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Stock Market Outlook for August 18, 2016

 

Oil and gas inventories fall despite an uptick in production of each.

 

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 closed marginally higher on Wednesday as investors digested the minutes from the latest Fed meeting.  The report provided little in the way of guidance of when the Fed might enact its next rate increase.  As a result, stocks, bonds, commodities, and the US Dollar each ended flat to marginally higher as investors are left, once again, to speculate on Fed’s future path.  With the exception of utilities, sector performance was limited to a change of no more than a third of one percent in either direction.  As for the utility sector, the S&P 500 utilities sector index closed higher by nearly 1.5%, bouncing from support at the previous level of resistance around 250.  The sector benchmark recently became oversold according to a number of metrics, leading to the recent selling exhaustion as investors booked profits in the best performing sector of the year.  Seasonally, the utility sector benefits from a period of strength between the end of July and the beginning of October, benefitting from low rates and strong demand for the products that they offer during the warm summer weather.  Yesterday’s breakdown of July’s industrial production report emphasized that fact as the strongest surge in the report’s history was realized in electric power generation given the demand to fuel air conditioning units through one of the hottest months on record.  While support at previous resistance may set the stage for a rebound rally during the period of seasonal strength, sustained gains through this period are looking less than optimal.  A significant momentum shift was realized over the past month and a half, which may cap the rebound attempt to levels around 20 and 50-day moving averages, or lower.  Looking longer-term, the benchmark is presently hovering around the upper limit of a rising trading channel that spans the past 7 years, once again suggesting that there may be a lid on the upside potential of this sector.  At the end of the day, treasury rates will likely have a significant influence on the direction of utility stocks, but with momentum indicators on the 10-year treasury note presently pointing higher, confidence is low that treasury yields will push lower over the near-term, a negative for utility stocks.   Watch the chart of the 10-year treasury note carefully as rates are presently trading to the peak of an ascending triangle pattern, typically a positive setup upon a break of the horizontal level of resistance.  Seasonally, bond yields typically decline through October.

UTILITIES Relative to the S&P 500

As always for this time of week, the US Energy Information Administration released its latest read on oil inventories.  For the week ending August 12th, crude oil recorded a draw of 2.5 million barrels alongside a draw in gasoline of 2.7 million barrels.  The decline in inventories for each comes despite an uptick in gasoline and domestic oil production, somewhat diverging from seasonal norms.  Crude oil imports, however, were lower over the period, down for a second consecutive week.  As a result of the lower imports offsetting higher domestic production, the days of supply of oil dipped marginally by one-tenth of a day to 31.2; gasoline was lower by three-tenths of a day to 23.8.  Subtle signs of peaking gasoline demand are becoming apparent, as gauged by the gasoline product supplied.  The level dipped ever so marginally in the latest week, remaining relatively unchanged over the past couple of months.  Aside from one small uptick into the end of summer, gasoline demand is on the verge of dropping off as we enter the month of September.  With gasoline production ticking back up to the highs of the year, concerns increase that we’ll see the same supply strains once the summer driving season is over.  The ripple effect flows back to the raw input, crude oil, which has seen its days of supply flatten over the past month, diverging from the seasonal norm.  The clock is ticking and unless production of both gasoline and oil can somehow be reined in, supply side pressures may re-emerge.  

While supply pressures look to threaten recent price gains as the summer winds down, investors were more focussed on the headline print indicating a decline in storage levels, resulting in bid higher for the price of oil and gas.  The two closed back above their respective 50-day moving averages for the first time since June.  The price of each are now short-term overbought, but have yet to show signs of peaking.  Lots of attention is being given to the appearance of a reverse head-and-shoulders pattern on the chart of oil, which always raises concern if everyone is betting on the same bullish outcome.  For now, momentum indicators are pointing higher as price approaches resistance at $50.  Seasonally, the price of oil peaks around the middle of September, on average.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.90.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite