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Stock Market Outlook for August 16, 2016

 

Oil Exploration and Production ETF showing a bullish setup within period of seasonal strength.

 

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 closed higher on Monday, once again helped by the energy sector as the price of oil bounced back above $44.  The Oil and Gas Exploration and Production ETF (XOP) jumped just over 2% as it starts to realize the positive seasonal tendencies that are typical for this time of year.  The energy industry ETF has tested support around its 200-day moving average multiple times over the past few months, setting the stage for the seasonal run that typically peaks in the middle of September.  Momentum indicators are once again turning higher, as is the 20-day moving average, which provides a short-term level of support for investors to shoot off of during the brief seasonal run.  As with the price of oil, a reverse head-and-shoulders pattern on the chart suggests significant upside potential should neckline resistance around $37 break.  Calculated upside target of the bullish setup is to around $50.  While domestic oil production continues to decline, imports remain around the highs of the year, presenting a key variable to look for in this week’s inventory report.  Seasonally, imports typically decline into the fall, which, if realized and combined with the continued decline in domestic production, could be supportive of oil prices over the near-term. 

Aside from the level of oil imports, the other threat that could potentially impact the seasonal trade in the energy sector is the US Dollar, which is presently not much of a factor.  The US Dollar Index dipped slightly on Monday, testing rising trendline support that spans the past couple of months.  The dollar continues to be driven by bets on central bank actions (or expected actions), further insight to which will be received on Wednesday when the FOMC Meeting Minutes are released.  The weekly report on oil inventories are released on that same day.  Should the dollar bounce from trendline support following the minutes, commodity weakness would be expected.  The broad equity market would also be victim.  Conversely, a break below trend would “fuel” the next leg higher in oil prices, likely driving stocks higher through the next month of seasonal strength.  Seasonally, the US Dollar Index tends to decline starting around this point in August.

On the economic front, the first regional manufacturing survey for August is showing growing struggle for this area of the economy.  The Empire State Manufacturing Survey came in at –4.21, below 0, the dividing line between expansion and contraction, and below the consensus estimate of +2.50.  The headline print is lower from July’s read of +0.55.  Stripping out seasonal adjustments, the general business conditions index did tick mildly higher in the month to –7.22 from –9.89 previous, but this is well below the average read for August of +10.28.  Typically, the dip in July related to the summer factory shutdown period leads to a robust rebound in August as manufacturers get back to work to produce product for the fourth quarter.  The divergence versus the norm certainly raises concerns.  Recall that the anomaly in last month’s nonfarm payroll report was manufacturing employment, which failed to realize the seasonal dip in the month of July, likely due to the survey period falling after the summer shutdown period.  So while it is unlikely that manufacturing will provide that seasonal bump to August’s report as a result of the rebound, a decline in manufacturing activity could exacerbate the seasonal adjustment factor, which seems setup to work against the report.

Elsewhere in the economy, an important gauge of shipping activity was released during Monday’s session.   The Cass Information Systems Freight Index is reporting that shipments in July were essentially unchanged (0.0%), much better than the average change for the month of –2.0%.  Expenditures were also little changed, down by 0.6%, also above the average change for July of –2.0%.  The year-to-date change for shipments is now above the average trend through the first seven months of the year, while expenditures are firmly below it, now hovering around the change recorded by this time in 2015.  Excess capacity continues to strain pricing pressures, despite the uptick in shipments.  While it is encouraging that the month of July is showing strength compared to the typically downbeat result, a factor of diminished factory activity, it does warrant monitoring moving forward into the busy time of August and September given the result that New York’s regional manufacturing survey has provided for August.

  Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.78.

 

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite