Stock Market Outlook for April 20, 2017
Earlier than average rise in gasoline inventories throwing some turmoil into the price of oil.
**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:
Stocks closed lower on Wednesday as energy stocks weakened amidst a decline in the price of oil. The S&P 500 Index shed around two-tenths of one percent, continuing to struggle beneath a declining 20-day moving average. Short-term support remains at 2322. The Dow Jones Industrial Average closed marginally below its short-term horizontal level of support around 20,400 as shares of IBM weighed following a disappointing earnings report. Calculated downside move upon a break below the descending triangle consolidation patterns on the charts of the two widely followed market gauges is around 2% to 3%, potentially testing levels of support that were charted into the end of 2016.
The news of the day was the significant plunge in the price of oil as investors reacted to the latest inventory report from the Energy Information Administration (EIA). The EIA indicated that stockpiles of oil declined by 1.0 million barrels last week, while gasoline inventories increased by 1.5 million barrels. The result saw the days of supply of oil fall to 32.1, continuing to roll over from the all-time high at 34.2 charted last month. Looking at the seasonal change of US ending stocks of oil, the recent declines has the appearance of an earlier than average peak to the inventory levels of the commodity, which typically hits a high for the year at the beginning of May. The concern in the report remains with the relentless climb in domestic production, which is up by 5.5% year-to-date. This is the second largest year-to-date rise, through the middle of April, in the past 30 years. The market sent the price of oil lower by almost 4% following the report’s release, turning lower from around previous resistance at $54.
Meanwhile, despite the injection to inventories on the gasoline side, both the days of supply and the year-to-date change in ending stocks are both hovering around average levels. Stockpiles of the refined commodity typically hit a short-term low between mid to late April as refiners come back online following maintenance season and production is ramped up with the unofficial start of summer driving season now just over one month away during the Memorial Day weekend. Production of gasoline has essentially flat-lined since the beginning of February, while the level of product supplied, a gauge of demand, is firmly higher. The supply/demand fundamentals should continue to improve as the summer driving period begins amidst the warmer weather. Gasoline production and product supplied typically rise between now and July.
On the economic front, Cass Information Systems released their latest freight index for the month of March, providing a gauge of economic activity in the US. The report indicated that the shipments index rose by 0.5% last month, while the expenditures benchmark fell by 1.2%; the average change for each in the third month of the year is an increase of 2.9%. The result has brought the expenditures gauge back inline with the seasonal average trend, while the level of shipments continues to lag this historical norm. It remains unclear the impact of weather on March’s activity, but it is suspected to have dampened some of the activity as the economy attempts to ramp up following the colder winter period. While the lagging trend in the year-to-date change in shipments, which would be expected to have a direct correlation with broader economic activity, does present concern, it may be premature to count out a rebound as we enter the spring months. Yesterday’s report highlighted the lag in industrial production through the first quarter, failing to represent the enthusiasm portrayed in many of the sentiment surveys released during the period. However, the US Dollar can often have a delayed impact on results where strength in the domestic currency can take its toll in the months that follow as export activity is threatened. With strength in the US currency into the end of 2016 followed by a declining trend since the start of 2017, the pressures on export activity may wane should the tend in the domestic currency continue. This would be positive for the freight index into the second quarter. The US Dollar Index is presently battling with long-term trendline support around its 200-day moving average, while a head-and-shoulder topping pattern continues to loom overhead.
Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.74.
Seasonal charts of companies reporting earnings today:
S&P 500 Index