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Stock Market Outlook for August 15, 2017

Dow Jones Transportation Average testing long-term trendline support.

 

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:

Southern Copper Corp (NYSE:SCCO) Seasonal Chart

Nokia Corp. (NYSE:NOK) Seasonal Chart

Piper Jaffray Cos. (NYSE:PJC) Seasonal Chart

California Amplifier, Inc. (NASD:CAMP) Seasonal Chart

Eli Lilly & Co. (NYSE:LLY) Seasonal Chart

Air Canada (TSE:AC) Seasonal Chart

United Continental Holdings (NYSE:UAL) Seasonal Chart

Rogers Corporation (NYSE:ROG) Seasonal Chart

 

The Markets

Keep calm and carry on was the theme of the day on Monday.  Stocks gapped higher as concerns pertaining to North Korea eased, allowing major equity benchmarks to recoup much of the loss recorded last week.  The gap on the S&P 500 Index amounted to 10 points between 2445 and 2455, creating a range for investors to shoot off of in the days ahead.  The benchmark stopped at gap resistance that followed last Thursday’s abrupt decline as investors remain weary of the geopolitical uncertainty that continues to unfold.  The action suggests that the market is certainly not out of the woods, particularly if it holds below last week’s breadown point around 2465.

Among the stocks rebounding sharply on Monday were shares of transportation companies, which topped the market return on the session.  The Dow Jones Transportation Average added 1.61% to move above a short-term double-bottom pattern and close above its declining 20-day moving average.  The benchmark found support in recent days at its rising 200-day moving average, stabilizing following an earnings fuelled selloff that took a bite out of the industry.  Rising trendline support stemming from the 2016 low continues to support the longer-term trend.  Seasonally, while the transportation industry is presently within the weakest period of the year, opportunities in individual names start to emerge at the end of August for the period of strength for this market segment ahead.  In particular, delivery services, which tend to see their stock prices rise ahead of the end of year holiday shipping season.  According to our analysis of FedEx over the past 20 years, the best period in which to invest in the shipping giant is between August 27 and November 29, which has resulted in outperformance versus the S&P 500 Total Return Index by an average of 7.63% per year.  The period has produced a very good rate of success with 17 of the past 20 seasonal timeframes showing a result that has outperformed the market return.  Shares of FedEx recently retraced back to previous horizontal resistance around $200, a level that may now be in position to act as support.  The transportation industry is a highly cyclical area of the market and, therefore, is easily exposed to fluctuations in risk sentiment; if markets return to a risk-off mode, as is typical for this time of year, this industry would be expected to be hit harder than the broad market as investors trim beta from portfolios.

$TRAN Relative to the S&P 500


As stocks recouped their losses, safe-haven asset classes retraced recent gains.  The price of gold shed around three-tenths of one percent, respecting horizontal resistance at $1300.  An approximately 100-point trading range has become apparent on the chart of the precious metal where a break of either the upper or lower limit of the span would present an equivalent magnitude move in the direction of the break.  Seasonally, the price of gold is within its strongest period of the year with gains averaging around 2% in both August and September.  These two months have seen positive results in 70% of periods over the past 20 years.  Seasonal volatility in equity markets is certainly one factor that drives the price of gold higher at this time of year, as is the seasonal decline in the US Dollar supporting the price of the commodity.  But one of the primary fundamental factors that typically supports the metal in the third quarter may not materialize to the degree that its has in the past.  Festival season in India during the month of October is often cited as reason for the rise in the price of Gold in August and September, but with India implementing a 3% Goods and Service Tax (GST) on gold sales at the end of the second quarter, it is thought that purchases were brought forward in an attempt to beat this added cost.  In a recent report, the World Gold Council suggests that “[gold] stock is plentiful across the supply chain and consumers who have recently purchased are unlikely to do so again in the short term.”  The removal of this catalyst during the period of seasonal strength could limit gains, unless geopolitical events can keep it supported.  Unfortunately for potential investors in the metal, the length and timing of geopolitical events can be as volatile and unpredictable as the price action within equity markets.  Short-term support for the yellow metal has become apparent at the 20-day moving average, now at $1266.

FUTURE_GC1 Relative to the S&P 500

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.85.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite