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Stock Market Outlook for May 11, 2016

 

Job openings hovering around the highest levels on record, but the confidence of the labor force appears the concern.

 

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 posted solid gains on Tuesday in a move that appears to be largely technical in nature as investors found confidence in support around those 50-day moving averages identified in yesterday’s report.  The Dow Jones Industrial Average and S&P 500 Index, among others, jumped firmly higher from their respective rising 50-day moving average lines, taking another run at the highs of the year.  For the S&P 500 Index, the benchmark also bounced firmly from horizontal support around 2040, on track to test the upper limit of the short-term trading range that peaks out around 2100.  A catalyst is likely needed to either fuel a breakout or breakdown.

While investors wait for the direction of the break in the broader market, opportunities below the surface remain.  One of those opportunities may be found in biotech stocks, which are suggesting an appealing setup going into the period of seasonal strength for the industry.  After being beaten down since last summer given the ongoing scrutiny pertaining to industry pricing practices, the iShares Nasdaq Biotechnology ETF (IBB) traded to a low of around $240 in February.  The ETF is presently on its third attempt testing support around this low, providing a propping point, as well as a stop level, for the period of strength ahead.  The NASDAQ Biotechnology Index, upon which this ETF is benchmarked, tends to gain between the end of April and mid-September, benefitting from a series of health care conferences that take place in the spring and summer months.  Momentum indicators are attempting to rebound from short-term oversold levels as price moves towards the first level of horizontal resistance at $270.  The favourable risk-reward setup provided by the potential double-bottom pattern warrants taking a stab at what remains a very volatile sector.

On the economic front, a report on wholesale trade for March showed healthy activity on both the inventories and sales sides.  The headline print indicated that wholesale inventories rose by 0.1% in March, less than the consensus estimate calling for a gain of 0.3%, while wholesale sales rose by 0.7%, the net effect of which kept the inventory-to-sales ratio unchanged at 1.36.  Stripping out seasonal adjustments, inventories rose by 0.5%, while sales rose by 15.6%; the average change for each in the third month of the year is 0.0% and 14.8%, respectively.   Year-to-date, the trend for both inventories and sales remains below average, however, the gap versus the norm on the sales side is slowly narrowing as commodity prices improve.  Focussing on the sales side, the typical March surge in activity was realized across the board with many components showing improvement versus last year’s trend.  The two notable holdouts that are showing a lag versus the year-to-date change realized in the first quarter of 2015 are Apparel and Motor Vehicle sales, underscoring the strain that stretches into the retail landscape for clothing and automobiles.  Weather is one factor for the lag, particularly as it pertains to clothing, but also “peak auto” is increasingly becoming apparent as sales start to fall off after last year’s strong results.  Overall, despite the two blemishes noted,  the report reiterates the fact that economic activity is showing improvement versus last year, which is encouraging for the prospect of stronger economic growth in the back half of this year as commodity prices stabilize.

The other notable report released on Tuesday was the JOLTS, or Job Opening and Labor Turnover Survey.  The headline print indicated that job openings continued to improve in the month of March, rising to 5.757 million versus an upwardly revised 5.608 million previous.  Stripping out seasonal adjustments, total nonfarm job openings were up by 6.5% in March, better than the 4.8% average gain based on data from the past 14 years.  While job openings continue to trend above average, the level of quits is lagging the norm, suggesting a lack of confidence amongst the workforce to leave positions for better opportunities, a characteristic of a robust labour market.  The year-to-date change in hires is also trending below average, which seems counterintuitive given the above average rate of employment growth, as indicated by Friday’s nonfarm payroll report.  Overall, a wealth of jobs appear available with job openings sitting at the highest level in the history of the report, but the labor force is unable to fulfill them, the apparent result of a gap in skills.  This has the ingredient necessary to promote wage growth as employers that demand the workers will be forced to pay higher salaries in order to attract the talent required.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.07.  Despite the surge in equity prices on the day, investors are maintaining a cautious stance, chalking up the 10th day in a row where the volume of puts outnumbered that of calls, typically a sign of investor pessimism.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite