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Stock Market Outlook for May 13, 2016

 

Notable breaks of support send a warning signal to the broad equity market.

 

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:

TransCanada Corporation (TSE:TRP) Seasonal Chart

 

 

The Markets

Stocks ended mixed on Thursday as a number of influential areas of the market traded sharply lower.  Shares of Apple, the single largest constituent within most major benchmarks, declined by 2.35%, breaking significant support at $92.  Minor support can be found around $85, however, the next area of significance is the all the way down to the open gap between $72 and $77, which was created following the release of first quarter earnings in 2014.  According to the relative strength index (RSI), the stock has remained significantly oversold for the past 10 sessions, the longest oversold streak since 2008.  Shares of Apple have traded within a wide-ranging declining trend channel for the past year and a half, the lower limit of which is only a few dollars below at $85.  Seasonally, the stock has performed well through the summer months, driven primarily by the phenomenal growth trajectory that has brought it to this point as one of America’s most widely held stocks.

The move in Apple wasn’t the only notable breakdown in the market on Thursday.  Transports and semiconductors, two industries that investors often look to as a gauge of economic strength, also realized sizeable losses as investors looked to shed risk.  The Dow Jones Transportation Average inched below support just above 17,600, starting to confirm the double-top pattern that was highlighted on this site previously.  And the Philadelphia Semiconductor (SOX) Index broke firmly below support around its 200-day moving average, maintaining a trend of underperformance relative to the market.  The SOX index failed to overcome significant resistance at 685 at the start of April, resulting in the latest downturn.  Both the transportation and semiconductor industries remain in a period of seasonal weakness that runs through to October.

The negative activity is resulting in the appearance of another bearish setup, this one on the chart of the S&P 500 Index.  A short-term head-and-shoulders topping pattern would be confirmed by a move below neckline support around 2040, the downside target of which points to 1980.  The benchmark has tested support support at its 50-day moving average twice over the past week, while resistance is becoming apparent its 20-day.  Momentum indicators continue to point lower, hinting of the direction of the move ahead.  Overall, this is a market that is showing increasing struggle at levels of resistance and waning support, certainly not characteristics of a bullish trend.

On the economic front, a report on weekly jobless claims unsettled investors who have become concerned over the strength of the labor market following Friday’s weaker than expected payroll report.  Initial claims are reported to have increased by a rather pronounced 20,000 last week to 294,000, the highest level since February of last year.  Stripping out seasonal adjustments, claims by recently unemployed applicants rose by 18,389, or 7.6%.  The year-to-date change in initial claims continues to show signs of flat-lining after hitting a low in March.  This stagnant trend is a divergence from the seasonal norm, which typically sees declines in this economic indicator through the month of May before plateauing into the summer.  Despite the jump, claims remain around the lowest levels of the recovery.  Further monitoring is warranted to assure a rising trend isn’t materializing.  Continuing claims, a gauge of ongoing unemployment, continues to trend lower, below the seasonal norm.  Overall, a mixed report that does little to improve the sentiment surrounding economic data, which has been showing more misses lately than beats, as gauged by the Citigroup Economic Surprise Index.

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.28.  This is the highest level since mid-January, in the midst of the equity market selloff that started the year.

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite