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Stock Market Outlook for May 15, 2017

Auto sales show first ever year-to-date contraction through the month of April.

 

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:

TransCanada Corporation (TSE:TRP) Seasonal Chart

TransCanada Corporation (TSE:TRP) Seasonal Chart

Northland Power Inc. (TSE:NPI) Seasonal Chart

Northland Power Inc. (TSE:NPI) Seasonal Chart

 

 

The Markets

Stocks closed marginally lower on Friday as pain in the retail industry persisted following lacklustre earnings from JC Penney (JCP).  Shares of JCP plunged 14% during the session, dragging the S&P Retail ETF (XRT) lower by 1.82%.  The industry ETF closed below horizontal support around $42.50, as well as its 50-day moving average.  Significant support is apparent around $40, a break of which could see losses of an additional $6, representing the approximate magnitude of the trading range from the past year.

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Looking at the S&P 500 Index, the large-cap index shed 0.35% over the course of last week, retracing the gain accumulated during the week prior.  Resistance remains apparent at 2400, just as support at the rising 20-day moving average remains intact. A break, one way or the other, appears imminent.  Momentum indicators on the daily chart are increasingly showing signs of rolling over with MACD on the verge of triggering a bearish crossover.  If confirmed, a negative divergence, compared with price, would become evident, signalling waning buying pressures as the market stalls at its all-time high.  These revelations come on the day that a bout of risk aversion played out, resulting in a gap higher in treasury prices.  The iShares 7-10 year treasury bond ETF (IEF) jumped by over half of a percent, bouncing firmly from support at its 50-day moving average.  Resistance at the 20 and 200 day moving averages are directly overhead.  The target of the recent breakout from a multi-month trading range between $102.70 and $105.70 points to gap resistance around $108.70, or almost 2.5% above present levels.  Seasonal tendencies for bond prices are positive between May and October.

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On the economic front, a report on retail trade was released before Friday‚Äôs opening bell.  Following a string of disappointing earnings reports from notable retailers in recent days, the US Census Bureau is indicating that retail sales were less than expected in April.  The headline print indicated a month-over-month increase of 0.4%, short of the 0.6% forecast called for by analysts.  Less gas and autos, sales are reported to have increased by 0.3%, still shy of the 0.4% estimate.  Stripping out the seasonal adjustments, total retail trade actually declined by 3.8%, over double the average decline for April of 1.5%.  The year-to-date change has now fallen below average as sales of motor vehicles weigh.  Sales in the motor vehicle category were lower by 8.3% last month, much more than the 4.3% average decline for April.  The year-to-date figures are also very poor, down by 3.4% versus the average increase of 12.7%.  This is the first time in the history of the report that auto sales have shown a year-to-date contraction through the month of April, a period that has historically benefitted from an uptick in demand coming out of the winter months.  As noted in past reports, this is part of a trend away from spring buying and towards end of year purchases when auto dealers provide specials around the Christmas holiday.  Excluding autos, the year-to-date change in retail trade remains above average, easing some concerns that something more systematic is playing out amongst consumer spending.  Sales at furniture, electronics, sporting, apparel, and grocery stores continue to trend above average on the year.  A look at what is perhaps the most discretionary category of the lot, food services and drinking places (aka restaurants), the view is merely an average consumer.  Typically during periods of economic strain, consumers will tighten their spending habits, particularly in the area of restaurant spending, instead opting for eating at home.  With a gain of 1.2% on the year, restaurant spending is about inline with the average change, closing a gap that was apparent in the first quarter.  Spending in this category can be weather dependent, peaking through the summer months during the patio season.  Overall, while the aggregate result certainly gives caution, it is reasonable conclude a middle ground consumer going into the summer period.  May is typically a strong month for the consumer amidst home renovation and gardening projects, following which this segment of the economy typically hits a glide path between June and November.

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Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.85.

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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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