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Stock Market Outlook for August 29, 2016

 

Yield on 10-year treasury note breaking above an ascending triangle pattern.

 

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:

Air Canada (TSE:AC) Seasonal Chart

Richelieu Hardware Ltd. (TSE:RCH) Seasonal Chart

 

 

The Markets

Stocks gyrated around the flatline on Friday as investors listened to comments from a couple of Fed officials.  When all of the dust settled, investors were pegging a greater probability of a rate hike before the end of the year with the odds of a September hike rising from 21% to 36% and the odds of a December hike rising to 64% from 52% just one day earlier.  The result saw interest sensitive areas of the market sell off, including bonds and utilities, the weakest sector on the day.  The recent laggard, health care, got a reprieve, with the sector benchmark bouncing slightly from the level of support highlighted in Friday’s report.  The SPDR Utilities Sector ETF (XLU) continues to battle with support, and previous resistance, at $49 as the 20-day moving average keeps a lid on any upside momentum.  The ETF remains around oversold levels, struggling within a period that is typically strong for stocks in this market segment.

HEALTHCARE Relative to the S&P 500

UTILITIES Relative to the S&P 500

As bond prices moved lower, yields moved higher.  In the case of the 10-year treasury, the yield broke above an ascending triangle pattern, which projects upside potential to around the 200-day moving average at 1.84%.  The risk to the price of the fixed income asset is a decline of 1.2% below present levels.  Seasonally, yields typically fall at this time of year as investors seek haven from the volatility in equity markets, but with volatility remaining low and the probability for Fed action moving higher, the trade, thus far, is bucking the historical norms for July and August.

As for the broad equity market, last week major benchmarks saw their worst decline since the week of Bexit.  The S&P 500 Index was lower by just over two-thirds of one percent as the first signs of price rolling over from the July rally emerge.  The Nasdaq Composite was down less, despite the struggles surrounding the biotech industry.  Support for the large-cap index is implied in the range of 2100 to 2120, a range that had constrained price momentum for more than a year.  Negative momentum divergences on the daily chart had been suggesting buying exhaustion throughout the month of August.  The week ahead presents further catalysts with the end of the month and employment reports likely to influence market activity.

On the economic front, the advanced report on international trade was released before Friday’s opening bell.  The headline print indicated that exports rose last month by 2.4%, while imports declined, falling by 1.3%.  The result saw a contraction in the trade deficit to $59.3 billion versus $64.5 billion previous.  The consensus called for a deficit of $63.2 billion.  Stripping out seasonal adjustments, exports actually declined by 7.8%, while imports declined by 3.9%; the average change for each is -7.5% and +0.7%, respectively.  Looking at the year-to-date trends, while both imports and exports are below their seasonal averages, imports are showing a notable divergence following July’s print, the result of declines in food, auto, and capital goods imports.  Auto and capital goods are also down month-over-month on the export side, the result of the factory shutdown period, but food exports are up, the result of farmers increasingly sending their goods overseas.  The USDA projects that agricultural trade exports will rise by 40% over the next year, a trend that just now appears to be emerging.  As for the rest of the components on the export side, July can often be a difficult month to read as a result of the factory slowdown that takes place in the period,  Variances from year-to-year can occur in the timing and the magnitude of the slowdown, making the better read of economic activity in August and September when production ramps up for the fourth quarter consumer spending season.  We’ll be on the lookout for any significant divergences versus the seasonal trend when August’s data is released in the month ahead.

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.04.

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite