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Stock Market Outlook for July 28, 2017

Outside reversal on chart of the Nasdaq Composite suggesting buying exhaustion.

 

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:

TriMetals Mining (TSE:TMI) Seasonal Chart

Gran Tierra Energy (TSE:GTE) Seasonal Chart

TELUS Corporation (TSE:T) Seasonal Chart

 

 

The Markets

Stocks finished mixed on Thursday amidst a tech fuelled sell-off intraday.  The tech heavy Nasdaq Composite had initially opened higher on the day, charting a fresh all-time high amidst positive reaction to earnings from Facebook.  But as the day progressed, strength quickly turned to weakness, resulting in an outside reversal candlestick for the well known benchmark.  Buying exhaustion is implied as investors look for value in other areas of the market.  Momentum indicators are once again rolling over, negatively diverging from price, another indication that strength is fading.  Seasonally, August has been the weakest month of the year for the Nasdaq Composite with returns averaging a decline of 0.9%, based on data from the past 20 years.

^IXIC Relative to the S&P 500

Elsewhere in the market, transportation stocks were exceptionally weak during the session following disappointing guidance for the back half of the year from UPS.  Shares of the shipping giant fell by over four percent, negatively influencing the broader transportation industry.  The Dow Jones Transportation Average fell by 3.11%, trading back towards its rising 200-day moving average around 9100.  It was just one week ago that we profiled the negative setup on the transportation benchmark after it was rejected once again from rising trendline resistance. Significant support can be found in the range of 8800 to 9000.  Seasonally, the transportation industry is one of the weakest segments of the market between now and September, underperforming both the S&P 500 Index and its sector benchmark in the process.


On the economic front, a report on durable goods showed tremendous strength in June, the result of a jump in orders for aircraft.  The headline print indicated that durable goods orders increased by 6.5% last month, well above the consensus estimate calling for a 3.5% gain.  This is the best monthly gain for the seasonally adjusted result in three years.  Stripping out the adjustments, the Value of Manufacturers’ New Orders for Capital Goods Industries actually increased by 42.3%, more than double the 17.5% average increase for the month of June.  The year to date gain of 12.0% is the second best first half of the year performance on record, overshadowed only by the 23.8% rise through the first six months of 2000.  The seasonal norm calls for a decline of 7.2% through this point in the year.  Excluding the outlier in the report, transportation, the gain was a more moderate 4.5%, short of the average increase for this sixth month of the year of 7.1%.  Still, with a gain of 12.5% on the year, 4.5% above the historical norm, strength in durable goods excluding transportation remains stellar, obviously accounting for the bulk of the strength in manufacturing activity that has been reported in recent months.  Perhaps the only category in this report that is not pulling its weight is orders for defense capital goods, which is showing a year-to-date change that is 2.4% below average.  While President Trump has taken steps to negotiate lower prices for some defense goods, he has also made it clear that he would like to see defense spending higher, potentially a positive for this category as we progress further into this new president’s term.  Overall, this is a solid report that suggests good things for second quarter GDP, the first look at which will be provided on Friday before the opening bell.

In other economic news, a report on International Trade in the US showed a decline in the trade deficit in June, the result of strength in exports.  The balance fell to $-63.9 billion from $-66.3 billion previous, the result of a 1.4% rise in exports and a 0.4% decline in imports.  Stripping out the adjustments, exports were actually higher by 3.8%, while imports were lower by 1.3%; the average change for each in the month of June is +1.2% and +2.6%, respectively.  Weakness in the US dollar is certainly weighing, making goods more expensive to import, resulting in the rare contraction in imports at this mid-point of the year. But while importers suffer, exporters are seeing a reprieve from the negative currency impact that has restricted manufacturing activity in the US in recent years.  In particular, exports of consumer goods was very strong in June, rising by 15.0%, more than double the 6.3% average gain.  And while consumers in the US may be reluctant to buy new automobiles, producers seem more than happy to export them with automotive vehicle exports up by 27.6% on the year, the best first half increase since 2002.  Both consumer goods and automotive exports are above average, year-to-date.  Food and capital good exports remain below their seasonal trends, while industrial supplies exports are inline with their historical norm.  Slowly, the export driven economy is coming back, but while the US Dollar may be lower over the past six months, it is still firmly higher from where it was just three years ago, keeping the gains in exports capped until international consumers can adjust to this new normal.  Exports, much like the manufacturing segment of the economy, tend to dip in the month of July amidst the slowdown in factory activity, but then rebound into the end of the third quarter of the year.

Export Categories

Sentiment on Thursday, as gauged by the put-call ratio, ended close to neutral at 0.94.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite