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Stock Market Outlook for May 16, 2017

Global benchmarks testing declining trendline resistance as buying demand grows.

 

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:

TC Pipelines, LP (NYSE:TCP) Seasonal Chart

TC Pipelines, LP (NYSE:TCP) Seasonal Chart

Westshore Terminals Investment Corp (TSE:WTE) Seasonal Chart

Westshore Terminals Investment Corp (TSE:WTE) Seasonal Chart

 

 

The Markets

Stocks gained on Monday led by the energy sector as news that Russia and Saudi Arabia agreed to extend a production cut until March of 2018 lifted the price of Oil.  The price of West Texas Intermediate Crude gained over 2%, pushing back up towards broken trendline and moving average support around the 200-day moving average.  A bullish MACD crossover is presenting a positive divergence compared with price, suggesting that selling pressures may be waning as the start of the high demand summer driving season quickly approaches.  The S&P 500 Energy sector index is showing a similar positive divergence, despite the peak period of strength for the sector now behind us.  A break above resistance around the declining 50-day moving average would likely “fuel” buying pressures, potentially leading to a rebound in what remains the weakest sector on the year.  Seasonally, the energy sector tends to flatline between now and July.

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Energy Sector Seasonal Chart

ENERGY Relative to the S&P 500
ENERGY Relative to the S&P 500

ENERGY Monthly Averages

With the gain on the session, the S&P 500 Index managed to peak its nose above resistance at 2400, closing above a pivotal level that had constrained price activity for the past few months.  The move holds back a bearish MACD crossover that appeared imminent given last week’s trading activity.  Support remains firm at the rising 20-day moving average.

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Gains on the session were not isolated to US benchmarks.  Global indices closed higher by around a third of a percent, lifting the MSCI World ex-US index to a new 52-week high.  The move puts the benchmark back up against long-term declining trendline resistance, which spans all the way back to the 2007 peak.  One indicator suggests that buying demand continues to improve, implying a breakout may be near.  The relative trend of the MSCI World ex-US benchmark versus the S&P 500 Index has been in decline for nine years, but in recent days that trend has shown signs of breaking as trendline resistance is breached.  This is a significant shift suggesting for the first time in almost a decade that the better opportunities may be in markets outside of the US.  A similar shift is apparent in the Emerging Markets Index, which is also testing trendline resistance.  The seasonal trend of benchmarks overseas is similar to the average trend here at home, flat-lining between May and October.

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On the economic front, a regional report on manufacturing noted some softening in conditions.  The headline print of the Empire State Manufacturing Survey showed a negative result for May, coming in at –1.0 from +5.2 previous.  Expectations were for a rise to +8.0.  Stripping out the seasonal adjustments, the manufacturing gauge actually fell to +11.2 from +15.9 previous.  The average for this time of year is +19.7, based on the past 14 years of data.  Seasonally, manufacturing conditions tend to wane through the second quarter, reaching a significant low in the month of July as factories shut down for a period in the summer.  Weakness in manufacturing conditions tends to act as a drag on material and industrial stocks through the summer months, in turn weighing on broad market indices.  We’ll have more on the state of manufacturing conditions in the US when the monthly report on Industrial Production is released on Tuesday.

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Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.75.

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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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