By J.C. Parets & All Star Charts
1/ The Strongest Month for Stocks
2/ Homebuilders Construct a Floor
3/ US Stocks Are Still The Place To Be
4/ A Logical Level for a Pause
Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.
1/ The Strongest Month for Stocks
Despite today’s losses, with October behind us, we are now entering what has historically been the strongest month of the year for the stock market.
According to historical seasonal trends, November is the strongest month for the S&P 500, with an average gain of 1.67% since 1950.
This tells us that seasonality now presents a tailwind for equities. Under this scenario, this could be the best time for the market to experience a rally into the end of the year.
On the other hand, if markets experience a lackluster November—as small-caps did last year—it could present an early warning sign of more selling pressure to come.
2/ Homebuilders Construct a Floor
As we enter the new month, one industry group that continues to pique our interest is home construction (ITB). There’s critical information contained in these stocks, as they provide an excellent overview of the current market environment and investors’ appetite for risk.
As you can see, ITB continues to hold above its 2006, 2018, and pre-pandemic highs.
The fact that homebuilders are holding above a critical shelf of former highs indicates the structural trend for U.S. equities remains intact.
As long as ITB is above this support level, equities could be in the process of building out a durable bottom.
3/ US Stocks Are Still The Place To Be
It’s hard to imagine that U.S. stocks are outperforming the rest of the world, given this year’s drawdowns. But that is exactly what’s been happening.
Notice the triple-pane chart of the S&P 500 relative to major international indexes, including emerging markets (EEM), MSCI EAFE (EFA), Asia 50 (AIA), and the All-World Ex-US (VEU).
All four international indexes are underperforming relative to the S&P 500 (SPY). It’s a trend that has been in place for a decade now, and it shows no signs of reversing any time soon.
4/ A Logical Level for a Pause
The U.S. dollar rally has produced stiff headwinds for risk assets worldwide. But after more than a year of powering higher, the rally is finally slowing down.
Notice how the U.S. Dollar Index (DXY) peaked at a critical Fibonacci extension level in September.
This critical level continues to act as resistance, indicating a significant amount of supply near the 114 level. As long as this remains the case, global equities could experience a break from the dollar headwinds that have helped fuel the selling pressure this year.
The dollar doesn’t necessarily have to roll over—it just needs to stop rising. At the moment, it could be trading at a logical level for a pause.
—
Originally posted 1st November, 2022
Disclosure: Investopedia
Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Forex
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
