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Stock Market Outlook for July 22, 2013

Todays_Markets

Upcoming US Events for Today:

  1. Chicago Fed National Activity Index for June will be released at 8:30am.   The market expects 0.03 versus -0.30 previous.
  2. Existing Home Sales for June will be released at 10:00am.   The market expects 5.27M versus 5.18M previous.

 

Upcoming International Events for Today:

  • No Significant Events Scheduled

 

Recap of Friday’s Economic Events:

Event Actual Forecast Previous
JPY All Industry Activity Index (MoM) 1.10% 1.20% 0.10%
JPY Leading Index 110.7   110.5
JPY Coincident Index 106   105.9
EUR German Producer Prices (MoM) 0.00% -0.10% -0.30%
EUR German Producer Prices (YoY) 0.60% 0.60% 0.20%
CAD Consumer Price Index 123   123
CAD Consumer Price Index (MoM) 0.00% 0.10% 0.20%
CAD Consumer Price Index (YoY) 1.20% 1.20% 0.70%
CAD Bank Canada Consumer Price Index Core (MoM) -0.20% -0.20% 0.20%
CAD Bank Canada Consumer Price Index Core (YoY) 1.30% 1.30% 1.10%
CAD Consumer Price Index s.a. (MoM) 0.30% 0.40% 0.20%

 

The Markets

Equity markets were mixed on Friday as optimistic earnings results from General Electric and Honeywell were offset by disappointing results from Google and Microsoft.   The S&P 500 ended with a marginal gain, while the Technology heavy Nasdaq Composite finished the session firmly in the red.   The relative performance of the Technology sector took a significant hit last week, posting firm losses in a rising stock market tape.   From a seasonal perspective, this is not typical as the sector tends to outperform the market, on average, between June and August, surpassing the S&P 500 Index by approximately 3.5%.   The Technology SPDR ETF (XLK) is showing resistance around the 52-week high, just above $32; momentum indicators are showing signs of curling lower.   Technology represents the largest weight within the S&P 500 Index, therefore weakness in the sector could have broad market implications.   Technology titan Apple reports earnings on Tuesday.

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Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500

Overall, equity market activity remains rather strong: a number of equity benchmarks are trading at all-time highs, market breadth remains positive, and investors continue to accumulate risk assets.   Still, a peak, at least in the short-term, must be expected as momentum indicators show early signs of rolling over.   Equity markets have posted strong gains since the end of June, precisely during the period when stocks seasonally climb coming into earnings season.   With the earnings anticipation period now concluded, equity market returns are now more random; volatility seasonally increases between now and October.

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VOLATILITY S&P 500 Index (^VIX) Seasonal Chart

Turning to another asset class, the commodity market is showing signs of changing trend.   The CRB Commodity Index has been within a steady downtrend ranging back to September of last year, underperforming the equity market in the process.   Over the last couple of weeks the benchmark broke above the long-term declining trend line, fuelled by strength in Oil and Gold.   Commodity strength during the summer months is generally mixed, however, Gold and Oil typically produce strong returns; the price of oil typically benefits from the summer driving season and gold typically gains as a result of increased buying demand prior to the Indian wedding season and Christmas.   Oil is well underway to achieving strong seasonal gains, breaking above significant resistance around $99 over recent weeks.  Energy stocks, particularly within the Oil Exploration and Production industry, have been showing signs of benefitting over recent days, as is typical.   Energy stocks and crude oil conclude positive tendencies at the start of October.

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Crude Oil Futures (CL) Seasonal Chart

Oil & Gas Exploration & Production Industry Seasonal Chart

Gold, on the other hand, continues to maintain a long-term negative profile, despite recent strength.   The metal has charted a series of lower-highs and lower-lows since the end of the last period of seasonal strength in 2012, finding resistance near its 50-day moving average on a number of occasions.   Gold is approaching this level of resistance, once again, as the period of seasonal strength for Gold and gold equities gets set to begin.   The commodity and its related equities typically gain between July 27th and the beginning of October, coincidentally when stock market volatility reaches a peak.   Looking at the weekly chart of gold bullion, the commodity has recently become  the most oversold since 1997; a corrective oversold bounce may benefit the price of gold throughout the period of seasonal strength ahead.   However, beyond the seasonal bounce, further declines in the price of the metal seem likely, comparable to the late 90’s when the metal lost almost half of its value while equity markets flourished.   In absence of the seasonal demand at this time of year, two influences benefit the commodity, inflation and volatility, neither of which are a significant factor on the upside, as of yet.

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Gold Futures (GC) Seasonal Chart

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Seasonal charts of companies reporting earnings today:

BOH GCI HAL HAS KMB LII MCD SIX CNI CR NFLX RCII TXN WERN ZION

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.79.   The bullish trend in sentiment remains intact, however, the relative increase in call volumes (versus puts) is flirting with complacency, which puts the market at risk of shock events.

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S&P 500 Index

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TSE Composite

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Horizons Seasonal Rotation ETF (TSX:HAC)

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2013 Year-to-Date Since Inception (Nov 19, 2009)
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