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Stock Market Outlook for October 12, 2017

Outlook for the period of seasonal strength in the retail industry.

 

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:

Shaw Communications Inc. (USA) (NYSE:SJR) Seasonal Chart

Shaw Communications Inc. (USA) (NYSE:SJR) Seasonal Chart

 

 

The Markets

Stocks inched higher on Wednesday with benchmarks closing, once again, at new all-time highs.  The S&P 500 added almost two-tenths of one percent, showing little influence from the FOMC meeting minutes released intraday.  However, sitting out of the broad market strength was the retail industry as news from Coach and Sears sent share prices sharply lower.  The Retail ETF (XRT) shed 1.37%, trading back to an intermediate level of support around its 50-day moving average.  There are a number of interpretations of the technical setups that could leave the bulls and bears battling for control of the retail industry for some time.  First, on the bullish side, the retail ETF continues to hold above the declining trend channel that was broken in the past month.  The ETF tested the upper limit of this declining trend channel at the lows of Wednesday’s session, suggesting support on an intermediate scale.  On a long-term basis, a couple of head-and-shoulder setups suggest significant downside risks.  The shorter of the bearish setups was recorded between mid-2016 and mid-2017, the neckline to which was broken this past summer.  That neckline was recently tested as resistance, from which the declines over the past couple of sessions were derived. The longer-term topping pattern spans the past few years with neckline support apparent around $37.  A break of this long-term level of horizontal support leaves few levels of significance all the way down to $30.  Seasonally, retail stocks benefit from a period of seasonal strength through the next couple of months, gaining in 70% of Octobers and 80% of Novembers.  The catalyst is strength in retail sales into the end of year holiday season; stock prices tend to peak around the big Black Friday spending event at the end of November.  Further insight to the state of the consumer will be obtained this Friday with the results of retail trade for September.  Thus far, retail trade has been lagging its seasonal norm through the month of August as some of the most discretionary elements in the report drag on the aggregate result.  Recent hurricanes may have actually been a positive for this segment of the economy, at least temporarily, as consumers stockpiled goods ahead of the event and replaced goods following.  Sales of new vehicles in September are indicated to have gained by 2.6%, non-seasonally adjusted, a significant divergence from the 11.8% decline that is average for September.  As a result, retail trade for September is expected to show a 1.8% gain, one of the largest monthly increases in recent history.  Digestion of this Friday’s report could be pivotal for the seasonal trade in the retail industry ahead.  From a technical perspective, the levels of support and resistance are fairly evenly matched, providing little bias until one outweighs the other.

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Retail Industry Seasonal Chart
S5RETL Index Relative to the S&P 500S5RETL Index Relative to the Sector

S5RETL Index Monthly Averages

Retail Trade: Total Seasonal Chart

Total Vehicle Sales Seasonal Chart

On the economic front, a report on job openings continued to suggest that employment opportunities remain plentiful in the economy.  The headline print for the August Job Openings and Labour Turnover survey indicated that openings held above six million for the third straight month, the highest levels in the history of the report.  The precise result was 6.082 million, which is down slightly from July’s print of 6.14 million, a net change of 0.9%.  Analysts had forecasted a slight rise to 6.16 million.  Stripping out the seasonal adjustments, job openings actually fell by 3.6%, which is better than the average decline for August of 5.5%.  The year-to-date change in openings is back inline with the seasonal average trend, higher through August by 21.2%.  Hires, meanwhile, were essentially unchanged in August, higher by a mere 0.3%, inline with the average change for this summer month.  Hiring in the manufacturing industry has propelled the year-to-date change above the average trend in recent months, the result of strength in durable goods production alleviating the weakness that is commonly realized through the slower summer period.  While openings and hires suggest a healthy labour market, the year-to-date change in quits suggests that employees still have a confidence problem.  Typically when jobs are plentiful and the economy is expected to perform well, employees will transition to other opportunities, quitting their present position in the process.  Through the month of August, the year-to-date change in quits is running around 10% below average, a pace more akin to periods of economic strain, such as the years surrounding a recession.  We know that retail sales have been under pressure and that a sizable share of open positions seek skilled applicants, resulting in the present structural unemployment that may take a long time to resolve itself.  This, in turn, is constraining the level of quits and keeping the level of openings elevated, a trend that may quite simply persist into the next recession, whenever that turns out to be.  Seasonally, the level of quits tends to chart a high for the year in August, then falls sharply into the end of the year as employees become reluctant to quit ahead of the end of year holidays.

Job Openings: Total Nonfarm Seasonal Chart

Monthly Job Openings: Total Nonfarm Data

Job Openings: Total Nonfarm Seasonal Chart

Quits: Total Nonfarm Seasonal Chart Hires: Total Nonfarm Seasonal Chart Layoffs and Discharges: Total Nonfarm Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.90.

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Sectors and Industries entering their period of seasonal strength:

Telecommunications Sector Seasonal Chart

TELECOMMUNICATIONS Relative to the S&P 500
TELECOMMUNICATIONS Relative to the S&P 500

TELECOMMUNICATIONS Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Citigroup Inc. (C) Seasonal Chart Domino's Pizza Inc (DPZ) Seasonal Chart  J P Morgan Chase & Co (JPM) Seasonal Chart Lindsay Corporation (LNN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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