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Stock Market Outlook for July 25, 2017

Real estate market on solid footing going into the back half of the year.

 

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:

Netflix, Inc. (NASDAQ:NFLX) Seasonal Chart

Gilead Sciences, Inc. (NASDAQ:GILD) Seasonal Chart

Automatic Data Processing (NASDAQ:ADP) Seasonal Chart

 

 

The Markets

Stocks closed mixed on Monday as investors wait for the onslaught of earnings reports this week, as well as the start of the two-day FOMC meeting on Tuesday.  The S&P 500 Index shed nearly a tenth of a percent, while the Nasdaq Composite added almost four-tenths of a percent to close at a new all-time high ahead of a report from Alphabet (Google) after the closing bell.  While we often highlight the setups on the major market benchmarks, such as the S&P 500 Index, a setup on a secondary benchmark is too important to dismiss.  The NYSE Composite, a gauge of broad market activity based on all common stocks listed on the New York Stock Exchange, has been trading within a narrowing range for the past year and a half, depicting what appears to be a rising wedge.  This is typically a bearish setup that is confirmed when price breaks below the lower limit of the pattern, presently around 11,800.  Theory has it that a breakdown below the pattern suggests a retracement back to the point at which the pattern started, therefore back to the January 2016 lows.  Theory and reality have a funny way of often differing from one another.  Regardless of the possible downside risks, a break of trend would send a very important warning signal to the market that the trend of higher-highs and higher-lows amongst a broad constituent of stocks has come to an end and either a flat to negative trend is emerging.  Price has been hugging the lower limit of the pattern for the past few months as investors show their reluctance in pushing the benchmark back to trendline resistance above 12,000.  For now, the trend is your friend, but beware when it ends.  Seasonally, the NYSE averages a declining trend between now and early October.

^NYA Relative to the S&P 500

On the economic front, a report on existing home sales suggests that housing remains on solid ground at the midpoint of this calendar year.  The headline print indicated that sales of existing homes declined by 1.8% in June to a seasonally adjusted annual rate of 5.52 million.  The result missed the consensus estimate, which called for a print of 5.58 million.  Stripping out the seasonal adjustments, existing home sales actually declined by 8.3%, slightly above the 7.7% gain for this last month of the second quarter.  The year-to-date change is higher by 37.5%, firmly above the seasonal average for this time of year of 34.0%.  Strength continues to be fuelled by the Midwest, which saw sales expand by 13.3% in June, more than double the 5.2% average gain.  As for inventories, the supply of housing was unchanged last month, maintaining a year-to-date pace that is above the seasonal norm through the first half of the year.  The result caused little movement in the months of supply, now sitting at 4.3, up one-tenth from the previous month’s report.  A sellers market continues to be implied where buyers are forced to pay more for the product that they desire.  Typically six months of supply is considered to be a balanced market.  The lack of sufficient supply to meet demand has caused the median sales price of existing homes to rise another 4.5%, pushing the year-to-date gain to 13.1%, firmly above the seasonal average gain through June of 8.6%.  The result helps to explain the prevalence of home renovations as consumers choose to stay put and upgrade current accommodations rather move within a strong real estate market.  Sales of existing homes represent approximately 90% of the real estate market, providing an excellent gauge of the state of US consumer balance sheets.  June typically marks the peak of real estate market for the year, leading to declining sales and prices through the back half as the desire to move before and during the winter season is typically less.

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.82.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite