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Stock Market Outlook for May 20, 2020

Stocks moved back into the gap that was opened during Monday’s session as the S&P 500 Index maintains this dance around 2900.

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:

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Cascades, Inc. (TSE:CAS.TO) Seasonal Chart

Enzon, Inc. (OTCMKT:ENZN) Seasonal Chart

Fortuna Silver Mines Inc. (NYSE:FSM) Seasonal Chart

Invitae Corp. (NYSE:NVTA) Seasonal Chart

Invesco Dynamic Biotechnology & Genome ETF (NYSE:PBE) Seasonal Chart

 

The Markets

Stocks closed lower on Tuesday as investors digested some impressive gains from the session prior.  The S&P 500 Index closed down by 1.05% as traders took profits in energy and financial stocks.  The ETFs that track the sectors gained 8.17% and 5.13%, respectively, on Monday as the shorts ran to the exits following headlines pertaining to a vaccine for the coronavirus.  Upside gaps remain prominent across the charts, creating a level of near-term support for traders to shoot off of.  For the Energy ETF (XLE), the gap is apparent between $36.50 and $38.00, while the gap on the Financial ETF can be seen between $21.00 and $21.80.  The price of each closed within these open gaps by the end of Tuesday’s session.

For the S&P 500 Index, the upside open gap bridges the 2900 level that the benchmark has been dancing around for weeks.  The lower limit of the gap rage comes in around 2860, while the upper limit of the gap range comes in around 2915.  The benchmark closed at 2922.94, just above the upper limit of this span.  The 200-day moving average overhead continues to be a formidable hurdle on the upside and, as long as the benchmark remains below this variable level of resistance, a certain amount of caution is warranted.

On the economic front, a report on housing starts in the US was released during Tuesday’s session.  The headline print of April’s report indicated that activity declined by 30.2% last month to a seasonally adjusted annualized rate of 891,000. Analysts were expecting a decline of 24.1% to a rate of 968,000. Stripping out the adjustments, starts actually declined by 22.8% in April, which is a significant negative divergence compared to the 8.9% increase that is average for this time of year. This is the weakest April decline on record and only the seventh decline for the month in the history of the report; the last April decline was in 2013 when starts fell by 8.4%. The year-to-date change is now down 25.1% through the first four months of the year, significantly weaker than the 34.3% increase that is average during this timeframe.  We sent out further insight to subscribers intraday.  Subscribe now to receive this and other proprietary content accessible only by Equity Clock members.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.72.  The past two sessions have seen the lowest put-call readings since mid-February, at the highs of the market.  The reading suggests complacency, which leaves stocks vulnerable given that portfolio hedges have been relinquished.  The result just adds to the unappealing risk-reward metrics for stocks around present levels.

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

TSE Composite

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