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Stock Market Outlook for July 20, 2016

 

US Dollar Index breaks above a flag pattern as seasonal tendencies turn positive.

 

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 ended flat on Tuesday as reaction to earnings remains generally mixed.  A list of stocks that reported earnings before Tuesday’s opening bell shows the mix of positive and negative moves.

Stocks positing declines following results

Stocks posting gains following results

The net result saw the Dow Jones Industrial Average chart another all-time closing high, while the S&P 500 Index slipped by a mere 3 points as daily momentum indicators show very early signs of rolling over.  The strength of the recent breakout rally will likely be confirmed by the magnitude of the looming retracement.

But perhaps the more notable move on Tuesday was in the currency market as the US Dollar Index broke above a flag pattern that had been identified in an earlier report.  The currency benchmark is now trading above its 200-day moving average, as well as the mid-point to its long-term range than spans between 93 and 100.  Currency is the most cited concern amongst S&P 500 companies when they report earnings as the climb to multi-year highs threatens profitability of some of the multinationals.  The recent shift in trend of the domestic currency just further heightens this concern.  Momentum indicators for the US Dollar Index have been trending higher since April, pressuring price ever closer to the upper limit of the long-term trading range at 100.  A break above this level of resistance has a strong likelihood of taking a bid out of the commodity and equity markets as valuations are pressured.  Seasonally, the dollar index tends to jump higher through the end of July and into August.

Closer to home, as the US Dollar strengthens, the Canadian Dollar has been weakening, trading lower to an important level of support.  The Philadelphia Canadian Dollar Index has held support around 76 for the past few months and it looks to be tested once again.  This bound also forms the lower limit of a descending triangle pattern, a bearish setup that calculates a move lower towards 72, should support at 76 be violated.  The Canadian Dollar has realized a significant rebound from the lows charted earlier this year, benefitting from a declining US Dollar and strengthening price of oil.  But with the intermediate trends for each reversing, the likelihood of a breakdown increases.  Opposite to the tendency of the US Dollar, the Canadian Dollar tends to weaken through the end of July and into August.

On the economic front, a report on housing starts showed a strong jump in the month of June.  The headline print indicated that starts rose 4.8% to a seasonally adjusted annualized rate of 1.189 million.  The consensus estimate called for a rate of 1.17 million.  Permits also edged out estimates, increasing 1.5% to a rate of 1.153 million.  Stripping out seasonal adjustments, starts rose 5.1%, much better than the 0.3% average increase for June, based on data from the past 50 years.  Starts are showing signs of snapping back following a sluggish May, which widened the gap versus the average trend; the trend through the first half of the year is now only 11.5% below the average pace.  Housing starts typically decline into the back half of the year as builders wrap up activity ahead of the winter months.  While the units of houses started continues to hold below the seasonal average, in part due to a shortage of available lots and lack of skilled workers, housing units completed jumped by 19.0% last month, moving above the seasonal average.  With a gain on the year of 4.1%, housing units completed are showing the best first half of the year since 2010 as builders seek to satisfy the demand given the low interest rate environment.  Further information on the demand side of the equation will be provided next week when the report on new home sales is released.

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

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite