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Stock Market Outlook for August 4, 2017

S&P 500 Index: Possible topping pattern on the hourly chart presents downside risks toward 2445.

 

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 traded marginally lower on Thursday as investors braced for the nonfarm employment report that is due out before Friday’s opening bell.  The S&P 500 Index shed a quarter of one percent, dragged lower by energy and material stocks.  An hourly look at the large-cap benchmark shows what could end up becoming a short-term head-and-shoulders top with neckline support evident at 2465.  The setup, should price move below support, projects downside potential towards 2445, roughly one percent below present levels.  Momentum indicators on this hourly look have been negatively diverging from price for the past few weeks as stocks gyrate around their all-time highs.  The 50-hour moving average is starting to show slight signs of rolling over as stocks become increasingly top-heavy.

Ahead of Friday’s glance at the state of employment in the US, jobless claims for the latest week suggest a better than average result for July’s payrolls.  Initial claims have shed all of their factory shutdown “pop” in the first half of July to fall to the lowest level of the year, down 43.5% year-to-date.  It typically takes a full month to alleviate this jump in claims to start the summer season, therefore the earlier than average decline to new lows suggests a healthy labor market, which would be expected to show up in the monthly employment report for July.  Payrolls average a decline of 0.9%, on average, in the month of July amidst this slower period for economic activity.  We’ll have a complete breakdown of the results from a seasonal perspective in our next report.

In other economic news, factory orders proved to be very strong in June, helped by strength in durable goods, particularly aircraft orders.  The headline print indicated that factory orders rose by 3.0% in June, beating the consensus estimate calling for a gain of 2.7%.  Stripping out the seasonal adjustments, the value of manufacturers’ new orders for all manufacturing industries actually increased by 6.7%, well above the average increase for June of 4.7%.  The 11.0% increase in orders year-to-date marks the best first half of the year since 2010 when the economy was emerging from the recession.  But, as alluded to, strength was isolated in the orders for  durable goods as nondurable goods showed a rare decline in June.  Manufacturers’ orders for non-durable goods industries fell by 1.0%, a divergence from the 1.2% increase that is average for this last month of the second quarter.  There have only been six other Junes in the past 20 years that non-durable orders have posted a loss.  Of the non-durable goods categories, petroleum, perhaps unsurprisingly, was weak given the downfall in the price of oil.  As well, something that we reported on in the past, the rise in agricultural chemical shipments remains around a third of the normal gain, now higher on the year by 11.5%; the average increase for this time of year is 43.2%.  The result ties for the worst first half performance for fertilizer shipments in the past 20 years.  Depressed agricultural commodity prices are to blame.  Less influenced by weak commodity prices through the month was pharmaceutical shipments, which is the only category on the non-durable side that is trending above average on the year,.  Overall, durable goods continue to drive the strength in the manufacturing economy, while commodity prices overhang the non-durable side. The value of manufacturers’ new orders tends to hit its high for the year in June, falling off thereafter as production wanes, particularly through the fourth quarter.

Value of Manufacturers’ New Orders for All Manufacturing Industries Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.01.

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

 

S&P 500 Index

 

 

TSE Composite