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Stock Market Outlook for June 12, 2017

Technology sector benchmark reverses gains after it charts first all-time high in 17 years.

 

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:

Amgen, Inc.  (NASDAQ:AMGN) Seasonal Chart

Amgen, Inc. (NASDAQ:AMGN) Seasonal Chart

 

 

The Markets

Massive rotation saw major benchmarks in the US end on either side of the flat-line on Friday.  The S&P 500 Index closed marginally lower by 0.08% after touching an all-time high intraday. But the disparity between the Dow and Nasdaq emphasizes the magnitude of the shift. The Dow Jones Industrial Average ended the session at all-time highs, higher by 0.42%, while the Nasdaq Composite shed 1.80%, pressured lower by the Technology sector.  This is the largest negative reversal in the tech heavy benchmark since March 21 of this year when the index fell by a similar margin in one session.  Support on the Nasdaq remains intact, for now, at the rising 20-day moving average (6189.69).  Momentum indicators are rolling over with the 14-day RSI and MACD triggering “Sell” signals.  Seasonally, the Nasdaq Composite has posted gains, on average, in June and July, reaching an important peak from an relative trend perspective in the middle of July.

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NASDAQ Composite Seasonal Chart

^IXIC Relative to the S&P 500
^IXIC Relative to the S&P 500

^IXIC Monthly Averages

As investors rotated out of Technology, resulting in a drawdown in the S&P 500 Technology Sector Index by 2.73%, they rotated into financials,fuelling a breakout in the S&P 500 Financial Sector Index above the previous intermediate-term trading range.  The breakout in the financial benchmark projects a move towards 420, back to the highs of the year as the Trump trade struggles to gain new life.  As mentioned in the previous day’s report, bullish crossovers amongst a number of momentum indicators were realized in recent days, jump starting the move above previous resistance around the 50-day moving average.  Seasonally, June is typically one of the weakest months of the year for the financial benchmark, resulting in a loss of 1.5%, on average, over the period with positive results recorded only 40% of the time.

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Financial Sector Seasonal Chart

FINANCIAL Relative to the S&P 500
FINANCIAL Relative to the S&P 500

FINANCIAL Monthly Averages

As for the fuel of the intraday reversal in Technology, the sector benchmark closed sharply lower on the same day that a new all-time high was charted for the first time in over 17 years.  The benchmark hit a high of 987.36, marginally exceeding the March 2000 peak of 987.07.  It was previously noted on this site that important targets, such as the tech bubble peak, tend to act as magnets on the way up, drawing prices higher until the target is fulfilled.  However, once the target is reached, buying momentum will often fade. Typically the phenomena doesn’t happen as quickly as what was realized on Friday, but with demand for assets in other areas of the market, such as financials, and a sector that has quickly become overweight in the portfolios of many investors, traders are not wasting any time.  Recall, June is a very rotational month that will often see the rebalancing of portfolios ahead of the close of the quarter and first half of the year, requiring investment managers to sell the winners and buy the losers in order to bring allocations back inline with investment policy statement guidelines.  Further reallocations are expected in the weeks ahead.  The technology benchmark has quickly realized negative momentum divergences with respect to the 14-day RSI, Stochastics, and MACD, which are all triggering “Sell” signals.  Despite stating the obvious, this negative divergence versus price is indicative of waning buying pressures as investors look to book profits in what has been the hottest sector of the year.  The negative shift is also becoming apparent precisely at the upper limit of the rising trend channel that has spanned the past six months.  Trend channel support is directly below around 940.  Technology represents the largest sector constituent in many benchmarks, therefore its influence on the broad market cannot be discounted.

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Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500
TECHNOLOGY Relative to the S&P 500

TECHNOLOGY Monthly Averages

Elsewhere, the British Pound plunged 1.66% following the election shock in the UK, an upset for British Prime Minister Theresa May.  The currency moved back to previous resistance at 1.27 (vs the US Dollar), now testing the 200-day moving average as a potential level of support for the first time since mid-2015.  Momentum indicators have been positively diverging from price for the past year, suggesting waning selling pressures and leading to the recent breakout above the intermediate trading range.  A reverse head-and-shoulders pattern that remains intact on the chart of the British currency has an unfulfilled upside target of around 1.35, back to the short-term high set last September.  Seasonally, while the month of June tends to produce positive results for the currency (higher 65% of the time averaging a gain of 0.5%), a significant peak in the seasonal trend is often realized mid-month, resulting in losses, on average through to November.

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British Pound Forex (GBP) Seasonality

Monthly Seasonal British Pound Forex (GBP)

On the economic front, a report on Wholesale Trade was released during Friday’s session.  The headline print indicated that wholesale sales fell by 0.4%, while inventories fell by 0.5%, missing estimates calling for a 0.3% decline.  Stripping out the seasonal adjustments, sales actually fell by 9.3% and inventories dropped by 1.1%, both falling much more than the average change for April of –2.9% and +0.1%, respectively.  The year-to-date trend for both sales and inventories is now in contraction territory on the year, well below the seasonal average that calls for an expansion into the spring.  Turning to the reports constituents on the sales side, while durable good manufacturing has been a bright spot this year, the wholesale sales of these goods is lagging its historical average trend, down by 6.3% versus the average gain of 2.1% through the end of April.  Weakness in auto sales accounts for a large chunk of the downfall in the durable goods category, but also a rare April decline in lumber and other construction materials at the height of the spring homebuilding and renovation season does not help.  Non-durable goods sales are similarly weak with notable declines recorded in drug, apparel, farm product, and chemical sales. One of the few components of the report that continues to hold its above average position on the year is grocery and related product sales, which is higher through the first four months of the year by 1.6%.  The average change in grocery sales through April is 1.1%.  Overall, the report caps off what we know was an exceptionally weak month for economic data with most reports missing analyst estimates.  As mentioned in a previous report, should data not improve through the end of the quarter, accounting for the months of May and June, it is hard to see the broader equity market maintain the strength that it has been showing in recent months as investors bet on the economic benefits expected under the Trump administration.

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North of the border, Statistics Canada released their latest view of employment in the country.  The headline print for May’s Labour Force Survey indicated that 54,500 jobs were added last month, much more than the consensus estimate calling for a gain of 15,000.  The unemployment rate, meanwhile, remained unchanged at 6.6%.  Stripping out the seasonal adjustments, employment is estimated to have increased by 478,000, or an increase of 2.6%, inline with the average increase for the month, based on data from the past 40 years.  Year-to-date, employment in Canada is higher by 2.4%, also inline with the historical norm.  Strength remains apparent behind the aggregate result.  The year-to-date change in full-time employment continues to hover above its seasonal average, while part-time employment is positioned below.  The year-to-date change in the level of unemployment is also below its seasonal average, as is the growth in the labour force.  Each of these are characteristics of a tightening labour market as economic activity continues to support growth.  The Canadian Dollar was higher by nearly half of one percent following the release, finding support around a 50-day moving average that continues to point lower.

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Canadian Dollar Forex (CAD) Seasonality

Monthly Seasonal Canadian Dollar Forex (CAD)

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.06.

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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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