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Stock Market Outlook for April 28, 2016

 

Investors continue to lean towards cyclical sectors as positive seasonal tendencies near an average peak.

 

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:

International Game Technology (NYSE:IGT) Seasonal Chart

Aimia Inc (TSE:AIM) Seasonal Chart

 

 

The Markets

Stocks posted minor gains on Wednesday as the Fed kept rates unchanged and continued to stress its dependency on economic data.  The S&P 500 Index added less than two-tenths of one percent, despite the significant drag imposed by the largest sector in the benchmark, Technology.  A disappointing earnings report from tech titan Apple scalped as much as seven-tenths of one percent from major benchmarks as the stock gapped down to the lows of the year on the highest volume since last August.  The stock is closing in on significant support around $92, a level at which investors have aggressively accumulated shares of the company over the past couple of years.  A break below this pivotal level of support could see an escalation of selling pressures.  A head-and-shoulders topping pattern that became confirmed upon a break below the neckline around $107 has a calculated downside target of around $83, a move that if fulfilled could come close to testing support at the open gap charted two years ago today following its first quarter earnings report for 2014.  Shares of Apple remain in a trend of declining performance relative to the S&P 500 Index, suggesting that this hedge fund darling has lost the interest of the investor base that supported it, despite what continues to be a low-multiple stock.

AAPL Relative to the S&P 500

Energy stocks picked up the drag on Wednesday as the rotation towards some of the more cyclical areas of the market continues.  The energy and material sectors continue to benefit from an outperforming trend relative to the market as the average peak to the seasonal trend nears into the month of May.  Meanwhile, industrials are showing a renewed uptick versus the broad market as price continues to move above a massive double bottom pattern.  Seasonal tendencies for this cyclical sector also conclude into the month of May. 

Sectors that have recently entered their period of seasonal strength are showing mixed results.   Health care has shown signs of outperformance versus the broad market benchmark over the past month as price closes in on the flatline for the year.  Consumer staples and technology, on the other hand, are struggling under negative relative trends as price pulls back from around the all-time highs.  The S&P 500 Consumer Staples Sector Index is presently testing support around previous resistance at 526, while the S&P 500 Technology Sector Index is testing support around its 200-day moving average; 50-day moving averages for each continue to point higher, keeping the prospect of a positive intermediate-term trend intact.   Overall, investor bias remains heavily weighted towards cyclical assets, suggesting positive risk sentiment.  The defensive sectors, which typically start to perform well at this time of year, are showing signs of struggle.  Positive risk sentiment is typically conducive to strength in equity benchmarks.

On the economic front, a report on international trade continued to emphasize the strain of a strong US dollar on cross border activity, although improvement from last year is becoming evident.  The headline print indicated that exports for March declined by 1.7%, while imports were lower by 4.4%.  Stripping out seasonal adjustments, exports were higher by 10.5%, which was below the average gain for March of 14.4%.  Imports were higher by 6.1%, around half of the average increase for the third month of the year of 12.8%.  While exports are showing a year-to-date change that remains below average, considerable improvement versus last year is becoming apparent as the US dollar trends lower in an intermediate range.  The trend of the components is consistent with the aggregate number with exports of food, industrial supplies, capital goods, and autos all showing a year-to-date change that is below average, however, much improved from the lacklustre results reported last year in the midst of the substantial rise in the US currency.  The only component that is below last year’s change is consumer goods, perhaps issuing a warning sign for the health of the global consumer.   Prior to March’s report, exports of consumer goods had been showing an above average change.  While one month does not make a trend, the weakness in consumer goods exports to close the third quarter perhaps warrants attention for future reports.

And as always for this time of week, the Energy Information Administration released the latest status of oil inventories in the US.  Oil inventories for the week ending April 22nd increased by 2.0 million barrels, while gasoline inventories increased by 1.6 million barrels.  The result was an increase in the days of supply of each: oil days of supply rose three-tenths of a day to 33.6 and gasoline days of supply rose two-tenths to 25.7.  While the days of supply of oil is at a new multi-decade high, there remain indications of a topping pattern as demand and supply converge closer to the start of the summer driving season.  In what is becoming a bit of a burden on the raw input is the gasoline days of supply, which is diverging from the average trend.  Similar signs are appearing in the stocks of the refined product.  This comes despite a downtick in the production of gasoline as refiners ratchet back activity given that demand pressures are not keeping pace.  The production of gasoline still remains around 10% above average for this time of year as producers seek to draw on the ballooning supply of oil.  With oil strengthening in Wednesday’s session and gasoline remaining predominantly flat, crack spreads continue to compress, coming off of the highs charted at the start of the year.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.02.  As we have been indicating for a while now, the average true range (ATR) of the ratio continues to rise, suggesting investor uncertainty as market participants gyrate wildly between bullish and bearish allocations now that major benchmarks are back to resistance presented by the previous highs.  This is typically a leading indicator of market weakness ahead.

 

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite