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Stock Market Outlook for May 25, 2016

 

Americans looking at the lowest price of gas for the Memorial Day weekend in over a decade.

 

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

Strength in technology and financial stocks fuelled a rally on Wall Street during the Tuesday session as investors become comfortable with the prospect of a federal funds rate increase when the FOMC meets in the months ahead.  The S&P 500 Index jumped above resistance presented by its 20 and 50-day moving averages, as well as declining trendline resistance that formed the basis of the upper limit of a descending triangle pattern.  The move above this pattern violates the short-term negative setup that would have suggested a downside target down to 1980.  Momentum indicators for the large-cap benchmark are once again curling higher as the index moves back towards the middle of the trading range that spans between 2040 and 2100.

As we approach the Memorial Day long weekend, Americans are looking at some of the lowest gas prices for this unofficial start of the summer driving season in over a decade.  According to the US Energy Information Administration, the weighted average price of regular gas is $2.30 per gallon, 17% lower than this time last year.  From a seasonal perspective, even though the rebound from the February lows has been robust, the year-to-date change continues to lag the average; the 13.1% gain since the start of the year remains shy of the 15.8% average increase over the past 25 years.  The low price of fuel is a positive for consumers who will have more money in their pocket when they take those road trips this summer.  Seasonally, the May long weekend marks the average peak for gas prices following the strong spring run-up; prices plateau through the summer and eventually turn lower following the Labor Day long weekend.

 

On the economic front, a report on new home sales for April caught the market off-guard.   Sales of new homes came in much better than expectated at a seasonally adjusted annual rate of 619,000, the highest level since January 2008.  Analysts had forecasted a rate of 523,000.  Stripping out seasonal adjustments, new home sales actually increased by 22%, well above the average change for April of –1.3%.  Year-to-date, sales are now higher by a whopping 60.5%, well above average and the highest rate since 2010.  Only new homes sold under construction are lagging the average trend, no doubt being impacted by the lack of skilled construction labor and available lots, something that was reported previously following the report on housing starts.  Supply of houses appears to be an ongoing problem in the industry with the months of supply ticking lower by nearly a full day to 4.7 months, well below what would be considered to be a balanced market at 6 months.  The net result is that buyers are forced to pay more, 7.8% more according to the median sales price.  The year-to-date change in the price of new homes is also firmly above average, a healthy rebound from last year’s below average figures.  After showing a bit of a soft start in the housing market this year, home sales, both new and existing, are on fire with too little supply to satisfy demand.  Not only does this trend benefit the builders, but the retailers should also see a boost as consumers purchase items to furnish these new and existing homes.

Sentiment on Tuesday, as gauged by the put-call ratio, ended close to neutral at 1.01.

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite