Stocks Entering Period of Seasonal Strength Today

**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.

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Callaway Golf Co (NYSE:ELY) Seasonal Chart

Six Flags Entertainment Corp. (NYSE:SIX) Seasonal Chart

MSG Networks Inc. (NYSE:MSGN) Seasonal Chart

Northern Dynasty Minerals (TSE:NDM) Seasonal Chart

Viacom Inc – Class B (NASD:VIAB) Seasonal Chart

CBS Corp. (NYSE:CBS) Seasonal Chart

West Fraser Timber Co. Ltd. (TSE:WFT) Seasonal Chart

Time Warner Inc. (NYSE:TWX) Seasonal Chart

Ball Corporation (NYSE:BLL) Seasonal Chart

Capstone Mining (TSE:CS) Seasonal Chart

American Software, Inc. (NASD:AMSWA) Seasonal Chart

The Home Depot, Inc. (NYSE:HD) Seasonal Chart

WestJet Airlines Ltd. (TSE:WJA) Seasonal Chart

Market Outlook

The Markets

Another day of mild gains for stocks saw major benchmarks in the US remained pinned to all-time high levels as investors hold the tape steady in the midst of the ongoing earnings season. The S&P 500 Index added close to two-tenths of one percent, remaining firmly embedded in overbought territory according to a number of momentum indicators. So far, there has been a lack of catalysts to fuel a significant move in broad market benchmarks in either direction, but, as we enter the heart of the earnings season, the number of potential catalysts increases exponentially as more and more companies release results. Typically, by the third week of earnings season, investors will have a good sense of the health of corporate America and price in their expectations of future results accordingly. We are presently in the second week of earnings, which unofficially got underway closer to the end of last week.

Of course, it was during the third week of earnings season in October of 1987 that one of the worst one day declines was recorded. On Monday, October 19, 1987, the S&P 500 Index shed 20.5% in a session that has become known as “Black Monday.” The benchmark relinquished the over 36% gain accumulated through the first eight months of the year in just a few sessions, closing the year in a flat position. Turning to the present day, the over 14% gain recorded in 2017 is nowhere near the excess achieved in 1987 and technical parameters are not suggestive of an imminent collapse to the magnitude that was recorded back then. The most simple of the technical parameters is the benchmark’s position relative to its 200-day moving average. On the Friday prior to Black Monday of ‘87, the S&P 500 Index plunged firmly below its 200-day moving average, setting the stage for the panic selling that was to follow. Equity market performance, on an intermediate basis, tends to weaken significantly when the long-term 200-day moving average is violated. The S&P 500 Index is currently holding 6% above this significant average, presenting a sizeable downside risk, but certainly nothing that could be deemed cataclysmic, as it was back then. The last time the S&P 500 Index closed below the 200-day moving average was in March of 2016 when the large-cap benchmark was bound by a massive trading range that spanned the course of a couple of years. So while comparisons are made of the present market to what existed 30 years ago, a simple technical analysis suggests that similar risk of a waterfall plunge is not on the horizon, but a check-back of levels closer to the rising 200-day moving average would not be unexpected. The benchmark typically reverts to the long-term mean around once every 18 months, on average.

On the economic front, manufacturing data out of the new york region continues to suggest strength in this segment of the economy. The Empire State Manufacturing Survey showed a headline print of +30.2, one of the best readings since the economy emerged from recession in 2009. Stripping out the seasonal adjustment, the gauge of manufacturing activity actually improved to +22.7, from +21.1 previous. This is the best October level since 2009 when the index peaked at +27.3. The average level for this time of year is +2.5. Seasonally, manufacturing activity tends to wind down for the year in the fourth quarter, therefore it is rare to see improvement into this slower period following the average peak in September. Manufacturing activity tends to ramp up again in the first few months of the year as inventories are depleted following the fourth quarter consumer spending season.

This strength in manufacturing activity, not only in the US, but around the world, has had a direct influence on the price of copper, which is breaking out again. The price of the industrial metal started to ramp higher a year ago as manufacturing activity started to rebound from the recessionary conditions in this segment of the economy in the years prior. A trend of lower-lows and lower-highs was broken and a trend of higher-highs and higher-lows began. The price of the metal shot higher this summer when some of the manufacturing gauges, such as those presented above, started to show sustained strength. Monday’s breakout projects a move back to previous resistance around $3.70, based on a head-and-shoulders bottoming pattern that has been charted over the past few years. Seasonally, the price of the commodity tends to rise between the end of the year through the month of April, benefitting from the increased demand related to the rebound in manufacturing activity during the spring.

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.17. This is one of the highest levels of the year, suggestive of risk aversion as portfolio managers seek to hedge their long exposure.