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Stock Market Outlook for February 17, 2016

 

Empire State Manufacturing Survey showing the second lowest level for February in the history of the report.

 

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 rallied on Tuesday, building on Friday’s solid gains as investors start to eat away at beaten down names.  The S&P 500 Index gained 1.65%, ending at the highs of the session and closing above its declining 20-day moving average.  The large-cap benchmark took out horizontal resistance around 1880, which marked the neckline of a head-and-shoulders topping pattern.  As highlighted in yesterday’s report, a positive momentum divergence on the chart of the large-cap index suggests waning selling pressures, potentially providing the momentum needed for the long awaited rebound attempt.  New level of support for the market index comes in around 1865, which marks the lower limit of the gap that was opened with Tuesday’s opening surge.  While the benchmark has become overbought on the hourly chart and a gap-fill is now a possibility, the path of least resistance over the short-term looks to be higher.  All bets are off, however, if 1865 is broken.

On the economic front, a report on manufacturing conditions in New York State was released on Tuesday.  The Empire State Manufacturing Survey showed that conditions remain in a significant contraction, printing a level of –16.64.  Analysts had expected the report to show –10.  The index remains around the lowest levels since 2009.  Stripping out seasonal adjustments, the index came in at -8.91, the second lowest print for February in the history of the report, following only behind February 2009.  The average read for the second month of the year is 15.4 as manufacturing activity rebounds into the spring.  Clearly, activity is trending well below its historical average, failing to make any progress in closing a gap that was opened in the last half of 2015.  The next regional manufacturing report will be released on Thursday with Philadelphia weighing in on the strength of this segment of the economy.

Rewinding back to Friday, a report on business sales and inventories was released.  Given that the report pertains to the month of December, the data is rather stale and doesn’t indicate anything other than what we already know.  Aside from retail sales, each component on the sales side remains well below average, ending in contraction territory for the year.  Retail sales was the only segment to show a gain for 2015, higher for the year by 2.5% versus the average change through December of 3.7%.  On the inventory side, businesses, manufacturers, and wholesalers are all seeing the value of their inventories come down, whether it be through declining prices or declining volumes, causing the change through 2015 to be below the average annual trend.  Only retailers are seeing above average inventory builds, which is inevitably putting pressure on the inventory-to-sales ratio.  If retailers can’t get their inventories under control, forced discounting may be soon to follow.  Given the weather this winter season, discounted clothing is already expected.  The retail industry is within a period of seasonal strength that spans from late January to early April as consumers buy big ticket items, such as appliances and automobiles.  The S&P Retail Index ETF (XRT) is showing an improving technical profile with double bottom support around $38.  Positive momentum divergences suggest growing buying pressures, resulting in Tuesday’s over 4% return.  First level of resistance comes in around the declining 50-day moving average at $41.60.

S5RETL Index Relative to the S&P 500

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.95.

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

TSE Composite