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Stock Market Outlook for November 4, 2015

 

Fertilizer stocks poised for a seasonal move higher into the end of the year.

 

Real Time Economic Calendar provided by Investing.com.

 

**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:

Leon’s Furniture Ltd. (TSE:LNF) Seasonal Chart

 

The Markets

Shares of energy and technology companies helped to fuel gains in the broad equity market for a second day, pushing the Nasdaq 100 Index to a new all-time closing high.  The S&P 500 Energy sector traded higher by 2.53%, closing the gap with its declining 200-day moving average.  The energy sector benchmark is now testing the upper limit of the declining trend channel that has constrained trading activity over the past year and a half.  Of course, the gain in energy stocks follows another jump in oil and gasoline prices as investors try to peg a floor in many of the beaten down commodities.  Seasonally, energy equity and commodity prices typically lag the broader market between mid-October and early December as demand wanes following the summer driving season.

ENERGY Relative to the S&P 500

The recent rise in commodity prices is also influencing inflation expectations higher.  Looking at the ratio of the Treasury Inflation Protected ETF (TIP) relative to the 7 – 10 year treasury bond ETF (IEF) as a gauge of inflation expectations, a recent double-bottom and a positive shift in the trend of MACD and RSI has forced the expected level of inflation above the 50-day moving average for the first time since June; the intermediate negative trend has clearly been broken.  The ratio still has a lot of work to do to suggest the start of an intermediate or long-term up-leg, significant enough to sway the Fed’s view on inflation in order to raise rates.

On the economic front, a report on Factory Orders for September highlights the ongoing struggle in the manufacturing sector.  The headline print showed that new orders declined by 1.0% in September, exceeding the consensus estimate of a decline of 0.9%.  Stripping out seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries actually rose by 3.1%, inline with the average change for the month of September.  However, despite the inline result, the year-to-date lag versus the average trend remains apparent;  through the first nine months of the year, factory orders have remained essentially unchanged while the average for this time of year, based on data from the past 20-years, is for a gain of 6.4%.  The report also indicated that the gap between the year-to-date and the average trend for inventories is growing, underperforming in 2015 by around 3.1%.  Inventories typically build into the end of the year and dip during the month of December as end of year purchases alleviates the supply.  Weak commodity prices continue to weigh on a number of components in the report.

While a number of components of durable and nondurable goods orders are below average through the first nine months of the year, the value of manufacturers’ shipments for pesticides, fertilizers, and other agricultural chemicals moved above average after lagging from March through to August.  Shipments of the chemical products jumped higher by 10.4% in September, far exceeding the average decline of 2.8%.  The positive news comes on the day that Mosaic (MOS), a fertilizer producer, reported better than expected results for the third quarter.  Shares of MOS jumped nearly six percent on Tuesday, moving above its 50-day moving average. Other fertilizer companies received a boost as a result.  Shares of agriculture companies typically log their best performance of the year in the fourth quarter, rising significantly in anticipation of strong orders during the following spring.  Momentum indicators and relative strength for  a number of fertilizer stocks are pointing higher, implying renewed buying demand.  The positive technical profile sets the sector up well for the period of seasonal strength ahead.

Sentiment on Tuesday, as gauged by the put-call ratio, ended close to neutral at 0.95.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

TSE Composite