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Stock Market Outlook for July 13, 2017

Bond prices on the move following announcements from two central bank officials.

 

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

Stocks rallied on Wednesday as investors reacted to testimony from Janet Yellen.  The Fed Chair indicated that the central bank would likely start to gradually unwind its balance sheet at the end of this year as it seeks to normalize monetary policy.  The dovish comments had investors buying stocks and bonds, pushing the Dow Jones Industrial Average to a new all-time intraday high.  The financial sector lagged for a second day as lower yields dampened the bullish sentiment pertaining to stocks in this space.  Seasonally, yields typically fall between now and the start of October, resulting in gains for prices over the same timeframe.  The 30-year treasury bond price is presently testing the mid-point of its long-term rising trend channel.

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Meanwhile, north of the border, the bank of Canada took steps to avoid being left behind in this tightening cycle that the US Fed is presently enacting.  Bank of Canada Governor Stephen Poloz announced a quarter-point hike to Canada’s benchmark rate, the first such increase in nearly seven years.  The iShares Canadian Universe Bond Index ETF (XBB) ended close to the flat-line on the day, giving back gains of close to four-tenths of one percent that were recorded just after the opening bell.  The bond ETF recently fulfilled the downside target of a head-and-shoulders topping pattern and now it is attempting to recover from the most oversold level since last December.  Support is becoming apparent at the 200-day moving average, while resistance would be expected around the open gap below $31.50.  Canadian federal bonds follow the same seasonal tendency as those in the US, rising through the peak period of volatility for equity markets between July and October.

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Reaction to the BOC hike was most evident in the action of the Canadian Dollar, which jumped by 1.42% relative to the US Dollar.  The move continues an advance beyond declining trendline resistance that had spanned the past few years.  Upside target of the breakout points to 0.885, or over 12% above present levels.  Seasonally, the Canadian Dollar tends to fall in the back half of the year, retracing gains attributed to the period of strength for oil between February and May.

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Canadian Dollar Forex (CAD) Seasonality

Monthly Seasonal Canadian Dollar Forex (CAD)

The argument to hike rates has been predicated on the strength of economic data in recent months, particularly following June’s employment gain of 45,300, as reported on Friday.  This solidly beat expectations calling for a rise of a mere 5,000 positions.  But the non-seasonally adjusted results were not as upbeat, at least compared to the average change for the month.  Employment increased by 194,300 positions, or a gain of 1.0%, almost half of the average increase for June of 1.7%, based on data from the past 40 years.   The year-to-date change is now below the seasonal average for the first time this year, although improvement versus the trend set in 2016 remains intact. The drag on the aggregate result stems from the below average growth in full-time positions, while the change in part-time positions reverts to an above average position on the year.  This scenario is conducive to keeping gains hourly earnings below average, thereby limiting inflationary pressures in the process.  While one month does not make a trend, June’s data does give slight pause in making an immediate conclusion of a strong economy.  More data, however, is required to suggest that the central bank should refrain from future rate increases.  Employment typically hits the high for the year in the month of July.

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In other news, the Energy Information Administration reported a large draw in oil inventories for the July 4th holiday week.  Stockpiles of the energy commodity fell by 7.6 million barrels last week, the largest one-week draw since September of 2016.  The year-to-date change in ending oil stocks now stands at +3.4%, the smallest rise through the first week of July since 2008.  The result continues to pressure the days of supply of the commodity, down by four-tenths to 29.0, around the lows of the year.  The average for this time of year is 23.1 days.  However, offsetting the positive news pertaining to inventory levels was a sizable jump in domestic production, which now sits at the highs of the year.  Oil stockpiles remain on track to report a calendar year draw, the first such event since 2013, but the perception of increasing domestic production continues to deter investors from becoming too bullish in the future prospects of the commodity.  The price of oil was higher by 1.00% following the report, testing resistance around the declining 50-day moving average.  The price of crude oil futures have gained in 70% of Julys over the past 20 years.

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Crude Oil Futures (CL) Seasonal Chart
FUTURE_CL1 Relative to the S&P 500FUTURE_CL1 Relative to Gold

FUTURE_CL1 Monthly Averages

As for gasoline inventories, the refined product recorded a draw of 1.6 million barrels, reducing the days of supply by five-tenths to 24.3, inline with the seasonal average.  The year-to-date change for gasoline now hovers around the flat-line, below the average trend for the first time this year.  The change in the product supplied continues to trend well above average, thanks to an above average change in the level of vehicle miles travelled.  Strong demand for gasoline through to the Labor Day long weekend typically draws on inventories, taking stockpiles down to the lows of the year.

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Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.71.  The recent volatility in the ratio has pushed the average true range (ATR) to the highest level since the US election, suggesting investor uncertainty pertaining to portfolio positioning.

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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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