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Stock Market Outlook for August 26, 2016

 

Price of natural gas moving above a flag pattern as inventory gains remain below average.

 

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 held just below the flat-line on Thursday as investors brace for comments from Janet Yellen on Friday.  Health care once again acted as a drag on the broad market as the story surrounding Mylan and their pricing practices continued to evolve.  The S&P 500 Health Care Sector index is now lower by almost 4% since the high charted at the start of August.  Momentum indicators are quickly reaching short-term oversold levels, but have yet to show signs of bottoming.  The sector benchmark is now back to previous resistance and implied support around 840.  Rising trend channel support is suggested around 825.  Seasonally, the health care sector remains in a period of seasonal strength through to the start of December.

HEALTHCARE Relative to the S&P 500

On the economic front, a report on durable goods orders provided a rosy view of the economy as we venture into the back half of the year.  The headline print indicated that new orders rose by 4.4% last month, beating the consensus estimate calling for an increase of 3.7%.  Excluding the more volatile transportation component, orders were still higher by 1.5%, also better than the forecast of a 0.5% rise.  Stripping out seasonal adjustments, the Value of Manufacturers’ New Orders for Capital Goods Industries actually declined by 12.1%, less than the 17.9% average decline for the seventh month of the year.  The year-to-date change has reverted back to an above average position, the result of strength in defense spending; the change in new orders for non-defense capital goods is inline with the average change through July, down by 17%.  Measures to rein in swelling inventory levels continues to be evident with year-to-date growth almost half of the average change for this time of year.  While taking away some of the manufacturing potential today, inventory controls could free up capacity for future activity while avoiding a bubble like scenario related to supply overflow.

Just quickly on the report of weekly jobless claims, the claimant count from first-time filers declined by 1,000 last week to 261,000.  Analysts had expected the level to come in at 265,000.  The year-to-date change is once starting to chart an above average trend following a number of weeks through July, the factory shutdown period, when the change was hovering below the seasonal average.  Despite this, the 2016 trend remains around the lows of the year and the sluggishness in claims to move solidly lower inline with seasonal averages merely suggests that the economy is hovering around full employment.  With an unemployment rate of 4.9%, it will be difficult for the pace of change in claims to fall back below the seasonal average, unless a significant catalyst can pour fuel on the fire to reinvigorate hiring activity beyond the current pace.  Concern with respect to claims would become apparent if the trend were to start moving significantly above trend, as it did in 2008, before the recession.

And lastly for today, the EIA released its report on natural gas inventories in the US, the outlook from which continues to be encouraging going into the fall and winter.  Inventories grew by 11 bcf, down from the 22 bcf added in the week prior.  The pace of gains through the summer remains well below the average.  Should this pace continue into the fall, inventories will be down on the year by approximately 3% versus the over 20% increase by early November, the average start to the winter heating season.  If present forecasts hold true, hurricane season and winter weather could both be more severe than average, a potential benefit to natural gas prices.  The price of natural gas was higher on Thursday by 1.76%, breaking above the upper limit of a short-term declining trend channel that was identified in a previous report.

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.15.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite