Seasonal Chart

Industrial-Alliance Life Insurance Co. (TSE:IAG.TO) Seasonal Chart

MTY Food Group Inc. (TSE:MTY.TO) Seasonal Chart

Premier Gold Mines Ltd. (TSE:PG.TO) Seasonal Chart

Alamos Gold Inc. (NYSE:AGI) Seasonal Chart

Eldorado Gold Corp. (NYSE:EGO) Seasonal Chart

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

Vanguard Growth ETF (NYSE:VUG) Seasonal Chart

 

 

Note: Monday is a holiday in Canada and, as such, our next report will be released on Tuesday.

 

The Markets

Stocks closed mixed on Friday as investors digested a mixed set of economic data.  First up was retail sales. The headline print of April’s report indicated that activity fell by 16.4% last month, which was weaker than the 11.2% decline that was expected by analysts. Less gas and autos, the decline was equally dismal, down 16.2%, which was more than double the 7.6% decline that was forecasted by analysts. Stripping out the adjustments, retail sales actually fell by 15.0% versus the month prior. This is significantly weaker than the 2.1% decline that is average for April. This is the largest monthly decline outside of the January swoon on record. The year-to-date change is now down 29.9%, which is 15.5% below the seasonal average trend through the first four months of the year. As could be expected, the drawdown through the end of April is not comparable to any other period in modern history. We sent out further insight to subscribers intraday.  Subscribe now and we’ll send you this timely analysis of the state of the consumer.

The S&P 500 Index ended Friday’s session with a gain of four-tenths of one percent, closing marginally above the 20-day moving average by the closing bell.  Momentum indicators remain on a sell signal following Wednesday’s bearish MACD crossover.  The big hurdle is the 200-day moving average overhead, which has provided a formidable cap to the rebound attempt. 

For the week, the S&P 500 Index was down by 2.26%, continuing to show struggle around the 2900 level of resistance.  Resistance at the 20 and 50-week moving averages, which are close enough to the present level of the 200-day moving average, are directly overhead.  The weekly candlestick attempted to undercut the lows from the week prior, which would have confirmed a rollover from resistance, but the closing print merely maintained the tight trading range from the past few weeks.  MACD on this weekly look appeared poised to trigger a momentum buy signal, but this trigger remains pending.  It was the last week of February that MACD charted a bearish crossover on the weekly chart, the timing of which was inline with that of the equivalent daily signal.  But, despite this hint of an imminent bullish weekly MACD crossover, momentum indicators continue to show characteristics of a bear market trend.  RSI became deeply oversold in March and is now showing indications of rolling over around 50.  Stochastics are showing something similar.  MACD had fallen to the lowest levels since 2008 and it remains well below the 0 line.  These are indications of a depressed market, a market that has much to prove in order to gain legs.

Sector performance on Friday was rather mixed with communications services and consumer discretionary topping the leaderboard, while utilities and financials closed firmly in the red.  As for utilities, the rebound in the sector peaked at the start of April at it has grinded lower since.  What once was the sector to seek shelter in this market rout is now the sector to avoid.  The sector had been outperforming the market consistently over the past year and a half, but the recent decline from the April peak has caused a significant decline in relative performance, suggesting that buying demand has gone away.  Previously, the fundamentals pertaining to the product that utility companies produced was of little consequence to investors in the sector, who were primarily concerned with the direction of interest rates.  But with the economic shutdown taking a toll on everything, including utility demand, the fundamentals may now matter.  We provided further insight on the fundamental framework for utility production in our report on US Industrial Production, which was sent out to subscribers intraday.  Seasonally, utility stocks tend to flatline beyond the month of April and then start to pick up again and outperform the market between the end of July and the beginning of October.  While the sector continues to underperform, best to avoid and seek alternative investments.

With regards to industrial production, the headline print of April’s report indicates that activity fell by 11.2% last month, which was marginally better than the consensus analyst estimate that called for a decline of 11.5%. The manufacturing component reported a decline of 13.7%, which is significantly weaker than the consensus analyst estimate that called for a drawdown of 11.4%. Stripping out the seasonal adjustments, industrial production in the US actually fell by 13.3% in April, which is significantly weaker than the 1.6% decline that is average for the month. The year-to-date change is now down by 17.1%, which is the weakest performance through the first four months of the on record. The average change through this time of year is a decline of 0.6%. We sent out further insight to subscribers intraday.  Signup now and we’ll send your our report and add you to our distribution list.

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.80.  The result matches the lowest level since the middle of February, suggesting that complacency continues to filter back into equity markets.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite

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