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Stock Market Outlook for July 15, 2016

 

The average peak to the summer rally period is now upon us.

 

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:

Teva Pharmaceutical Industries Ltd (ADR) (NASDAQ:TEVA) Seasonal Chart

 

 

The Markets

Stocks closed higher for a fifth straight session with the S&P 500 Index and Dow Jones Industrial Average charting further all-time highs.  The benchmarks remain short-term overbought, but signs of rolling over have yet to become apparent.  Support on any retracement attempt would be expected close to recent breakout points, which in the case of the S&P 500 Index is around 2110.  This provides about 2.6% buffer as both the S&P 500 Index and Dow Jones Industrial Average attempt to confirm the breakout move; a weekly close above the previous range of resistance would go a long way in doing so.

Today marks the average peak to the summer rally period that typically lifts stocks between the end of June and the middle of July.  If benchmarks hold around present levels into Friday’s close, they will have realized the best summer rally in over 80 years.  Thanks must be given to the Brexit referendum washout, which sent stocks sharply lower directly ahead of this seasonal event and providing the ideal entry point for three week run.  Between now and the end of the third quarter, some of the sectors that helped propel the market to new all-time highs over the past few weeks, such as consumer discretionary, materials, and industrials, tend to trade lower, weighing on market benchmarks as investors become risk averse.  Investors should watch the performance of defensive assets relative to cyclical counterparts as a number of safe haven areas of the market have made substantial moves in the first half of this year, possibly exhausting some of the upside potential into their next seasonal up-leg.  A rotation away from bonds, utilities, consumer stales, and gold have become apparent in recent days and cyclicals, such as transportation and semiconductor stocks, have benefited.   This would be expected during the summer rally period, so the real test is ahead when cyclical sectors typically start to weaken.  Should the new all-time highs in a number of areas of the market entice investors back into stocks, they may choose to bypass the defensive plays and head towards the cyclical counterparts, which in many cases present better relative values.

On the economic front, a report on jobless claims is confirming the seasonal factory shutdown period that is typical for this time of year.  The headline print indicated that initial claims were 254,000 last week, unchanged from the previous week.  The seasonal change becomes apparent in the non-adjusted figures, which rose by 11.7% to 298,862, the highest level since February.  Initial claims are now 7.7% above average through the start of July.  The seasonal uptick typically peaks around July 18th, on average, suggesting another week of increased claims should be expected before the mid-summer tendency fades.  As for continued claims, which is delayed by a week, the claimant count ticked mildly lower to end the second quarter, still remaining firmly above its seasonal average.  The seasonal uptick in this indicator should be realized over the next couple of weeks, peaking, at least according to the reporting schedule, before the end of the month.  Continuing claims and initial claims typically decline through the remainder of the summer as factories come back online and the the new school year begins, resulting in an uptick in employment into the end of the third quarter.  The key concern with the report is with the fact that both continued and initial claims are trending above the seasonal average, suggesting underlying weakness in the labour market.

Sentiment on Thursday, as gauged by the put-call ratio, ended overly bullish at 0.62.  This is the lowest reading since mid-April when market benchmarks charted a short-term peak coming off of the approximately two-month rally; benchmarks traded predominantly flat (albeit with some abrupt downticks) until the recent run towards all-time highs.  Putting it all together, complacent sentiment, short-term overbought conditions, and a seasonal peak in broad equity benchmarks, stocks are vulnerable to a pullback over the near-term.

 

 

Sectors and Industries entering their period of seasonal strength:

^AXJO Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite