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Stock Market Outlook for August 10, 2016

 

Report on wholesale trade provides an encouraging revelation with respect to the inventories-to-sales ratio.

 

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:

Verisign, Inc. (NASDAQ:VRSN) Seasonal Chart

 

 

The Markets

Stocks gyrated around the flatline on Tuesday as the price of oil pulled back ahead of the weekly inventory report.  The S&P 500 Index closed marginally higher by 0.04%, falling short of charting a new all-time closing high.  A doji candlestick now appears on the chart, a sign of indecision as investors debate the merit of stocks at historic levels.   The candlestick pattern has typically coincided with short-term peaks in equity markets, suggesting reason for a certain degree of caution.  Support remains apparent around the 20-day moving average, which if broken could see that retracement back to the 2110 – 2120 breakout level.  For the time being, momentum indicators continue to show signs of rolling over as buying pressures fade.

Coinciding with the reversal in stocks was an uptick in the volatility index, which jumped from the lowest level in over a year.  A slight positive divergence with respect to MACD is suggesting that downside pressures for the VIX are fading, potentially leading to a bottoming in this so-called fear gauge as we venture further into what is typically the most volatile time of year for stocks.  The VIX at present levels is suggesting complacency, which, albeit can stick around for an indefinite period of time, does shift the risk-reward ratio of the market more towards the risk side of the equation.  As we’ve indicated previously, become cautious when the VIX bottoms below 12 and opportunistic when the VIX peaks above 21.  Volatility seasonally rises through the end of the third quarter.

On the economic front, a report on wholesale trade is suggesting a short-term peak in the inventory-to-sales ratio, which, up until recent, had been hovering around the highest levels since the height of the recession.  The headline print indicated that sales increased by 1.9% in June, while inventories rose by 0.3%.  Analysts had forecasted no change with respect to inventory levels.  Stripping out seasonal adjustments, sales were actually higher by 5.0%, significantly higher than the average increase for the month of 1.0%, while inventories actually contracted by 0.2%.  June typically sees inventories rise by an average of 0.3%.  The result saw the seasonally adjusted inventories-to-sales ratio fall to 1.33, continuing to roll over from the peak charted in January.  This positive revelation starts to give wholesalers some breathing room after taking some steps to control the swelling levels amidst below average sales activity.  The year-to-date change for both sales and inventories remains below the seasonal average, but the gap is quickly closing with respect to sales following a jump in equipment purchases across a number of categories and continued improvement in petroleum product sales.  Strength in each bodes well for the economic outlook.  The upbeat sales in these areas are fuelling the draw on the inventories side, which, from an aggregate level, is showing signs of negatively diverging from the average trend.  Continuation of this trend would give manufacturers room to produce more, removing some strain on this segment of the economy.  The trends warrant further monitoring as it was in the second half of last year that both sales and inventories started to fall firmly below trend.  Recall, we still have this big question mark overhanging the manufacturing sector following a abnormal uptick in employment in this segment, as indicated by Friday’s employment report.  July economic data starts to flow in full force with the retail sales report on Friday, leading to reports on housing and industrial production next week.

Wholesale Sales

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.91.

 

Sectors and Industries entering their period of seasonal strength:

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite