Tech Talk Financial Network
0
All posts from Tech Talk Financial Network
Tech Talk Financial Network in Equity Clock,

Stock Market Outlook for July 21, 2016

 

VIX falls below 12, suggesting caution is warranted.

 

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 firmly higher on Wednesday, the result of strength in the technology and health care sectors following a positive reaction to earnings from Microsoft and Abbott Labs.  The S&P 500 Index charted yet another-all-time high as short-term resistance around 2170 was exceeded.  Turning back to the earnings fuelled driver from Microsoft, the tech giant gapped higher by 5.31% during Wednesday’s session, trading immediately to resistance around $56.  The stock, which is now overbought, has traded within a range between $48 and $56 since late 2015.  A break above this range could provide a measured move towards $64.  Seasonally, shares of Microsoft tend to peak right around now, trading relatively flat into the beginning of October, the start of the period of seasonal strength for the technology sector.

While positive seasonal tendencies for MSFT look set to conclude, the other mover on the day, Abbott, may just be getting started.  Shares of the pharmaceutical company remain in a period of seasonal strength through to mid-October, outperforming both the market and the sector over the timeframe.  Shares jumped to start the month of July, trading firmly above a short and intermediate-term bottoming pattern.  Outperformance versus the market, along with improving momentum trends, have become apparent in recent months.  Trendline resistance closer to $44 provides the basis of a neckline for a reverse head-and-shoulders pattern, which, if fulfilled, could indicate significant upside potential ahead. 

ABT Relative to the S&P 500

ABT Relative to the Sector

While the broad equity market continues to chug along to new highs, the volatility index is hitting lows.  The so-called fear gauge closed at the lowest level since August of 2014 as the cost to insure positions becomes cheaper.  Regular readers will recall that we’ve highlighted the significance of 12 and 21 on the chart of the VIX frequently.  When the VIX falls below 12, suggesting complacency, investors should become cautious as market peaks typically follow.  Conversely, when the index trades over 21, suggesting excessive fear, investors are typically better off being opportunistic, taking advantage of beaten down names.  The fall in the index below 12 doesn’t necessarily signal an immediate peak, but it does suggest that the risk-reward of the market favours the risk side of the equation as the potential reward becomes exhausted.  Seasonally, the VIX tends to rise over this period, peaking into the month of October, as trading volumes wane and favourable recurring tendencies for equity markets remain absent.

As always for this time of week, the report on oil inventories was released.  The EIA indicated that oil inventories declined by 2.3 million barrels in the latest week, while gasoline inventories recorded a rather abnormal build, higher on the week by 900,000 barrels.  The result saw the days of supply of oil fall by a third of a day to 31.1, now the lowest level since January, while gasoline ticked mildly higher to 24.8, diverging from the average trend that calls for a contraction in the days of supply through the month of August.  Supply pressures for gasoline are arising as production remains around the highest levels on record as refiners continue to chip away at bloated oil inventory levels.  Seasonally, production typically declines between July and October, running into the refiner maintenance season.  This decline, if realized, should help to curb some of the excess supply of gasoline floating around in the market as the summer driving season approaches its mid-way point.  On the flip-side, oil production remains in declining trend, despite the minor uptick reported in recent weeks.  The seasonal trend for domestic oil production tends to flatten out through the remainder of summer before dipping into the start of Fall. 

In other news, an important gauge of economic health was released on Wednesday.  Cass Information Systems reported that their shipments index rose 1.7 last month, while expenditures rose by 3.9%.  These non-adjusted datapoints compare to an average increase for June of 2.0% on the shipments side and a 3.4% rise with respect to expenditures.  The below average rise in shipment volumes continues to widen a gap versus the average pace, now lower by 2.1% year-to-date; expenditures are approximately 8.2% below the average pace through the first half of the year.  The back half of the year may be the critical indication as to the strength of the economy at this late stage in the cycle.  It was last year that both shipment volumes and expenditures really started to negatively diverge from the average trend, eventually ending the year in contraction territory as commodity prices took a hit and exports struggled.  Looking forward to the more immediate future, shipments tend to dip into the month of July, related to the factory shutdown period, which could be very telling of the trend to expect in the back half of the year.  Another gauge of shipping activity, the Baltic Dry Index, is presently testing the upper limit of its long-term declining trend channel, potentially on the verge of breaking out following a sharp bounce in recent weeks.  Hints of underlying strength into the month of July is somewhat encouraging for the shipping expenditures index in the months ahead.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.79.

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite