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Stock Market Outlook for January 11, 2017

Positive momentum divergences on the VIX could be providing a warning signal.

 

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 flat-lined on Tuesday as investors await the start of earnings season.  Energy stocks led the decline, following the price of oil lower for the second day.  Defensive stocks, mainly in the consumer staples and utilities sectors, are attempting another leg lower as investors maintain a risk-on bias.

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Looking at the S&P 500 Index, the large-cap benchmark continues to hover around its 20-day moving average as investors refrain from deviating from this short-term level of support with the uncertainty of earnings ahead.  Short-term resistance around 2275 remains apparent.  Momentum indicators continue to roll over from the highs charted almost a month ago.  Earnings reports, particularly the guidance provided, will be a critical catalyst to the market direction in the weeks ahead.

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While we wait for the direction of the next move in stocks, one indicator is presenting a bit of a warning.  The VIX continues to trade in and out of levels of complacency below 12, an important level in gauging the vulnerability of stocks.  But the cause for concern is more in regards to the momentum indicators of this volatility gauge.  MACD, RSI, and stochastics are all positively diverging from the short-term trend of the benchmark, suggesting that downside pressures are fading, a leading indicator to buying pressures.  The VIX recently charted the lowest level since August 2015, just before the S&P 500 Index moved sharply lower in a late summer swoon.  Seasonally, the VIX typically rises into the last half of January.

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Turning to the commodity market, the price of copper is taking another leg higher, advancing almost 3% during Tuesday’s session and bouncing from its rising 50-day moving average.  Momentum buy signals with respect to MACD, stochastics, and RSI were triggered in recent days.  This follows recent comments regarding Freeport McMoRan bouncing from the neckline of a massive head-and-shoulders bottoming pattern as investors bet on the commodity rebound via the producers.  Seasonally, the price of copper moves higher between December and May. 

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On the economic front, a report on Job openings and labour turnover provided reason to be encouraged about the prospects for employment ahead.  The headline print indicated that openings came in better than expected at 5.522 million; the consensus was for a print of 5.451 million.  Stripping out the seasonal adjustments, openings actually declined by  7.6%, less than half of the average decline for the month of November of –16.1%.  The year-to-date change is sitting just above the average change through the month of November with only one month left in the year to report.  As for quits, an important gauge of confidence amongst employees to find alternative employment, while the level remains below average on the year, the 19.4% decline for November is better than the 21.7% average decline for this second to last month of the year.  The gap versus the average trend has now narrowed to the smallest amount of the year.  The change in the level of hires was also better than average.  While one month does not make a trend, the report was strong across the board, setting the stage for what could be a healthy start to the new year as the market awaits signs of economic strength under a Trump presidency.

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And just briefly on the report for wholesale trade, a lower than average increase in inventories and a better than average change in sales for November remains conducive for the continued contraction in the inventory-to-sales ratio, which posted a multi-year high last January at 1.37.  While sales continue to lag the seasonal norm on the year, wholesalers are doing what they can to keep inventories in check, alleviating capacity within this stage of economic activity.  Seasonally, inventories rise into the new year as sales fall following the holiday season, potentially providing an interesting comparison ahead.

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Wholesale Sales

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Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.89.

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Seasonal charts of companies reporting earnings today:

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S&P 500 Index

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TSE Composite

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