Stock Market Outlook for January 4, 2016

 

January and February are the weakest two months of the six month positive seasonal trend for the broad equity market.

 

 

**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:

ARO Seasonal Chart" src="http://charts.equityclock.com/wp-content/uploads/2013/03/ARO_thumb-205x150.png" />

Aeropostale, Inc. ARO Seasonal Chart

 

The Markets

Welcome to 2016!  After a year of lacklustre returns, investors will be looking forward to better performance ahead as the new year begins.  For 2015, the S&P 500 Index ended lower for the year by 0.73%, essentially unchanged from where the benchmark ended in 2014.  Last year's trading activity was dictated by uncertainty pertaining to how the Fed would progress with normalizing rates, the result of which strengthened the US Dollar and pressured commodity prices, keeping a lid on equity prices throughout the year.  Resistance became apparent around 2130 on the S&P 500 Index and the first sustained break of the 200-day moving average followed soon thereafter.  The 2130 cap remains intact going into the new year, likely leading to selling pressures around this all-time high unless a positive catalyst materializes to fuel a breakout.  Looking shorter-term, the declining trading range that has spanned the last couple of months remains a critical constraint restraining a longer-term forecast.  While a long-term rolling top could be derived by the price action over the past year, a bull flag pattern, based on trading activity from the fourth quarter, cannot be dismissed.  Fourth quarter earnings season, which begins next week, could be a significant pivot point in the market direction, either leading to a breakout or breakdown.

Looking ahead, the months of January and February can show mixed results, as it pertains to equity market performance.   For the S&P 500 Index, the frequency of positive results in the first month of the year is 58%, based on data from the past 50 years.  The month of February is slightly worse with only 56% of periods showing gains.  Together, January and February are the weakest two months of the six month positive seasonal trend for the broad equity market; gains for the first two months of the year have averaged 1.0% and 0.1%, respectively, influenced by quarterly earnings reports and full year guidance from CEOs.  Best performing sectors in the month of January are Health Care and Technology as investors bid stocks higher around the JP Morgan Healthcare Conference and Consumer Electronics Show (CES).  The two sectors averaged gains around 2% each for the first month of the year.   Worst performing sectors, based on data from the past 20 years, are Materials and Consumer Staples, succumbing to the seasonal rise in the US Dollar during the same timeframe.  The two sectors averaged declines of 1.2% over the course of the month.  Whatever the outcome, the first two months of the year have the highest likelihood of corrective forces taking hold within the best six months of the year for stocks, warranting a certain amount of caution, particularly if the recent downward bias in equity prices continues.

Best Performing Sectors in the month of January:

Worst Performing Sectors in the month of January:

Sentiment on the last trading day of the year, as gauged by the put-call ratio, ended bearish at 1.04.  As highlighted the other day, the Average True Range (ATR) of the ratio has spiked above 0.125, a scenario that has often coincided with periods of equity market weakness as option trading becomes erratic.

 

 

 

Sectors and Industries entering their period of seasonal strength:

000001.SS Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

• No significant earnings scheduled for today

 

S&P 500 Index

 

 

TSE Composite