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Stock Market Outlook for July 26, 2016

 

Weaker than average vehicle miles travelled may be contributing to increasing gasoline supplies.

 

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 dipped on Monday, led by the energy sector, as the price of oil dropped over 2%.  The S&P 500 Energy Sector Index fell by a similar margin, pulling back from the highs of the year set just two weeks ago.  The energy sector benchmark is presently testing support around its 50-day moving average, a level that has upheld much of the strength realized over the past six months.  A more significant level of horizontal support is apparent at 480, roughly 4% below present levels.  The next seasonal upleg for energy stocks is typically realized around the middle of August, running through to mid September.

ENERGY Relative to the S&P 500

Of course, energy stocks are reacting to the price of oil, which has been hit hard following a recent rise in the US Dollar and increasing supplies of gasoline as the summer driving season progresses.  WTI Crude broke support at $44 during Monday’s session, moving in on minor support around $42.50. Psychological support exists around $40.  Zooming out from the daily trading activity, we’ve seen some forecasts calling a reverse head-and-shoulders pattern on the chart of this widely followed commodity.  The neckline of this pattern is implied at the $50 level of resistance that was tested closer to the beginning of June.  While true that the benchmark could carve out a higher intermediate low above the February bottom, the most important aspect of the bullish setup is that a higher-low is realized, thereby confirming the conclusion of the trend of lower-highs and lower-lows.  Hints of a higher low are not apparent as of yet.  Logical range in which this intermediate support would be realized is anywhere between present levels and $37.50.  Should this higher low become confirmed and the commodity is able to move above resistance at $50, the calculated upside potential is all the way to around $73, which would take the price of the commodity back to the underbelly of the long-term range from which is broke down from in late 2014.  The potential is there, but no point in speculating until the most important characteristic of the bullish setup is realized.

Over the past couple of weeks, a number of datapoints pertaining to transportation in the US have been released, shedding insight on the strength of the economy.  The following is a breakdown of the data from a seasonal perspective.  Starting with the rails, freight intermodal traffic increased by 4.3% in May, above the average increase for this time of year of 3.8%.  While there have been gyrations above and below the average trend through the first four months of the year, May’s better than average print puts the year-to-date change is back inline with the seasonal average, higher by 9.5%.  The ongoing positive trend in the indicator typically continues through to October, then falling off into the last two months of the year.  Weak commodity prices and export demand took their toll on rail transportation in the second half of last year, making the next six months a critical period to watch.  As for freight carloads, despite an above average print for May, the year-to-date trend remains below the seasonal average, in part due to the decline in the shipment of energy commodities, such as oil and coal, which has taken a toll on a number of rail companies.  Pipelines are the beneficiary of this shift with pipeline petroleum movement trending firmly above average through the first four months of the year.

As for transportation by water, tonnage for internal US waterways was higher by 4.5% in May, triple the average increase for the month of 1.5%, based on data from the past 14 years.  Similar to rail freight traffic, the tonnage on US waterways has converged with its average trend, higher on the year by 7.0%.  As with the rails, the real story of the strength of this component of the economy became apparent in the back half of last year when a significant lag versus the seasonal average trend was realized as commodity prices and exports declined.  For now, while more could be desired by rail and water transportation, the trends are on an upward trajectory, but careful monitoring is required in the months ahead.

As for public road travel, reason for the building supply of gasoline may be becoming apparent in the travelling activity of Americans.  Vehicle miles travelled increased by a mere 2.5% in May, less than half of the average increase for this time of year of 5.6%.  The below average print is opening a gap versus the average trend at a time when car travel typically surges through the summer months; vehicle miles travelled typically peak in August, coinciding with a seasonal low in gasoline inventories.  Something held consumers back from travelling this spring and we may have to wait for more data to confirm whether or not the summer was impacted.  Lower than average vehicle travel during the summer season would certainly take a toll on the pace of recovery in the oil market, which continues to battle with supply that is 35% more than what is typically on hand for this time of year.

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.91.

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite