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Stock Market Outlook for November 6, 2017

October payroll strength unlikely to continue into the months ahead.

 

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:

K-Bro Linen Inc. (TSE:KBL) Seasonal Chart

High Liner Foods Inc. (TSE:HLF) Seasonal Chart

Enghouse Systems Ltd. (TSE:ENGH) Seasonal Chart

Cargojet (TSE:CJT) Seasonal Chart

Leon’s Furniture Ltd. (TSE:LNF) Seasonal Chart

Baxter International Inc. (NYSE:BAX) Seasonal Chart

Rockwell Collins (NYSE:COL) Seasonal Chart

Fairfax Financial Holdings Limited (TSE:FFH) Seasonal Chart

Enercare Inc. (TSE:ECI) Seasonal Chart

Ritchie Bros. Auctioneers (TSE:RBA) Seasonal Chart

 

 

The Markets

Stocks edged higher on Friday as investors reacted to Apple’s earnings beat, as well as the latest payroll figures out of the US.  Shares of AAPL gapped higher by close to 3% after reporting strong top and bottom line results, as well as providing optimistic guidance for the Christmas quarter.  The stock has performed almost precisely inline with its average seasonal pattern over recent months, selling off following the product launch in September, then rebounding into the fourth quarter, amidst the period of strength for the broader technology sector.  The stock has recently become overbought and levels of support at the 20 and 50-day moving averages are now well below present levels, skewing the risk-reward ratio more towards the riskier side of the spectrum.  A trend of higher-highs and higher-lows remains intact.  Positive returns for the stock remain the norm through November, then turn negative for the month of December as sell-on-news takes control around the Christmas event itself.


Support from the Technology sector helped to push major benchmarks in the US to new closing highs.  For the week, the S&P 500 Index was higher by 0.26%, remaining overbought according to a number of metrics.  The weekly MACD histogram is no longer expanding following its mid-August low, suggesting buying pressures are waning at these all-time high levels, perhaps setting up for some kind of retracement.  The weeks ahead are typically the weakest  period of November as the earnings season catalyst comes to an end and tax-loss selling/portfolio relocations dominate trading activity.  The S&P 500 Index has shed an average of 0.45% between November 6 and November 20, realizing negative results in 22 of the past 50 periods.  The large-cap benchmark has yet to breach support at the rising 20-day moving average.

On the economic front, employment reports out of Canada and the US were released, providing insight to the health of the labour market.  Starting with the US, the headline print indicated that nonfarm payrolls increased by 261,000, missing the consensus estimate of 325,000.  The unemployment rate ticked lower to 4.1% and average hourly earnings were unchanged.  Stripping out the seasonal adjustments, payrolls actually increased by 0.7%, or 1.042 million, slightly better than the average increase for October of 0.5%.  Despite the rebound from the month of September, which was impacted by hurricanes that hit the southern states, the year-to-date change remains below the seasonal average.  With a year-to-date gain of 1.26%, payroll growth this year is on track for the weakest performance since the end of the last recession in 2010.  Declining payroll growth is a characteristic of an economy at full employment.  While some analysts questioned the lack of change in construction jobs given the hurricane rebound, evidence of the rebuilding effort was apparent in residential building, building material, and specialty trade contractor jobs, each of which showed rare positive divergences in the month.  A rebound in petroleum, automobile dealer, engineering services, and real estate jobs was also apparent.  While the October rebound delivers Donald Trump the best monthly payroll gain under his presidency, there is little to suggest that the growth is sustainable through the end of the year.  Each of the payroll categories that rebounded from the September slump tend to decline through the end of the year and the initial demands imposed on them following the hurricanes are likely to fade in November and December, particularly automobile dealers.  A give-back of some of October’s aggregate payroll gains seems probable.  As for wages, average hourly earnings were higher by 0.4% in October, marginally better than the average increase for the month of 0.3%.  The year-to-date change is higher by 2.8%, around 1% below average as wage pressures remain absent.  For a complete breakdown of the report from a seasonal perspective, you can access the charts via the chart database at http://charts.equityclock.com/u-s-employment-situation.

Total Nonfarm Seasonal Chart

While payroll data in the US did little to inspire confidence, employment in Canada showed healthy growth.  The headline indicated that 35,000 jobs were added last month, firmly above the consensus estimate that forecasted a gain of 15,000.  Stripping out the seasonal adjustments, employment actually increased by 37,200, or 0.2%.  The average increase for October is 0.1%.  An above average change in full-time employment and below average change in part-time employment suggests underlying strength.  The 3.8% year-to-date increase in full-time employment is the best performance through October since 1999 when full-time employment grew by 5.3%.  Within the various categories, manufacturing employment continues to show strength, much like the US.  Transportation and retail employment in Canada are also showing year-to-date gains that are above average, but it appears that the weakness in the retail industry south of the border is starting to be felt here.  Wholesale and retail trade employment showed a very rare decline in October, contracting by 0.5%, the weakest performance for the month in the history of the report.  Overall, however, this was a solid report that resulted in a sizeable bump to the Canadian Dollar. The domestic currency is showing signs of bouncing from variable support around the 200-day moving average, retracing some of the recent decline.  Seasonally, both the Canadian Dollar and employment in Canada tend to decline through the last two months of the year.

And briefly on the report of factory orders for the month of September, the final result for the month showed a headline increase of 1.4%, better than the consensus estimate calling for a gain of 1.2%.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries increased by just 0.8%, 1.8% below average for the month of September.  Year-to-date, the gap versus the seasonal average trend has been almost eliminated, now just nine-tenths of a percent above the historic norm.  Of course, durable goods remain the highlight of the report, accounting for virtually all of the strength, while non-durable goods are the drag.  Showing particular weakness this  year within the non-durable segment is beverages, the shipments of which are showing the weakest year-to-date performance in the history of the report.  Beverage shipments are down by 1.0% through the first three quarters of the year, 10.6% below average.  The increase in beverage inventories through September is similarly well below average.  The diversion away from carbonated, sugary beverages has been well documented, taking a  toll on the beverage category, but this is the first year that a calendar year decline in beverage shipments will be recorded within the past decade.  The impact on the soft drink industry is obvious: fewer shipments threatens profitability.  The industry recently entered its period of seasonal strength, which runs from late September through to the end of November .  Stocks of industry constituents have already seen their performance slip relative to the S&P 500 Index over the past couple of months and, given the waning fundamentals, there may be no reason for relative performance to pick-up anytime soon.  A head-and-shoulders topping pattern on the chart of the Dow Jones US Soft Drink Index would be fulfilled with a break below 600, presenting downside risks towards previous resistance around 575.

Value of Manufacturers’ New Orders for All Manufacturing Industries Seasonal Chart


Sentiment on Friday, 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