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Stock Market Outlook for August 17, 2016

 

Strongest surge ever in electric power generation helped lift industrial production above seasonal norms.

 

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:

  • No stocks identified for today

 

 

The Markets

Stocks sold off on Tuesday, ahead of Wednesday’s release of the FOMC Minutes from last month’s meeting.  The S&P 500 Index shed just over half of one percent, trading back towards its 20-day moving average around 2174.  A short-term negative momentum divergence, with respect to MACD, continues to pose a concern as upside exhaustion becomes suspect.  Significant support remains not far below around 2100.

The more notable move on the day became apparent in the currency market as the US Dollar Index fell by almost 1%.  As highlighted in yesterday’s report, the currency benchmark was testing the lower limit of a rising trend channel, which now appears to be violated as economists debate potential central bank actions moving forward.  Wednesday’s release of the FOMC minutes will likely play a role in the dollar’s next move.  Should the breakdown become confirmed, the currency has a good chance of making another run at significant horizontal support around 93.  Dollar weakness has a strong potential of translating to further commodity strength, a trend that is typical for this time of year.

On the economic front, we are slowly being given a glimpse of the health of the economy going into the second half of the year.  First out of the gate on Tuesday was housing starts, which rose 2.1% in July to a seasonally adjusted annual rate of 1.211 million.  The consensus estimate was for a slight decline to 1.180 million, from 1.186 million previous.  Permits, however, missed expectations, coming in at 1.152 million versus the consensus of 1.160 million.  Striping out seasonal adjustments, starts were actually higher by 3.1%, a significant divergence versus the average decline for July of 3.8%.  The year-to-date change has just about converged with the average trend, closing a gap that had been opened in the spring.  Seasonally, a trend of declines in housing starts is typical in the back half of the year, therefore the rare gain in July just emphasizes the pent up demand to get housing projects underway before the colder weather sets in over the next few months.  Attracting the attention of analysts, however, is the decline in permits, an indication of future building activity.  Non-adjusted, permits were lower by 16.3%, a much larger decline than the 9.1% average contraction in July.  A significant plunge in permits in the west, where the increase in housing starts have been well above average, is reason for the drag on the headline print.  Homebuilders had earlier suggested difficulties obtaining new plots of land for building, which may be the factor in this report.  Overall, a mix of good and bad, but nothing to suggest, as of yet, that the housing market is falling out of a position of strength in the economy.

Elsewhere on the economic front, industrial production for July came in well above expectations.  Production was reported to have increased by 0.7% last month, more than double the expected increase of 0.3%.  Stripping out seasonal adjustments, total industrial production was actually lower by 1.4%, which is much better than the average decline for July of 3.9%.  The year-to-date change is now above the seasonal average for the first time since January, helped by above average utility and consumer goods production.  While perhaps no surprise, electric power generation is trending well above average this year as a result of the warm temperatures fuelling demand for cooling purposes.  Up just over 25%, electric power generation has never shown a larger gain through the first seven months of the year, emphasizing the extremes that the weather is posing on utilities and perhaps even the broader economy.  The most encouraging component of the report is the change in business equipment production, which fell 4.4%.  The average decline in business equipment production in July is 5.9%.  Production within the segment has shown an above average change through much of the year, signalling robust business investment.  Looking forward, production typically rebounds from the July lull into August and September as manufacturers ramp up activity ahead of the fourth quarter spending season.  If July’s report is any precedent, the third quarter could show exceptionally strong production activity this year.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.03.

 

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite