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Stock Market Outlook for September 8, 2016

 

Airline stocks taking off!

 

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:

Google Inc. (NASDAQ:GOOG) Seasonal Chart

Darden Restaurants, Inc. (NYSE:DRI) Seasonal Chart

 

 

The Markets

Stocks ended rather flat on Wednesday as investors pegged defensive sectors against cyclicals in a battle for market supremacy.  Consumer staples were down notably versus the market return, while the transportation industry was sharply higher, pushing the Dow Jones Transportation Average slightly above resistance at the July high.  An improving revenue outlook from airline executives at a conference in Las Vegas acted as catalyst for the move.  The Dow Jones US Airlines Index gapped higher, closing with a gain of over 4% and charting what appears to be the right shoulder of a head-and-shoulders bottoming pattern.  Upside target of the bullish setup points to around the highs of the year at 250, or almost 20% higher than present levels.  Neckline resistance is directly overhead at 212.  Recent reports on airline revenue put the year to date change inline with the seasonal average through the month of May.  Increased pricing pressures could give these metrics a boost into 2017.  Seasonally, stocks in the airline industry enter a period of seasonal strength in October.

 

Of course, the performance the transportation industry can have a significant on investor sentiment.  As investors become confident in economic prospects, cyclical sectors will typically outperform the market return.  Evidence of this is already becoming apparent.  A ratio of the Dow Jones Transportation Average versus the Dow Jones Industrial Average shows that long-term trendline resistance was recently exceeded, bouncing from double-bottom support at the 2016 lows.  While it is easy to see the break of the defined trendline, resistance around the declining 200-day moving average cannot be discounted, as of yet.  Momentum indicators are trending higher, signalling greater buying pressures for the cyclical counterpart.  The tide may be turning in this industry, which has been victim to a trend of underperformance since late 2014.  Further rotation away from defensive assets, such as consumer staples, could assist with this cyclical trend.

On the economic front, the Job Openings and Labor Turnover Survey was released during Wednesday’s session.  The headline print indicated that job openings increased in July by just over 4% to 5.871 million, the highest level on record.  Stripping out seasonal adjustments, the actual increase was 8.6%, just light of the average increase for July of 10.0%.  The year-to-date change in job openings remains inline with the seasonal norm.  What continues to concern is that hires and quits are lagging their respective seasonal averages.  Total non-farm hiring is higher by 44.2% through the month of July, shy of the 52.1% gain that has been the average over the past 14 years.  So while jobs are available, a skills mismatch is leaving positions unfilled, limiting the employment potential in the economy.  As well, as an indication of the confidence of the American worker, the pace of quits is around 13% below the average trend, highlighting the unwillingness of employees to leave present positions.  These insiders to the economy are effectively expressing concern in their ability to obtain a better opportunity elsewhere, typically a sign of weariness in the economic prospects in the coming year.  One positive in July’s report, however, is a rare decline in layoffs, the trend of which has now fallen below the seasonal average.  The weakness in the labor market in this summer month has resulted in an increase in layoffs in 11 of the past 14 Julys.  Quits and layoffs typically chart an important high for the year in August as summer hires return to school or other opportunities ahead of the fall.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.89.

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite