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Stock Market Outlook for January 17, 2018

Outside reversal candlesticks on the charts of the Industrials, Materials, and Energy sector benchmarks.

 

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:

Freeport-McMoRan Copper & Gold Inc.  (NYSE:FCX) Seasonal Chart

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) Seasonal Chart

 

 

The Markets

Stocks closed lower on Tuesday as investors took advantage of the overbought rally to book profits in portfolio positions.  The S&P 500 Index shed around a third of one percent, the largest negative session of the year, so far.  The start of a retracement to correct the substantially overbought conditions of the past couple of weeks may be underway.  Stocks have become significantly stretched above support at major moving averages, charting a path that was effectively unsustainable.  While the market remains in a longer-term trend of higher-highs and higher-lows, a short-term pullback of some magnitude is inevitable.

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While the move in the broad market falls short of qualifying as an outside reversal session, a few sectors did fulfill the definition of this pivotal topping candlestick pattern. The S&P 500 Materials, Industrials, and Energy sector benchmarks initially opened the day higher, above the previous session’s high, but the gains quickly turned to losses as investors sold into the strength.  The sector benchmarks closed below the previous session low, thereby encompassing the previous day’s range.  These candlestick patterns are fairly rare, but when they occur in overbought conditions, such as what we have been seen over recent days, they send an important signal that investors are becoming hesitant in accumulating further positions.  Levels of support at 20 and 50-day moving averages are currently 2% to 6% below present levels.  Seasonally, these three sectors, which often act as a gauge of broader economic strength, tend to trend higher through to the beginning 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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Energy Sector Seasonal Chart

ENERGY Relative to the S&P 500
ENERGY Relative to the S&P 500

ENERGY Monthly Averages

On the economic front, a report on manufacturing conditions in the New York region suggested strength to start the new year.  The headline print indicated that manufacturing conditions declined slightly from the +19.6 read for December to +17.7 for January.  This is the eighth consecutive positive, double-digit print, the longest stretch since 2006.  Stripping out the seasonal adjustments, the general business conditions index jumped to +23.2 from +4.3 previous.  The average level for this time of year is +12.3.  Strength in manufacturing conditions dominated throughout 2017 and they are showing no signs of fading coming into the seasonally strong period that peaks in the spring of each year.  Of course, our stance on this is that the strength in manufacturing activity is fuel for commodity prices in 2018, potentially outperforming stocks.   Seasonally, commodity prices typically rise through early May.

Empire State General Business Conditions Index Seasonal Chart

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Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.69.

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Seasonal charts of companies reporting earnings today:

Alcoa Corporation (AA) Seasonal Chart ASML Holding N.V. (ASML) Seasonal Chart Bank of America Corporation (BAC) Seasonal Chart Boston Private Financial Holdings, Inc. (BPFH) Seasonal Chart Eagle Bancorp, Inc. (EGBN) Seasonal Chart Fastenal Company (FAST) Seasonal Chart Goldman Sachs Group, Inc. (The) (GS) Seasonal Chart Hancock Holding Company (HBHC) Seasonal Chart Kinder Morgan, Inc. (KMI) Seasonal Chart  Plexus Corp. (PLXS) Seasonal Chart PTC Inc. (PTC) Seasonal Chart SLM Corporation (SLM) Seasonal Chart The Charles Schwab Corporation (SCHW) Seasonal Chart U.S. Bancorp (USB) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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