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Stock Market Outlook for July 27, 2016

 

Yield on 10-year treasury note holds around resistance as investor wait for the FOMC announcement.

 

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:

Denison Mines Corp. (TSE:DML) Seasonal Chart

Gold Fields Limited (ADR) (NYSE:GFI) Seasonal Chart

Tetra Tech, Inc. (NASDAQ:TTEK) Seasonal Chart

IAMGOLD Corporation (TSE:IMG) Seasonal Chart

Eldorado Gold Corporation (TSE:ELD) Seasonal Chart

Autodesk, Inc. (NASDAQ:ADSK) Seasonal Chart

 

 

The Markets

Stocks flatlined on Tuesday ahead of FOMC announcement on Wednesday.  Bonds, stocks, and commodities all ended the day little moved as investors await for clues pertaining to the Fed’s plans for interest rates through the remainder on the year.  The expectation amongst market participants is that the Fed does nothing with the more likely opportunity to hike the cost of borrowing presented at the end of this year.  Investors are placing a 49% probability on a December move.  The yield on the 10-year treasury note is testing resistance around its declining 50-day moving average as momentum indicators show very early signs of rolling over.  Significant resistance at 1.7% is a pivotal point to watch.  Seasonally, yields typically decline through the remainder of the third quarter as investors have historically used the fixed income market as a safe-haven during the period of volatility for stocks.

Meanwhile, investors booked profits in two of the hottest sectors of the year: consumer staples and utilities.  Investors have been aggressively chasing yield in these defensive sectors since the year began, finding refuge in the midst of the volatility.  Both sectors have pulled back from overbought levels charted closer to the start of the month and underperformance versus the market has recently become apparent.  In order to get another leg higher in equity markets, rotation away from some of the defensive bets placed earlier in the year and into some of the more cyclically oriented areas is likely required.  Signs of this shift are slowly becoming apparent, such as the significant outperformance of the semiconductor industry and emerging strength amongst the transports.  The ratio of the consumer discretionary sector versus the consumer staples sector is on an upswing, recouping much of the losses realized in June.  As well, emerging market stocks are showing signs of breaking out, having outperformed the S&P 500 Index for the past couple of months.  These trends continue to evolve and the critical test may be ahead in the months of August and September, which have historically been weak months for stocks, cyclicals in particular.

On the economic front, a report on new home sales showed robust activity through the mid-point of the year.   The headline print showed that sales increased 3.5% to a seasonally adjusted annual rate of 592,000 in June.  The consensus estimate called for a rate of 562,000.  Stripping out seasonal adjustments, new home sales were unchanged (0.0%) in the month, remaining higher for the year by 42% following a revision to May’s disappointing report.  The average change through the first six months of the year is 41%.  Housing units completed continues to trend above the average pace, while starts have yet to show the typical decline going into the back half of the year.  One of the concerns highlighted previously with this report was the plunge in prices for May due to an abundance of sales of low priced homes.  The median sales price rebounded sharply in June, up 6.2%, well above the average increase for the month of 0.4%.  Prices are now higher on the year by 2.6%, just below the average increase through the sixth month of the year of 3.1%.  Overall, the report confirms that the results for May were just an anomaly and that the trends in the housing market remain positive as buyers take advantage of low interest rates to get into the market.

Just briefly with regards to the Case-Shiller House Price Index, the demand in the housing market is probably most apparent with respect to prices, which continue to gain at an above average pace.  The National index is higher through the month of May by 3.0%, firmly above the average increase of 2.6%.  For those looking to sell, price momentum typically starts to fade during the summer, then flatline into the last four months of the year as the market stalls amidst the onset of the school year and ahead of the holiday season. 

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.92.

 

 

Sectors and Industries entering their period of seasonal strength:

^GOX Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite