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Stock Market Outlook for May 5, 2016

 

Days of supply of oil nears the highest level on record above 34.

 

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:

ABIOMED, Inc. (NASDAQ:ABMD) Seasonal Chart

 

 

The Markets

Stocks traded marginally lower on Wednesday as investors digested a mixed set of economic reports.   On the services side, the Institute of Supply Management indicated that activity for April was at the highs of the year, reporting a level of 55.7, firmly above the consensus estimate of 54.7.  Readings above 50 are categorized as being expansionary.  Meanwhile, ADP reported that hiring in April was less than expectations, showing an increase in payrolls of 156,000 versus the consensus increase of 193,000.  Analysts will be looking to Friday’s BLS non-farm payroll report for confirmation of this print.  This downbeat outlook on the state of employment was enough to send cyclical sectors lower and interest sensitive names higher as the market bets on lower rates for a longer period.  REITS and Utilities traded back to the highs of the year, hinting of the risk aversion that becomes typical around this time of year.  REITs are nearing the end to the first leg of their period of seasonal strength that spans the spring months.  Next period is typically realized between June and September, benefitting from what is typically a positive period for bonds and bond proxies.  The MSCI US REIT Index is presently sitting at a new 52-week high having recently bounced from support around its 50-day moving average.

On the economic front, a solid report on Factory Orders for March was released during Wednesday’s session.  The headline print indicated that Factory Orders increased by 1.1%, almost double the consensus gain of 0.6%.  Stripping out seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries increased by 11.9%, exceeding the average increase for March of 10.6%.  The year-to-date change continues to lag the average trend through the end of March, although the data is considerably better than last year’s trend when declining commodity prices were a significant drag.  Weakness related to energy products remains a burden on the overall report as producers seek to manage ballooning inventory levels.  Overall, this is another report pertaining to manufacturing activity that suggests improvement versus last year as the commodity market stabilizes, potentially on track to become a net benefit rather than a detriment.

And while on the topic of the influence of the commodity market on economic activity, the Energy Information Administration provided its weekly look at the state of oil inventories in the US.  The administration indicated that crude oil saw a build of 2.8 million barrels last week, while gasoline saw a build of 500 thousand barrels.  The build pushed the days of supply of oil to 34.0, just shy of the highest level on record of 34.2 recorded in March of 1983; the average days of supply of oil for the end of April is 24.5.  Despite another rise in inventories, a significant drop in US production kept the price of the energy commodity supported around its rising 20-day moving average.  The short and intermediate-term trend for the price of oil remains positive, as gauged by the direction of the 20 and 50-day averages.  Meanwhile, an uptick in gasoline production did inflate stocks of the refined product, but increasing demand as we near summer driving season kept the days of supply steady.  A slight divergence with the average trend in both the days of supply of gasoline and the change in inventory levels remains apparent as demand is slow to appreciate this spring due to the recent string of cooler than average temperatures; as the weather warms into the month of May, this divergence would be expected to normalize.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.09.

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite