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Weekly Trends October 2, 2015
Weekly Trends October 2, 2015
Weekly Trends October 2, 2015
October 2, 2015
In our 2015 Market Outlook report we highlighted the potential for equity
market weakness in the summer/fall period. In the report we stated we see a
decent first half followed by potential weakness in H2/15 as the Fed begins to
hike rates. The expected first rate hike is in mid-2015 which would coincide
with the typically weak summer months. Stocks could come under pressure in
the summer/fall period, but by end of year, we believe North American equities
will be higher, in line roughly with corporate earnings growth. So far, this
forecast has played out well with the S&P/TSX Composite Index (S&P/TSX)
rallying to 15,450 in mid-April (+5.5% gain), before succumbing to selling
pressure in the summer and fall. Well see in the fourth quarter if we get the
last part of our forecast correct (the most important part). This week we
discuss the Three Ss (seasonality, support and sentiment) which we believe
supports our call for strength into year end.
From a seasonal perspective, Q3 is notoriously weak for equities, with the S&P
500 Index (S&P 500) averaging -0.7% since 1990. But this is then followed by
the strongest quarter of the year, with Q4 averaging +4.9%.
Another factor that keeps us bullish is the fact that the S&P 500 has held
technical support, and by definition, remains in a sideways range.
Numerous investor sentiment surveys point to very bearish sentiment for
equities, which from a contrarian perspective is bullish for the markets.
Putting it all together, with the S&P 500 still above key technical support,
seasonality turning bullish in mid-October, and sentiment at extreme bearish
readings, we believe the equity markets are set to move higher into year end.
-9.5
-16.4
S&P 500
-6.6
Russell 2000
-8.9
MSCI World
-7.5
MSCI Europe
0.5
MSCI EAFE
-6.8
MSCI EM
-17.2
-25
-20
Canadian Sector
-15
-10
-5
Consumer Discretionary
7.2
Overweight
Consumer Staples
4.4
Market weight
Energy
18.5
Market weight
Financials
37.3
Market weight
Health Care
4.9
Market weight
Industrials
8.3
Overweight
Information Technology
2.9
Overweight
Materials
8.8
Underweight
Telecom
5.4
Market weight
Utilities
2.3
Underweight
Level
Reading
Technical Considerations
S&P/TSX Composite
13,241.9
50-DMA
13,832.1
Downtrend
200-DMA
14,614.3
Downtrend
43.7
Neutral
RSI (14-day)
15,500
15,000
1.5%
S&P/TSX
50-DMA
200-DMA
14,500
1.0%
14,000
0.5%
13,500
0.0%
13,000
-0.5%
12,500
12,000
-1.0%
11,500
-1.5%
1
11
16
21
26
Weeks
31
36
41
46
51
11,000
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Weekly Trends
6.0%
5.0%
4.9%
1.5%
4.0%
1.0%
3.0%
2.0%
2.0%
1.8%
2.2%
0.5%
0.0%
1.0%
-0.5%
0.0%
-1.0%
-1.0%
-0.7%
-1.5%
-2.0%
Q1
Q2
Q3
Q4
11
16
21
26
31
Weeks
36
41
46
51
Weekly Trends
1 Month
4.8%
4.3%
1.1%
4.1%
3.6%
3 Months
8.4%
-7.0%
7.6%
6.3%
3.8%
Putting it all together, with the S&P 500 still above key technical support, seasonality
turning bullish in mid-October, and sentiment at extreme bearish readings, we
believe the equity markets are set to move higher into year end.
S&P 500 Continues To Hold Key Technical Support
50
Support
40
1,650
30
1,450
20
1,250
10
AAII Bullish Sentiment (4-week MA)
1,050
May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15
0
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Weekly Trends