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Stock Market Outlook for May 4, 2016

 

Commodity currencies gyrate following surprise rate cut from Australian Central Bank.

 

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 drifted lower on Tuesday following some significant gyrations in the currency market.  A surprise rate cut from Australia’s Central Bank sent commodity currencies spiralling lower, including the Australian and Canadian Dollar.  The shift in trend also follows weakness in commodity prices as investors speculate that the US Dollar has fallen “too far, too fast,” just a day after breaking through significant horizontal support on the US Dollar Index.  The Philadelphia Australian Dollar Index fell 2.37%, moving below its 50-day moving average and coming close to testing previous horizontal resistance around 74.  The Canadian Dollar showed similar weakness, falling around 1.5% and testing short-term support around its 20-day moving average.  Horizontal support is apparent around 78.  This follows what is typically the strongest month of the year for both currencies, which have historically gained 70% of the time in the month of April.  Levels of support for each currency should be monitored closely as the negative momentum divergences across the charts suggest waning buying pressures.

The US Dollar Index remains below previous support around 93 that was broken during Monday’s session.  Opposite to the tendencies of both the Australian and Canadian Dollar, the US Dollar index has shown a tendency for gains in the month of May.  Currencies have been a significant influence on commodity and equity sector performance this year, therefore understanding the direction of the trends has become critical to equity market success.

One of the beneficiaries to the commodity market strength related to the declining US Dollar over the past couple of months has been the Baltic Dry Index, which has more than doubled since its February low.  The index, which “provides an assessment of the price of moving the major raw materials by sea” is closing in on trend channel resistance, which may cap the recent advance in the short-term.  Despite weakness in commodity prices during Tuesday’s session, the short and intermediate trend remains positive, according to the CRB commodity index, along with the short and intermediate trend for the US Dollar remaining negative.   Should these trends continue, translating into longer-term patterns, the Baltic Dry Index could remain supported as it emerges from multi-decade lows.  Seasonally, the Baltic Dry Index tends to peak in the month of May, along with the broader equity market.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.10.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite