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Stock Market Outlook for May 17, 2016

 

Auto sales lagging seasonal norms, taking a toll on the stocks in this industry.

 

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 surged to start the week following the released of a regulatory filing that indicated that Warren Buffett’s Berkshire Hathaway had taken a stake in tech titan Apple.  Shares of the technology company, which is the largest single constituent within many equity benchmarks, jumped by over 4%, quickly recouping the $92 level of support that was broken near the end of last week.  Momentum indicators are starting to curl higher, rebounding from the oversold levels that have persisted for the past  13 sessions, the longest oversold stretch since 2008.  The gap that was opened on the stock between $97 and $103 following the release of the company’s latest earnings report is likely to act as resistance should strength continue over the near term.  Shares of AAPL remain constrained by a declining trend channel that presently spans between $85 and $107.

The strength in equity prices on Monday fuelled another bounce on the S&P 500 Index from the 2040 level of support.  While remaining encouraging that this horizontal level of support continues to hold, resistance overhead remains a tough nut to crack.  Add to that another level of resistance at the benchmark’s 20-day moving average, which is now showing signs of rolling over, suggesting a negative short-term trend.  Overall, the market is still waiting for that catalyst to breakout of the recent range, either above 2100 or below 2040.

Yesterday we reported that the biggest drag on retail sales is the automobile segment, which if discounted would have resulted in above average retail sales growth through the first four months of the year.  Today we shed greater light on this struggling component that often accounts for a significant share of consumer spending.  Total vehicle sales declined by 5.5% in April, which is better than the average decline for the fourth month of the year of 7.0%.  The decline on a non-seasonally adjusted basis can, in part, be chalked up to one less selling day in April versus the month prior (30 calendar days versus 31), which makes this month one of the most significantly adjusted months of the year for most economic reports.  Year-to-date, the change in vehicle sales is lagging the seasonal average by a considerable margin, down by 8.3% through the first four months of the year versus the norm of an 8.4% gain.  The change in vehicle sales is also lagging the trend set last year, providing merit to the “peak auto” argument.  The seasonally adjusted annual rate of vehicle sales peaked last November just above 18 million units and has since rolled over; simple technical analysis of this economic indicator shows triple-top resistance, possibly implying a period of consolidation and/or weakness ahead.

The most logical victim of declining vehicle sales is the auto and component manufacturers.  According to the S&P 500 Automobiles and Components Industry Index, the benchmark has been rolling over since the high set in April,  finding resistance around its declining 200-day moving average.  A negative momentum divergence charted over the past couple of months failed to confirm the higher-high within the price action that was achieved by the average peak to the period of seasonal strength.  Between the start of May and the end of September, auto stocks tend to weaken, trending lower along with the average decline in sales over the same period.  The auto benchmark has been trending lower within a long-term declining trend channel since 2014, reacting to the lacklustre fundamental data over the past couple of years.

On the economic front, a report on manufacturing conditions in the New York region poured cold water on the prospect of a recovery in this segment of the economy.   The headline print came in at –9.02, much weaker than the consensus estimate of +7.00.  Stripping out seasonal adjustments, the general business conditions index remained in the plus column at 2.08, which is a far cry from the average level for May of 20.09.  The report has been strongly influenced over recent years by the strength in the US Dollar, resulting in a lag in manufacturing activity as exports become less competitive and commodity prices struggle.  With the US Dollar Index sitting around the lows of the past year, having shed around 7% since the high set in December, the abrupt reversal in the recent positive trend of manufacturing data is a concern, suggesting other factors may be at play.  The Philadelphia Fed weighs in on manufacturing conditions for that region on Thursday.

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.77.  The wild shift towards a bullish stance raises concerns over the sustainability of this positive sentiment.  More importantly, the average true range (ATR) continues to rise, suggesting uncertainty amongst investors in betting on either a bullish or bearish outcome for the equity market.  Typically, a rising average true range has acted as a leading indicator to equity market weakness.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite