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Unlucky Seven: Looking For Catalyst to Break Longest Loss Streak Since 2011

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November 3, 2016

(Thursday Market Open) Chicago Cub fans waited 108 years for a World Series win. How much longer do investors need to wait for stocks to break their seven-day losing streak?

This is the first time since mid-2011 that the S&P 500 Index (SPX) has posted seven-straight lower closes. The SPX closed below psychological support at 2100 for the first time in four months on Wednesday, but ticked a little higher in pre-market trade Thursday. Technical support sits at around 2080.

Nothing the Fed said at the conclusion of its meeting Wednesday could inject any new vigor into the market; in fact, stocks fell further after the Fed released its statement, which noted that inflation is edging higher and that the case for a rate hike has “strengthened.” The chances of a hike at this meeting were only 8%, according to the futures market heading into the week, so if anyone had hoped for more action, they would have been disappointed (and probably lonely). Odds for a December hike now stand at 71%, according to futures trading. The notion of higher rates seemed to weigh on certain interest rate-sensitive sectors like utilities and real estate.

What could come to the slumping market’s rescue? Earnings don’t seem to be doing the trick, even though they’ve generally been stronger than expected for Q3, with S&P 500 earnings so far up more than 2% year over year. Perhaps the monthly employment report tomorrow could be the catalyst. Expectations for October job growth stand at 175,000, according to Briefing.com, about in line with the average so far this year.

September factory orders are due later this morning, and Briefing.com predicts a rise of 0.2%, the same increase as the prior month. Non-farm productivity and ISM non-manufacturing PMI are also due, but these numbers arguably have about as much of a chance to spark the market as the Cubs do of winning the World Series. Wait a minute. That just happened.

Seriously, though, it’s hard to believe any of today’s numbers can overshadow what everyone is setting up for: tomorrow’s jobs report.

Shares of social media giant Facebook didn’t get a “like” from investors after the company reported earnings late Wednesday, and the stock fell about 5% in pre-market trading. Earnings per share and revenue numbers both beat Wall Street analysts’ consensus estimates, but Facebook’s forecast for a “meaningful” slowdown in its ad revenue growth rate next year threw some cold water on things.

A long list of companies report earnings today, but arguably none are too significant from an overall market perspective. Maybe a dose of caffeine is what investors need to put some zip back into trading, and Starbucks (SBUX) reports this afternoon. Other names to watch after the close include Activision (ATVI) and GoPro (GPRO). Today is the last big earnings day of the cycle.

Oil hasn’t been a positive catalyst for stocks either, falling sharply Wednesday on supply woes (see below). Crude oil futures rose slightly early Thursday but remained below $46 a barrel.

S&P 500

FIGURE 1: SPX BLAHS PERSIST.

The S&P 500 (SPX), plotted through Wednesday on the TD Ameritrade thinkorswim® platform, closed below 2100 for the first time since July 7. The index is now off nearly 100 points from the all-time high set in mid-August. Support could rest near the 200-day moving average of 2080. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Mystery of the Missing Oil Solved? For the last two months, U.S. crude oil supplies defied seasonal factors by sinking almost every week, helping raise prices for nearby U.S. crude futures above $52 a barrel, their highest level in over a year. Was demand higher than expected? Was U.S. production taking longer to ramp up after falling precipitously over the last 12 months? Were extra barrels out on ships somewhere at sea? It was something of a mystery. Well, the case may be over, as the Energy Information Administration (EIA) said Wednesday that U.S. oil stockpiles rose a whopping 14.4 million barrels last week, the largest weekly jump in the 34-year history of the weekly stockpiles report. Imports and production both increased, accounting for some of the bulging supplies. Oil prices immediately got smacked, with nearby U.S. crude futures plunging 3% to near $45. This could be the level to watch, as it represented something of a pivot point for futures most of the summer.

Could New Month Mean Better Times? It may seem presumptuous to make any predictions about the stock market based on historical patterns, but nevertheless, with the turn of the calendar page to November this week, stocks enter what traditionally has been their strongest six months of the year. The S&P 500 (SPX) posted its highest average six-month total return in the November through April period, and its weakest return from May through October, according to research by S&P Global.

Seasonal Sector Watch: Drilling down a little further, the consumer discretionary, materials, and industrials have typically enjoyed the biggest returns during the November through April calendar period, S&P Global said, with telecom services, utilities, and consumer staples bringing up the rear. Since 1970, the average SPX return between November and April has been 8.6%, well above the average of 5.8% for all rolling six-month periods on the calendar. How did things work out last time around? Not in line with the historical trend. The SPX closed out last April at 2065, down from the October 2015 finish of 2079. That would tend to reinforce what we said above about past performance not predicting the future.

Good Trading,
JJ
@TDAJJKinahan

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