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Stock Market Outlook for January 12, 2018

Cyclical sectors pushing higher as earnings season gets underway.

 

Real Time Economic Calendar provided by Investing.com.

 

*** 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:

Canadian National Rail Co. (NYSE:CNI) Seasonal Chart

Canadian National Rail Co. (NYSE:CNI) Seasonal Chart

Ashford Hospitality Trust Inc. (NYSE:AHT) Seasonal Chart

Ashford Hospitality Trust Inc. (NYSE:AHT) Seasonal Chart

Stein Mart, Inc. (NASD:SMRT) Seasonal Chart

Stein Mart, Inc. (NASD:SMRT) Seasonal Chart

Ruby Tuesday Inc. Ga (NYSE:RT) Seasonal Chart

Ruby Tuesday Inc. Ga (NYSE:RT) Seasonal Chart

Applied Industrial Technologies (NYSE:AIT) Seasonal Chart

Applied Industrial Technologies (NYSE:AIT) Seasonal Chart

SCP Pool Corp. (NASD:POOL) Seasonal Chart

SCP Pool Corp. (NASD:POOL) Seasonal Chart

Oceaneering Intl, Inc. (NYSE:OII) Seasonal Chart

Oceaneering Intl, Inc. (NYSE:OII) Seasonal Chart

Obsidian Energy (TSE:OBE) Seasonal Chart

Obsidian Energy (TSE:OBE) Seasonal Chart

Crew Energy (TSE:CR) Seasonal Chart

Crew Energy (TSE:CR) Seasonal Chart

Canadian Energy Svcs & Tech (TSE:CEU) Seasonal Chart

Canadian Energy Svcs & Tech (TSE:CEU) Seasonal Chart

Total Energy Services (TSE:TOT) Seasonal Chart

Total Energy Services (TSE:TOT) Seasonal Chart

Ascena Retail Group, Inc. (NASD:ASNA) Seasonal Chart

Ascena Retail Group, Inc. (NASD:ASNA) Seasonal Chart

Suncor Energy Inc.  (TSE:SU) Seasonal Chart

Suncor Energy Inc. (TSE:SU) Seasonal Chart

Pembina Pipeline Corp (TSE:PPL) Seasonal Chart

Pembina Pipeline Corp (TSE:PPL) Seasonal Chart

Leggett & Platt, Inc.  (NYSE:LEG) Seasonal Chart

Leggett & Platt, Inc. (NYSE:LEG) Seasonal Chart

Cabot Oil & Gas Corporation  (NYSE:COG) Seasonal Chart

Cabot Oil & Gas Corporation (NYSE:COG) Seasonal Chart

Baytex Energy Trust  (TSE:BTE) Seasonal Chart

Baytex Energy Trust (TSE:BTE) Seasonal Chart

EOG Resources, Inc.  (NYSE:EOG) Seasonal Chart

EOG Resources, Inc. (NYSE:EOG) Seasonal Chart

Weatherford International Plc (NYSE:WFT) Seasonal Chart

Weatherford International Plc (NYSE:WFT) Seasonal Chart

National Bank of Canada  (TSE:NA) Seasonal Chart

National Bank of Canada (TSE:NA) Seasonal Chart

 

 

 

The Markets

Stocks rallied again on Thursday as investors ramped up their cyclical exposure amidst solid economic prospects for the year ahead.  The S&P 500 Index gained seven-tenths of one percent, remaining firmly in overbought territory ahead of a critical test of market valuations with the fourth quarter earnings season unofficially getting underway on Friday.  According to Factset, the estimated earnings growth rate for S&P 500 companies is 10.5% with all eleven sectors expected to show year-over-year gains.  Factset’s earnings valuation metric puts the large-cap index at a 12-month forward P/E of 18.4, following the rise in EPS expectations over the past year.  The trend of EPS expectations will often provide leading indication for the direction of the broad market, therefore the importance of  this indictor cannot be understated.  Given that the trend pertaining EPS expectations remains positive, it would be difficult to see the equity market do anything but follow the same course.

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Risk sentiment was strongly positive through Thursday’s session with the key cyclical sectors recording gains of over one percent.  The S&P 500 Energy Sector ETF (XLE) added over two percent, moving beyond a level of resistance around $75.54.  A head-and-shoulders bottoming pattern projects upside potential to new all-time highs around $100, or a whopping 30% above present levels.  Resistance around the all-time high of 91.98 presents the next major hurdle to watch as we progress into the period of seasonal strength for the sector that peaks around the start of May.

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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

Industrials, Materials, and Consumer Discretionary are similarly strong, outperforming the market and suggesting positive expectations for economic growth ahead.  The move has taken a parabolic shift over the past month, once again leading to questions pertaining to the near-term sustainability of the move.  Long-term rising trendline resistance levels are coming back into focus for each of the ETFs that track these sectors.  Tax reform legislation has very clearly acted as the catalyst to place market benchmarks back on a trend that is more indicative of the early stages of an economic expansion, rather than the later stages as we are now.  Seasonally, these cyclical cornerstones to the broad market peak, on average, around the start of May.

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Industrials Sector Seasonal Chart

INDUSTRIAL Relative to the S&P 500
INDUSTRIAL Relative to the S&P 500

INDUSTRIAL Monthly Averages

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Materials Sector Seasonal Chart

MATERIALS Relative to the S&P 500
MATERIALS Relative to the S&P 500

MATERIALS Monthly Averages

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Consumer Discretionary Sector Seasonal Chart

DISCRETIONARY Relative to the S&P 500
DISCRETIONARY Relative to the S&P 500

DISCRETIONARY Monthly Averages

One of the arguments suggesting that stocks have further to rise is the value that they present relative to bonds.  Treasury bond yields remain around historical lows, making them uncompetitive with stocks.  The spread on the yield of the 10-year treasury note and the S&P 500 Index is testing long-term declining trendline resistance, bouncing in the past year from a rare negative spread.  A break of trendline resistance overhead would suggest a change in the long-term path from that of negative to positive, a pattern that hasn’t been realized since the 1960’s and 1970’s.  This would be further evidence of the end of the bull market in bonds, suggesting higher yields are to be expected as the fixed income market unwinds from the multi-decade run.  While the negative spread between treasury and equity yields has been rare based on the past 60 years of history, prior to the late 1950’s this was the norm as equities garnered much larger distributions that what they do today. Regardless of how it is compared, all appearances suggest that we are in the midst of a major shift in the bond market, something that could act as fuel for other asset classes into the future.

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Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.72.

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Seasonal charts of companies reporting earnings today:

BlackRock, Inc. (BLK) Seasonal Chart Infosys Limited (INFY) Seasonal Chart J P Morgan Chase & Co (JPM) Seasonal Chart PNC Financial Services Group, Inc. (The) (PNC) Seasonal Chart Volt Information Sciences, Inc. (VISI) Seasonal Chart Wells Fargo & Company (WFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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