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Stock Market Outlook for February 16, 2017

Health care leads the market to new highs as the sector pushes above an ascending triangle pattern.

 

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

Another day, another set of all-time highs.  Stocks once again closed in uncharted territory as a flood of strong economic data kept investors pushing the “buy” button.  Wednesday’s leadership rotated between financial and health care stocks as fund managers attempted to find value in this overbought market.  The S&P 500 Health Care Sector Index continues to push above an ascending triangle pattern, the calculated upside target of which points to 900, or another 5.8% above present levels.  The sector is presently the most overbought since mid-2014, according to the Relative Strength Index (RSI).  Previous resistance at 830 would now be expected to act as support.  Seasonally, the health care sector tends to peak relative to the S&P 500 Index in late February, underperforming, on average, through March and April.

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Healthcare Sector Seasonal Chart

HEALTHCARE Relative to the S&P 500
HEALTHCARE Relative to the S&P 500

HEALTHCARE Monthly Averages

On the economic front, a report on retail trade showed healthy activity to start the year.  The headline print indicated that retail sales increased by 0.4% in January, above the forecast calling for a gain of 0.1%.  Less the more volatile gas and autos, sales were higher by 0.7%, also above forecasts calling for a gain of 0.3%.  Stripping out the seasonal adjustments, total retail trade was lower by 23.9%, slightly more than the average decline for the first month of the year of 23.2%.  Excluding autos, retail sales were lower by 23.8%, better than the average decline of 25.3%.  Obviously the weakness was centered in auto sales, which for the eighth consecutive year showed a below average change in the month of January as sales of the big ticket item continuously get sucked into the month of December as consumers take advantage of holiday deals.  This is an ongoing shift in the seasonal pattern, which has tended to distort the pattern throughout the calendar year.  Sales tick higher again leading into the spring, supporting auto stocks between March and May.  Looking further through the components of the report, an above average change in non-store, health, sporting, electronics, apparel, and general merchandise retailers was offset by a weaker than average change in furnishings, building materials, and food services and drinking places, essentially the most discretionary of the retail constituents.  While consumers were willing to spend, they appeared to hold off on some of the more non-essential elements as they relaxed during this post-holiday period.  Retail spending tends to ramp up gradually between February and May, giving lift to retail stocks in the process.  The SPDR S&P Retail ETF (XRT) continues to push above a short-term declining trendline that was broken in recent days.

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Retail Industry Seasonal Chart
S5RETL Index Relative to the S&P 500S5RETL Index Relative to the Sector

S5RETL Index Monthly Averages

Turning to the report on industrial production, while the headline print did show a disappointing result, the details of the report were fairly mixed.  The seasonally adjusted headline indicated that production declined by 0.3% in January, firmly below the consensus estimate calling for no change (0.0%).  Manufacturing activity was inline with the consensus forecast, higher by 0.2%.  Stripping out the seasonal adjustments, total industrial production was actually higher by 0.1%, inline with the average change for the month of January; manufacturing was lower by 0.2%, firmly above the average change of -0.7%.  Weakness in utility production acted as a drag as temperatures in the US north-east hovered above average for the month, limiting demand for heating purposes.  Consumer goods were also an area of weakness, split between above average production of durable goods and below average production of non-durable goods; weakness in the production of clothing is culprit for the latter.  Manufacturing continues to be an area to monitor, particularly under the new US administration, as this segment of the economy continues to recover from the manufacturing recession of the past couple of years.

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Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.84.

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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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