Equity Clock

Stock Market Outlook for October 14, 2020

Stocks have moved higher in recent weeks, but the level of investor conviction has fallen.

 

 

 

*** 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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Snap On Inc. Holding Co. (NYSE:SNA) Seasonal Chart

Stantec, Inc. (TSE:STN.TO) Seasonal Chart

Owens Illinois, Inc. (NYSE:OI) Seasonal Chart

Arconic, Inc. (NYSE:ARNC) Seasonal Chart

Knight-Swift Transportation Holdings Inc. (NYSE:KNX) Seasonal Chart

 

 

The Markets

Stocks closed lower on Tuesday as investors reacted to the release of earnings from notable sector bellwethers, including Johnson & Johnson, JP Morgan, and Citigroup.  The S&P 500 Index shed just over six-tenths of one percent, giving back some of the strength realized in the previous session.  The decline comes as the benchmark tests important resistance presented by the all-time high charted at the start of September.  The upside target of the short-term trading-range breakout between 3310 and 3425 that we had profiled in recent reports was achieved during Monday’s session, thereby exhausting the technical inertia that had investors pound the buy button in recent days.  Short-term support is apparent at Monday’s upside gap around 3500.  The big question is whether the benchmark will react positively or negatively to the significant level of resistance at the all-time peak of 3588.  A positive reaction would keep the intermediate-term rising path of the market intact, while a rejection would likely result in negative intermediate-term implications through to election day.  We will be watching the gyrations closely in the days ahead.

Reaction on the KBW bank index on Tuesday following the release of earnings from some of the big banks wasn’t very encouraging that a breakout in the broader market is in the cards in the near-term.  The KBW Bank index dropped by 2.85%, turning lower from significant resistance at its 200-day moving average.  The long-term path, as gauged by the direction of the 200-day moving average, is deemed to be lower.  A trading range between 69 and 81 has been apparent for the past few months, a violation of which projects a 12-point move in the direction of the break.  Seasonally, bank stocks start moving higher around this time of year, but with the uncertainty pertaining to the intermediate-term path, the better opportunity to accumulate positions would be a test and rebound of support at 69 or a breakout above resistance at 81.  The optimal holding period runs between the end of January and the end of April.

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On the economic front, a report on consumer prices was released before Tuesday’s opening bell.  The headline print of the inflation gauge indicated that prices increased by 0.2% in September, lifting the year-over-year increase to 1.4%.  Excluding food and energy, the month over month increase was the same, higher by 0.2%, inline with the consensus analyst estimate.  The year-over-year change by this measure is +1.7%, a marginal miss versus estimates that called for a print of +1.8%.  Stripping out the seasonal adjustments, the consumer price index (CPI) actually increased by 0.1% in September, slightly weaker than the 0.2% increase that is average for the month.  The year-to-date change is now higher by 1.3%, still well short of the 2.7% rise that is average through the first three quarters of the year.  The core measure (less food and energy) is faring a little better, higher year-to-date by 1.6%, which is three-tenths of one percent below the seasonal norm.  Subscribers received further insight on what is driving the aggregate trend.  Subscribe now.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.75.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite

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