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Stock Market Outlook for March 27, 2017

Financial sector breaking trend, moving contrary to seasonal norms.


Real Time Economic Calendar provided by


**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:

Republic Services, Inc. (NYSE:RSG) Seasonal Chart

Bancolombia SA (ADR) (NYSE:CIB) Seasonal Chart

Bombardier, Inc. (TSE:BBD.B) Seasonal Chart

Intertape Polymer Group (TSE:ITP) Seasonal Chart



The Markets

Stocks closed mixed on Friday as investors watched the events surrounding the health care bill in the US.  The S&P 500 Index shed just less than one-tenth of one percent, adding to the losses recorded earlier in the week; the large-cap benchmark was lower by 1.44% over the five-day period.  Short-term support at the 20-day moving average has been breached, leaving the 50-day at 2330 as the key hurdle below.  A bear-flag based on last week’s trading activity can be picked out on the chart, suggesting further downside pressures over the short-term.  Downside target based on calculated potential and previous horizontal resistance is anywhere from 2280 to 2320; short-term resistance is apparent at 2360.

The recent downtick in stocks is being driven by weakness in the financial sector as investors express doubt that the Trump administration will be able to fulfill other components of the president’s mandate following the failure to repeal and replace the often criticized Affordable Care Act, otherwise known as Obamacare.  The S&P 500 Financial Sector Index dropped 3.81% last week, breaking below an intermediate rising trend channel.  We previously highlighted the negative momentum divergences that suggested buying exhaustion, despite the fact that the sector is within a period of seasonal strength that typically peaks in April.  Horizontal support on the financial benchmark is apparent between 380 and 385.  Until evidence suggests otherwise, the downfall in financial stocks is expected to be rather short-lived. The bond market has found short-term relief from the selling pressures that dominated the last quarter of 2016, allowing yields to retrace the gains from the same period.  Once the reversion to the mean has been exhausted, the trend of higher yields is likely to continue, once again providing lift to the financial sector.  The timeline for these moves may act contrary to seasonal norms, which suggest higher yields and strength in the financial sector through April, followed by lower yields and weakness in the financial sector through the spring and summer months.  The financial sector plays a major role in strength or weakness of the broad market, representing the second largest sector weighting behind technology.

FINANCIAL Relative to the S&P 500

On the economic front, a report on durable goods orders for February confirmed the strength that regional manufacturing surveys had been reporting over recent months.  The headline print indicated that orders increased by 1.7%, exceeding the consensus forecast calling for a 1.5% gain.  Excluding transportation, the increase was a more subdued 0.4%, a miss versus expectations of a 0.8% rise.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for Capital Goods Industries increased by 9.4% last month, easily exceeding the average gain for the month of February of 7.1%.  A 13.9% increase in transportation equipment orders bolstered the aggregate result; the average gain in this category for February is 8.1%.  However, the year-to-date change in transportation equipment orders remains below the average trend, lagging by 1.4%.  Orders of defense capital goods acted as a drag on the overall report, falling by 6.9%, a significant divergence versus the average increase of 14.1%.  If President Trump gets his way, this category would not be expected to show a below average change for long.  Overall, despite the gyrations amongst the categories, manufacturers appear to have established a solid footing coming into 2017, setting up well for a strong conclusion to the first quarter in March.

Turning to the housing market, a report on new home sales released on Thursday contradicted the weakness suggested by a recent report on existing home sales.  Sales of new homes increased 6.1% in February to a seasonally adjusted annual rate of 592,000, well ahead of estimates calling for a rate of 565,000.  Stripping out the seasonal adjustments, sales actually increased by 19.5%, well above the average increase of 12.7% for the second month of the year.  Sales of completed homes continues to outpace the seasonal average on the year, while homes not started or under construction lag the historical norm.  This is somewhat consistent with the other reports on the housing market that suggest future activity is under threat due to a lag in the rate of permits being issued.  The result is likely to impact the months of supply in future periods unless further inventory can be brought online to satisfy demand or, conversely, rising mortgage rates cool the demand side before supply dwindles too much.  Prices have been the beneficiary of the supply crunch, rising above average according to the recent report on existing home sales.

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.21.




Seasonal charts of companies reporting earnings today:



S&P 500 Index



TSE Composite