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Stock Market Outlook for August 19, 2016

 

Pace of natural gas inventory gains this summer is well below average.

 

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:

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

Aluminum Corp. of China Limited (ADR) (NYSE:ACH) Seasonal Chart

 

The Markets

Stocks edged higher on Thursday, once again “fuelled” by the energy sector as the price of WTI Crude jumped almost 3%, closing in on the $50 level of resistance directly overhead.  The S&P 500 Energy Sector index closed higher by almost 2%, now hovering around horizontal resistance at 525.  The gains in energy stocks fall right inline with the period of seasonal strength for the sector that runs through to mid-September, typically benefitting from the uptick in demand for fuel into the end of the summer driving season.  The decline in the US Dollar and rumours that OPEC may cap production are certainly having an outsized influence on the price of the energy commodity, which remains at risk of showing supply side pressures once the summer driving season comes to an end over the next few weeks.

Quickly, going through the economic data released on Thursday, jobless claims in the previous week declined by 4,000 to 262,000, edging out estimates calling for a decline of 1,000 to 265,000.  The year-to-date change remains inline with the seasonal norm for this time of year, down by 36.6%.  The employment indicator typically realizes a low in September, turning higher through the remainder of the year.  The trend for continuing claims, which lag by a week, continue to hover marginally above the seasonal average.

As for manufacturing conditions, another regional survey is suggesting lacklustre activity going into the second half of the year.  The Philadelphia Federal Reserve is reporting that its business conditions index ticked moderately higher to +2.0 in August, up from the –2.9 reported in July.  Stripping out seasonal adjustments, the actual level came in at +4.5, a rebound from the factory shutdown period of –11.3.  Still, this is well below the average level for August of +10.9.  The trend so far in the first two months of the back half of the year is inline with last year’s trend, which isn’t exactly encouraging given that manufacturing activity substantially lagged historical averages in the last six months of 2015.  Manufacturing activity seasonally rebounds from the summer lows into August and September as production increases ahead of the critical fourth quarter consumer buying season.

And finally, the weekly report on natural gas inventories helped to fuel gains in the commodity during Thursday’s session.  The Energy Information Administration indicated that natural gas in storage rose by 22 billion cubic feet (bcf), a slight decline versus the previous week’s increase of 29 bcf.  The pace of inventory gains this summer, particularly over the past month, has significantly lagged the average increase for this time of year as consumption remains above average.  The price of natural gas remains within a short-term declining trend channel, essentially forming the flag portion of a bull flag pattern on the chart of the commodity.  The bullish setup calculates upside potential to $3.80 should price break above trend channel resistance.  The average start to the period of seasonal strength for natural gas is at the beginning of September.  This year’s seasonal trade looks particularly intriguing with the Farmers’ Almanac reporting that weather in the northeast this winter is going to be colder and snowier than average as El Niño’s colder cousin, La Niña, takes control.  The implication is that the above average demand for the commodity realized this summer will continue into the winter when demand normally outpaces production between November and March.  Another factor to consider is hurricane season and the impact on production.  Forecasters are predicting that the number of named storms will be above average this year due to the transition from El Niño to La Niña.  Producers will typically limit output if the weather is expected to be severe.  Hurricane season officially ends on November 30th.

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.86.

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite