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Stock Market Outlook for October 26, 2017

Momentum “sell” signals trigger for the first time in months as major benchmarks test 20-day moving averages.

 

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:

Marvell Technology Group, Ltd. (NASD:MRVL) Seasonal Chart

D.R. Horton, Inc. (NYSE:DHI) Seasonal Chart

Eaton Corporation (NYSE:ETN) Seasonal Chart

Dover Corporation (NYSE:DOV) Seasonal Chart

Bemis Company, Inc. (NYSE:BMS) Seasonal Chart

Zimmer Biomet Holdings, Inc. (NYSE:ZBH) Seasonal Chart

Advanced Micro Devices, Inc. (NYSE:AMD) Seasonal Chart

 

 

The Markets

Stocks dipped on Wednesday, showing their worst day in two months as investors were thrown off-guard by a few disappointing earnings reports.  The S&P 500 Index dropped just less than half of one percent, testing its rising 20-day moving average at the lows of the session.  Momentum sell signals are being triggered for the first time in many months, including a bearish cross on the 14-day full stochastics and relative strength index (RSI), as well a s cross below the signal line on the 12-26-9 MACD.  Trendline resistance overhead is seemingly providing a level from which investors are choosing to book profits and reallocate portfolios ahead of the end of the month.  Downside risks below the 20-day moving average point to variable support at the 50-day, presently hovering around 2500.  If tested, a pullback to the 50-day moving average would represent a decline of a mere 3% from the all-time high charted at the start of the week.  The magnitude is on par with what has become the average pullback through the recent bull market trend.

On the economic front, a report on new home sales showed exceptional strength, supported by a big jump in the South.  The headline print indicated that new home sales rose by 18.9% to a seasonally adjusted annual rate of 667,000.  Stripping out the seasonal adjustments, sales of new homes rose by 15.6% last month, the best September performance on record.  The average change for this last month of the third quarter is –8.4%.  The result put the year-to-date change at +33.3%, back above the seasonal average trend, which currently hovers around +23.4%.  Sales of new homes not started attracted the most demand, surging by 38.5%, directly benefitting from the rebuilding effort following the recent hurricanes.  And while Americans were buying more new homes in September, they were also paying slightly more for them with the median sales price up by 5.2%.  The positive shift does little, however, to improve the year-to-date change for prices, which presently sits at –2.2%, firmly below the seasonal average trend.  Keep in mind that new home sales account for a very small portion of the housing market (approximately 10%), therefore it is prone to large fluctuations from time-to-time.  In a recent report on existing home sales, activity was still indicated to be below average on the year, although the September result was above average.  While the rebuilding effort has the potential to act as a boost to future reports, it is unlikely to materialize all at once.  Seasonally, new home sales typically wane through the last quarter of the year, picking up again in January when the spring selling season gets underway.  Housing stocks are typically a beneficiary of this spring demand, running higher between now and February.

New Home Sales Seasonal Chart


In other economic news, a report on durable goods showed a similarly strong result.  The headline print for new orders of durable goods was higher by 2.2% last month, well above the consensus forecast that called for a 1.0% rise.  Excluding transportation, orders remained better than expected, higher by 0.7%.  The consensus estimate called for a 0.5% gain.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for Capital Goods Industries gained 21.2%, firmly above the average increase for September of 18.7%.  The year-to-date change is running 7.1% above average through the end of September, a gap that has been widening in recent months.  Each of the major categories are also showing above average results on the year as the manufacturing economy shows the best performance in years.  If there is one area of concern, it may be in the level of inventories, which are similarly running above average on the year.  Manufacturers had been doing a good job at keeping inventories in check, pulling back last year when demand was soft and keeping the 2017 year-to-date change inline with the average through the first eight months of the year.  Inventories are now indicated to be growing at an above average pace in what could be a sign of waning demand.  Obviously, one month does not make a trend, but this warrants further monitoring as excessive inventory levels could impact selling prices should manufacturers be forced to discount in order to bring supply back inline with demand.  Seasonally, the manufacturing economy typically cools into the winter, picking up again in the spring.

Value of Manufacturers’ New Orders for Capital Goods Industries Seasonal Chart

On schedule for this time of week is the petroleum status report for the week ending October 20th.  The EIA is indicating that crude inventories grew by 900,000 barrels, which was more than offset by sizeable decline in product inventories, such as a 5.5 million barrel draw from gasoline stockpiles. The result took gasoline inventories back to the lows of the year as refiners remain offline following the hurricanes that impacted the US south earlier in September.  Production, following maintenance season, typically gets back up to pace in November, resulting in increases to stockpiles in the last two months of the year.

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

The price of oil was little moved following the report, remaining pinned around resistance at $52.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.16.

 

 

 

Sectors and Industries entering their period of seasonal strength:


 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite