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Stock Market Outlook for May 12, 2016

 

Escalating decline in domestic production combined with an increase in gasoline demand could cap oil inventories in months ahead.

 

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:

Scholastic Corporation (NASDAQ:SCHL) Seasonal Chart

 

 

The Markets

Stocks traded sharply lower on Wednesday, weighed down by the consumer discretionary sector following a rare earnings miss from Disney and struggle in the retail industry.  Shares of Disney lost just over 4%, gapping lower and trading down to its rising 50-day moving average.  The gap during the session was opened at a level that has become all too familiar with this sort of trading activity over the past year.   On three different occasions shares of Disney has jumped below the $105 level, providing a significant level of resistance in the process.  Momentum indicators for the stock are rolling over from overbought levels as the period of seasonal weakness that runs through to September gets underway.

Shares of Disney presented a significant burden on the Dow Jones Industrial Average, which clawed back the vast majority of gains accumulated in the previous session.  The blue-chip benchmark remains above intermediate-term support presented by its rising 50-day moving average, as well as short-term horizontal support around 17,600.  While still premature to conclude, a short-term head-and-shoulders topping pattern is becoming a possibility, the confirmation of which would be achieved by a break below the previously mentioned short-term support.  On the hourly chart, declining trendline resistance is apparent around 17,900.

The losses in the discretionary sector were broad based as retail stocks posted significant declines following weak results from some notable retailers over recent days, including Macy’s.  The S&P Retail ETF (XRT) lost almost 4.5%, reaching towards the downside target of $40 that was identified on this site last Friday.  Momentum and relative strength of the industry ETF remains very weak following the conclusion the period of seasonal strength that peaked in April.  As noted yesterday, clothing and automobiles sales are lagging their average seasonal trends, which is taking a toll on companies that sell these products.  A report on retail sales for April will be released on Friday before the opening bell.  Beyond the spring uptick, retail sales are generally flat through the summer, a trend that is generally shared by the stocks that track this space.

As stocks traded lower, investors turned to the bond market as a safe haven.  The iShares 7-10 year treasury bond ETF gained 0.15%, pushing up against resistance around $111.  An ascending triangle pattern targets $114 upon a break of the upper limit of this continuation setup.  As noted the other day, the stocks-to-bonds ratio presently favours the fixed income asset class as equity markets enter their seasonally volatile time of year.

On the economic front, the Energy Information Administration reported a surprise drawdown in energy commodities, sending prices higher.  The administration reported that oil inventories declined by 3.4 million barrels, while gasoline inventories declined by 1.2 million barrels.  The days of supply of each ticked marginally lower as oil enters a period where demand typically outpaces production; the increased demand typically results in a decline in oil inventories between mid-May and the end of September, bookending the summer driving season.  What remains encouraging for the price of oil and the supply situation is the escalating decline in domestic production combined with an increase in gasoline production, potentially putting a cap on oil inventory levels over the next few months.  The price of oil jumped back up to the highs of the year following the report, bouncing from around its rising 20-day moving average.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.93.  With the selloff throughout the session, investors found more opportunities to bet on the upside potential of equities, thereby ending 10 straight sessions of bearish readings.

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite