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Stock Market Outlook for July 13, 2016

 

Layoffs trending above average this year while job openings, hires, and quits lag the seasonal norm.

 

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 added to their recent string of gains with the Dow Jones Industrial Average joining the all-time-high club.  The blue-chip benchmark hit a high during the session of 18371.95, surpassing the intraday high charted over one year ago at 18351.36.  Short-term, equity benchmarks remain firmly overbought following the approximately 8% rally from the end of June lows, suggesting a pause may be in order.  Support on any retracement attempt would be expected around 18,000, a level of resistance that has constrained all upside attempts over the past year.

Of course, the ongoing rally continues to fall within the average period of strength for equity benchmarks between June 27th and July 17th.  Looking at the S&P 500 Index, the present 7.58% gain from the close on June 27th is certainly impressive, but it is still short of the best gains that have been realized during this period since 1950.  In 1999, the large-cap benchmark returned 7.87% over the three week period.  Topping that was a 7.95% return realized in 1962.  In both years, the benchmark reverted back to levels from which it originated prior to the rally by the time the month of October rolled around.  This is not to say the same outcome should be expected this time around, but a key test is ahead, which is reaction to second quarter earnings.  Should investors adopt a sell on news approach to each report, then the typical third quarter equity market swoon seems like a reasonable outcome.  However, should investors receive results that suggest a conclusion to the series of quarterly earnings declines, it is not out of the realm of possibilities to see further strength in equity prices as investors position for a second half rebound.  The S&P 500 Index has traded lower between mid-July and the end of October, the weakest time of year for stocks, only 47% of the time since 1950.  However, when stocks do decline during this period, the drawdowns can be significant.

On the economic front, two reports were released on Tuesday, the impact of which on the market rally was moot.  First was the Job Openings and Labor Turnover Survey for May.  The headline print indicated that job openings declined by 5.9% to 5.5 million, coming off of the recovery high closer to 6 million realized in April.  Stripping out seasonal adjustments, openings actually declined by 10.5%, more than the 9.6% average decline for the month of May.  The year-to-date change in job openings continues to run below average, confirming the maturing trend in employment that was observed following the latest non-farm payroll report.  Looking at the other components, hires continues to show a negative gap versus the average trend that was opened following April’s report, indicating waning hiring momentum, and the pace of quits is also lagging, suggesting a lack of confidence amongst workers to leave positions in search for new opportunities.  The only component in the report that is showing an above average pace is layoffs and discharges, backing a trend that become apparent in the report on continuing jobless claims.  Overall, the strength that had been apparent in employment in recent years is deteriorating, which raises concerns over the health of the economy.

The other report released on Tuesday pertained to wholesale trade data, which is showing some improvement on the inventory side.  The headline print indicated that Wholesale Inventories rose a mere 0.1%, less than the consensus analyst estimate calling for a 0.2% rise; sales were higher by 0.5%.  Stripping out seasonal adjustments, inventories were lower by 1.0%, more than the 0.8% average contraction for May, and sales were higher by 3.6%, also more than the average gain of 2.5% for May.  Focussing on the sales side, there is little to highlight: the year-to-date trends remain below average, although there are gyrations between this year’s pace and the pace set last year.  Perhaps the standout in the report has to pertain to the improvement in commodity prices, notably petroleum, the sales of which have advanced well above average.  The positive trend in petroleum sales typically matures around this time of year, flat-lining through the remainder of summer.  So while little to highlight within the report, continued improvement will remain dependent on the strength of commodity prices, which in turn are dependent on the strength of the currency in which they are priced.

Looking at the trend of the US Dollar Index, the currency benchmark remains constrained between long-term resistance and intermediate support.  The 200-day moving average continues to come off of the highs set late last year, now providing a significant hurdle to the upside as investors debate the time and type of the Fed’s next action.  Meanwhile, the 50-day moving average, which is curling higher, is providing that intermediate support following the gap higher amidst the Brexit vote.  Momentum indicators have been trending higher since a low set in April, supporting the shift from the negative trend that spanned the first four months of the year.  The benchmark is presently “flagging” around the mid-point of the long term range that spans from 93 to 100.  A break into the upper half of the range would qualify the currency as being strong, potentially weighing on commodity prices and corporate earnings.  Seasonally, while remaining in this predominantly flat trend through the summer months, the Dollar Index tends to spike into late July/early August.

While currencies have an impact on trade, one gauge of trade is making another run at the year-to-date highs.  The Baltic Dry Index has jumped around 20% in the past few weeks, moving in on declining trendline resistance that forms the upper limit of a long-term trend channel.  Reaction around these levels could be indicative of the strength of international trade into the back half of the year.  Seasonally, the cost to ship goods by sea, as gauged by the Baltic Dry Index, typically strengthens between August and October, benefitting from the run-up to the strong consumer spending season in the fourth quarter.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.79.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite