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Stock Market Outlook for January 16, 2018

S&P 500 Index stretched over 11% above its 200-day moving average, highest since 2013.

 

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:

Transcontinental Inc. (TSE:TCL.A) Seasonal Chart

Transcontinental Inc. (TSE:TCL.A) Seasonal Chart

Red Lion Hotels Corp. (NYSE:RLH) Seasonal Chart

Red Lion Hotels Corp. (NYSE:RLH) Seasonal Chart

InterContinental Hotels Group PLC (NYSE:IHG) Seasonal Chart

InterContinental Hotels Group PLC (NYSE:IHG) Seasonal Chart

1-800 FLOWERS.COM, Inc. (NASD:FLWS) Seasonal Chart

1-800 FLOWERS.COM, Inc. (NASD:FLWS) Seasonal Chart

Red Robin Gourmet Burgers Inc. (NASD:RRGB) Seasonal Chart

Red Robin Gourmet Burgers Inc. (NASD:RRGB) Seasonal Chart

Gamestop Corp. (NYSE:GME) Seasonal Chart

Gamestop Corp. (NYSE:GME) Seasonal Chart

Aaron (NYSE:AAN) Seasonal Chart

Aaron (NYSE:AAN) Seasonal Chart

Delphi Energy (TSE:DEE) Seasonal Chart

Delphi Energy (TSE:DEE) Seasonal Chart

Advance Auto Parts Inc. (NYSE:AAP) Seasonal Chart

Advance Auto Parts Inc. (NYSE:AAP) Seasonal Chart

J.C. Penney Company, Inc.  (NYSE:JCP) Seasonal Chart

J.C. Penney Company, Inc. (NYSE:JCP) Seasonal Chart

Imax Corp. (NYSE:IMAX) Seasonal Chart

Imax Corp. (NYSE:IMAX) Seasonal Chart

ENSCO International PLC  (NYSE:ESV) Seasonal Chart

ENSCO International PLC (NYSE:ESV) Seasonal Chart

Cabot Corp. (NYSE:CBT) Seasonal Chart

Cabot Corp. (NYSE:CBT) Seasonal Chart

Colgate-Palmolive Company  (NYSE:CL) Seasonal Chart

Colgate-Palmolive Company (NYSE:CL) Seasonal Chart

Phillips 66 (NYSE:PSX) Seasonal Chart

Phillips 66 (NYSE:PSX) Seasonal Chart

Newell Rubbermaid Inc.  (NYSE:NWL) Seasonal Chart

Newell Rubbermaid Inc. (NYSE:NWL) Seasonal Chart

Williams-Sonoma, Inc.  (NYSE:WSM) Seasonal Chart

Williams-Sonoma, Inc. (NYSE:WSM) Seasonal Chart

The Bank of Nova Scotia  (TSE:BNS) Seasonal Chart

The Bank of Nova Scotia (TSE:BNS) Seasonal Chart

Foot Locker, Inc.  (NYSE:FL) Seasonal Chart

Foot Locker, Inc. (NYSE:FL) Seasonal Chart

Anadarko Petroleum Corporation  (NYSE:APC) Seasonal Chart

Anadarko Petroleum Corporation (NYSE:APC) Seasonal Chart

Watsco, Inc. (NYSE:WSO) Seasonal Chart

Watsco, Inc. (NYSE:WSO) Seasonal Chart

Surge Energy Inc (TSE:SGY) Seasonal Chart

Surge Energy Inc (TSE:SGY) Seasonal Chart

 

 

The Markets

Stocks maintained their parabolic ascent on Friday, rallying to a fresh set of all-time highs as investors show their enthusiasm for the earnings season ahead.  The S&P 500 Index added almost seven-tenths of one percent, pushing momentum indicators even further into overbought territory.  In the first two weeks of the year, the large cap benchmark is higher by 4.2%, the best start to a year since 2003.  The street is also comparing the gain to the 7.5% return generated by January 12th of 1987, a year which long-term investors will recall coincided with a similar rally following tax reform only to give it all back in a matter of days in the month of October.  Back then, the benchmark had become stretched by over 18% above its 200-day moving average before the peak was realized in August of that year.  By comparison, the S&P 500 Index is presently 11.5% above this long-term level of variable support.  The last time the benchmark was over 10% above its 200-day moving average was at the end of 2013; a pullback of around 6% in magnitude followed in the month thereafter.  So while the stretched conditions that existed prior to the crash of ‘87 are not yet apparent in today’s market, the lofty levels does make the benchmark vulnerable to a near-term retracement as investors correct imbalances within investment portfolios.  Seasonal tendencies for the broad market are neutral through to mid-February.

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On the economic front, a report on retail trade indicated that sales were in fact pulled away from the December holiday spending period and into the month of November as consumers took advantage of deals surrounding Black Friday.  The headline print showed that retail trade increased by 0.4%, less than half of the previously revised 0.9% increase reported for November.  Forecasts called for a 0.5% rise.  Stripping out the seasonal adjustments, retail trade was higher by 13.1%, short of the 17.4% gain that has been average for this last month of the calendar year.  Despite the below average result for December, the calendar year change was inline with the historical average, higher by 4.1% over the 12-month span.  This is a significant improvement from the below average trend that was evident in the summer as auto sales, in particular, dragged.  Auto sales just managed to tick into positive territory by the end of the year, higher by 0.4% for 2017.  For the auto category, the almost four percent lag versus the seasonal average trend is the worst since 2008 when consumers curbed their purchases of big ticket items amidst the housing crash.  Excluding autos, retail trade was 1.2% above average on the year, benefitting from strength in non-store (online), home furnishings, building materials, electronics, grocery, and gasoline sales.  Sales at restaurants, health, and hobby stores lagged their average trends.  The below average performance in the latter two categories (health and hobby) is somewhat surprising given the severity of this year’s cold and flu season and the trend towards experiences.  Both had been trending above average through the summer, but fell well short of average gains in the final month of the year.  Further data is required to determine if this one month result is just a blip or the start of a new trend.  Overall, despite sluggish results pertaining to the most discretionary items of the report (autos and restaurants), retail sales were solid in 2017, even in the midst of the ongoing shift away from brick and mortar stores.  A greater share of after-tax income in the year ahead given the recent tax cuts should help with the more discretionary items of the report, so this will be something to watch in the coming months to determine the strength of consumer spending, the largest contributor to GDP.

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

Retail Trade: Total Seasonal Chart

Retail Trade: Nonstore Retailers Seasonal Chart Retail Trade: Auto and Other Motor Vehicles Seasonal Chart Retail Trade and Food Services, excluding Auto Seasonal Chart Retail Trade: Furniture and Home Furnishings Stores Seasonal Chart Retail Trade: Building Materials, Garden Equipment and Supplies Dealers Seasonal Chart Retail and Food Services Sales Seasonal Chart Retail Trade: Food and Beverage Stores Seasonal Chart Retail Trade: Electronics and Appliance Stores Seasonal Chart Retail Trade: Health and Personal Care Stores Seasonal Chart Retail Trade: Sporting Goods, Hobby, Book, and Music Stores Seasonal Chart Retail Trade: Miscellaneous Store Retailers Seasonal Chart Retail Trade: General Merchandise Stores Seasonal Chart Retail Trade: Motor Vehicle and Parts Dealers Seasonal Chart Retail Trade: Clothing and Clothing Accessory Stores Seasonal Chart Retail Trade: Gasoline Stations Seasonal Chart Retail Trade: Department Stores (Excluding Leased Departments) Seasonal Chart Retail Trade: Grocery Stores Seasonal Chart Retail Trade: Food Services and Drinking Places Seasonal Chart

Also pertaining to the consumer was a report detailing how much they paid for goods in the final month of the year.  The consumer price index (CPI) is indicated to have increased by 0.1%, inline with the consensus analyst estimate.  Stripping out the seasonal adjustments, CPI for all urban consumers actually fell by 0.1%, better than the 0.2% average decline for the month of December.  For calendar year 2017, the inflation gauge is higher by 2.1%, just short of the 2.2% average calendar year change, based on data from the past 20 years.  This is the sixth consecutive year of below average inflation, reflecting, in part, the low cost of borrowing.  Less food and energy, CPI was almost three-tenths of one percent below the average change.  While price pressures for the consumer are fairly benign, the producers are feeling the strain of higher prices, something that may flow through to the consumer into the year ahead.  Producer Price Index (PPI) for all commodities increased by 4.4% last year, more than double the 2.0% average increase.  Finished goods ran 1.3% above average for calendar year 2017.  Seasonally, inflationary pressures are the strongest in the first half of the year as commodity prices rise amidst the ramp up in manufacturing activity.

Consumer Price Index for All Urban Consumers: All Items Seasonal Chart

Monthly Consumer Price Index for All Urban Consumers: All Items Data

Consumer Price Index for All Urban Consumers: All Items Seasonal Chart

Consumer Price Index for All Urban Consumers: All Items Less Food and Energy Seasonal Chart Producer Price Index for All Commodities Seasonal Chart  Producer Price Index by Commodity for Final Demand: Finished Goods Seasonal Chart  Producer Price Index by Commodity for Final Demand: Finished Goods Less Foods and Energy Seasonal Chart

The rise in pricing pressures is becoming apparent in some key inflation gauges, perhaps most notably the 10-year breakeven inflation rate.  This inflation gauge is testing the neckline of a massive head-and-shoulders bottoming pattern, which suggests an upside target towards the 2004 and 2005 highs around 2.8%.  Greater demand for commodities given the strength in manufacturing and the tax cuts giving the consumer greater discretionary spend are positives for prices into 2018.  This is consistent with the tendency for strong commodity prices in years following the implementation of tax cuts as the value of this asset class catches up to the value of stocks that have priced in the economic benefits of the legislation. 

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Of course, a weaker dollar is also a catalyst to commodity market strength.  The US Dollar index plunged on Friday, breaking below support around 91 and continuing what appears to be a longer-term trend of lower-highs and lower-lows.  Major moving averages are all pointing lower.  Seasonally, the currency tends to rise through the first quarter as money is repatriated from overseas sources.  While this is still thought to be a positive for the currency as companies seek to bring cash back home, it has yet to materialize in the value of the currency.  The prices of metal and energy commodities posted solid gains to end the week, following the average seasonal trend for the first few months of the year.

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U.S. Dollar Index Futures (DX) Seasonal Chart

FUTURE_DX1 Monthly Averages

imageGold Futures (GC) Seasonal Chart

imageSilver Futures (SI) Seasonal Chart

imagePalladium Futures (PA) Seasonal Chart

imageCrude Oil Futures (CL) Seasonal Chart

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.74.

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Seasonal charts of companies reporting earnings today:

ADTRAN, Inc. (ADTN) Seasonal Chart Bank of the Ozarks (OZRK) Seasonal Chart Citigroup Inc. (C) Seasonal Chart Comerica Incorporated (CMA) Seasonal Chart CSX Corporation (CSX) Seasonal Chart FIRST REPUBLIC BANK (FRC) Seasonal Chart IHS Markit Ltd. (INFO) Seasonal Chart Interactive Brokers Group, Inc. (IBKR) Seasonal Chart Pinnacle Financial Partners, Inc. (PNFP) Seasonal Chart Renasant Corporation (RNST) Seasonal Chart UnitedHealth Group Incorporated (UNH) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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