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Stock Market Outlook for July 21, 2017

Factory shutdown period in full force.

 

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 mixed on Thursday as investors showed a bit of risk aversion.  Defensive sectors of consumer staples, utilities, and health care ended in the green, while cyclical counterparts, such as materials, industrials and consumer discretionary closed lower.  The activity is consistent with the seasonal playbook for this time of year when the aforementioned cyclical sectors typically drag upon the broad market benchmarks, resulting in flat to negative performance into the beginning of October.  One of the subsectors that has been particularly weak in recent days is transportation, which has seen its constituent stocks sell-off following unfavourable reaction to earnings.  On Thursday, trucking company C.H. Robinson acted as the drag, falling by over 5% following an earnings miss.  The Dow Jones Transportation Average shed nearly one percent to close below short-term support at its rising 20-day moving average.  The benchmark is pulling back from rising trendline resistance, seemingly unable to chart a sustained path higher as investors express their concern about low commodity prices impacting margins.  Horizontal and 50-day moving average support around 9300 remains around 2% below present levels.  Seasonally, the transportation industry is one of the weakest segments of the market between now and September, underperforming both the market and its sector in the process.  Seasonal strength for the transportation industry returns by the start of October, on average.


One of the catalysts for weakness amongst the transport stocks through the third quarter is the diminished economic activity over this timeframe as factories shutdown for a brief period in the month of July.  The Philadelphia Fed Manufacturing Index confirms that this slowdown is in full force.  The manufacturing gauge fell to the lowest level of the year, printing +19.5 from +27.6 previous.  The result missed the consensus estimate calling for a decline to +22.0.  Stripping out the seasonal adjustments, the index actually fell from +25.4 to +9.2, still holding firm in positive territory, an indication of expanding manufacturing activity.  This is the highest July read since 2004 and well above the average read for this time of year of –6.9.  But while this sentiment survey sets up well for the back half of the year, we have yet to see any significant gains in actual gauges of production and manufacturing.  Industrial Production has been trending below average through the first half of the year, in part due to lacklustre performance in non-durable manufacturing, which is weighed upon by weak commodity prices.  Historically, the Philly Fed index has led strength in industrial production indices, therefore reason to be optimistic may still remain.

The factory shutdown period that dominates July could not be more evident than in the report of weekly jobless claims.  Initial claims have spiked higher in recent weeks, now giving rise to continuing claims, which last week showed its largest one-week gain of the year.  The year-to-date change in initial and continuing claims are below their respective seasonal averages, a sign of a healthy labor market.  Seasonally, the claimant count tends to decline through the remainder of July and through August as economic activity rebounds into the fall.

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.74.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite