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Stock Market Outlook for January 18, 2018

Cold winter weather providing a boost to industrial production.

 

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:

TETRA Technologies (NYSE:TTI) Seasonal Chart

TETRA Technologies (NYSE:TTI) Seasonal Chart

Revlon Inc Cl A (NYSE:REV) Seasonal Chart

Revlon Inc Cl A (NYSE:REV) Seasonal Chart

Bellatrix Exploration Ltd (TSE:BXE) Seasonal Chart

Bellatrix Exploration Ltd (TSE:BXE) Seasonal Chart

Finish Line, Inc. (NASD:FINL) Seasonal Chart

Finish Line, Inc. (NASD:FINL) Seasonal Chart

Saputo Inc.  (TSE:SAP) Seasonal Chart

Saputo Inc. (TSE:SAP) Seasonal Chart

PHH Corp. (NYSE:PHH) Seasonal Chart

PHH Corp. (NYSE:PHH) Seasonal Chart

CONSOL Energy Inc.  (NYSE:CNX) Seasonal Chart

CONSOL Energy Inc. (NYSE:CNX) Seasonal Chart

Frontier Communications Corp  (NYSE:FTR) Seasonal Chart

Frontier Communications Corp (NYSE:FTR) Seasonal Chart

The Gap Inc.  (NYSE:GPS) Seasonal Chart

The Gap Inc. (NYSE:GPS) Seasonal Chart

Netflix, Inc. (NASDAQ:NFLX) Seasonal Chart

Netflix, Inc. (NASDAQ:NFLX) Seasonal Chart

Canadian Pacific Railway Limited (USA) (NYSE:CP) Seasonal Chart

Canadian Pacific Railway Limited (USA) (NYSE:CP) Seasonal Chart

NuVista Energy Ltd. (TSE:NVA) Seasonal Chart

NuVista Energy Ltd. (TSE:NVA) Seasonal Chart

Wells Fargo & Company  (NYSE:WFC) Seasonal Chart

Wells Fargo & Company (NYSE:WFC) Seasonal Chart

Marriott International, Inc.  (NYSE:MAR) Seasonal Chart

Marriott International, Inc. (NYSE:MAR) Seasonal Chart

Patterson-UTI Energy, Inc.  (NASDAQ:PTEN) Seasonal Chart

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Seasonal Chart

Avon Products, Inc.  (NYSE:AVP) Seasonal Chart

Avon Products, Inc. (NYSE:AVP) Seasonal Chart

Royal Bank of Canada  (TSE:RY) Seasonal Chart

Royal Bank of Canada (TSE:RY) Seasonal Chart

Delphi Energy (TSE:DEE) Seasonal Chart

Delphi Energy (TSE:DEE) Seasonal Chart

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

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

 

 

The Markets

Stocks were back to rally mode on Wednesday as investors shook off jitters that entered the market during Tuesday’s session.  Better than expected earnings and the ongoing release of announcements detailing how companies will use the recently enacted tax breaks continue to make it difficult for equity indices to pull back to any significant degree.  The S&P 500 Index gained just over nine-tenths of one percent, closing above the psychologically important 2800 level.  The benchmark fell short of exceeding Tuesday’s all-time high watermark at 2807.54.  The same is true of the Nasdaq Composite and Russell 2000, which both charted solid gains, but were unable to overtake the previous day’s highs.  Outside reversal candlesticks on the charts of the energy, industrials, and materials sector benchmarks following Tuesday’s session gave rise to concerns that stocks may be near an important short-term peak. While the lack of follow through on Wednesday does take away some of the significance of the reversal, the near-term risks remain clear, which is the degree to which stocks are stretched above significant moving averages.  Stocks and sectors have charted a parabolic rise since the tax legislation was passed and early signs of buying exhaustion are now becoming apparent.  Keep in mind that the longer-term path is that of higher-highs and higher-lows and, until that changes, long and intermediate-term investors are likely to continue to lean on the buy button until more definitive signs of resistance are confirmed.  Long-term trend channel resistance on the S&P 500 Index remains around 3000.

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Perhaps the only sector to meaningfully exceed the previous session’s high on Wednesday was consumer staples, which gained 1.17%, according to the S&P 500 sector benchmark.  Despite underperforming over the past month, the sector has essentially been consolidating in a pattern that resembles that of a bull flag, suggesting further buyers may materialize should this bout of risk aversion in the market continue.  US Dollar strength that is average in the first couple of months of the year typically takes a toll on this sector that is largely composed of multinational companies.  But despite the domestic currency diverging from its seasonal norms, this defensive sector has still failed to attract buyers as investor lean towards the more cyclical areas of the market.  Given that it has sat out of the market momentum in recent weeks, the sector may be well positioned for a mean reversion trade over the short-term.  Over the past 20 years, the sector has shown gains in 70% of Februarys and outperforming the market only half of the time.  Sector tendencies are very stock specific and largely revolve around when each company reports earnings for the quarter just past.  Broader strength benefits the sector more towards the spring amidst the average peak to the period of seasonal strength for cyclical stocks.

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Consumer Staples Sector Seasonal Chart

STAPLES Relative to the S&P 500
STAPLES Relative to the S&P 500

STAPLES Monthly Averages

On the economic front, a report on industrial production showed abnormal strength in December as utilities ramped up activity amidst the colder winter weather.  The headline print showed that production advanced by 0.9% last month, surpassing analyst estimates calling for a 0.4% increase.  Manufacturing, meanwhile, showed a 0.1% gain, short of the 0.3% forecast.  Stripping out the seasonal adjustments, industrial production actually increased by a similar 0.9%, a significant divergence compared to the 0.6% decline that is normal for this last month of the year.  The end of year surge helped to fuel a calendar year gain of 3.6%, firmly above the average change of 2.4%.  This is the best calendar year performance for industrial production since 2010.  Below average temperatures in the US northeast gave rise to a 19.4% jump in electric and gas production as Americans heated their homes over the holidays.  The result is 5.7% above average for the month of December, bringing an end to the string of underperforming results in this category throughout the year.  Gas and electric utility production closed the year higher by 1.7%, inline with seasonal norms.  This isn’t the only category that showed a convergence with the seasonal average trend to close the year.  Manufacturing and consumer goods production both closed the gap versus the actual and average trends to finish the year inline with seasonal norms.  But the dominant story throughout the year was the rise in mining activity as oil and gas  production ramped up to the highest levels on record.  Domestic producers of oil continue to encroach on the share of the market previously held by OPEC as this multinational organization seeks to bring stockpiles back inline with normal levels.  If there is a black swan to look out for with regards to industrial production in 2018, it may pertain to the pace at which US producers are pumping out the energy commodity, threatening to once again destabilize supplies going into the spring.  Seasonally, stockpiles of crude oil tend to rise between now and mid-May.

Industrial Production: Total Seasonal Chart

Monthly Industrial Production: Total Data

Industrial Production: Total Seasonal Chart

Industrial Production: Manufacturing Seasonal Chart Industrial Production: Consumer Goods Seasonal Chart Industrial Production: Equipment: Business equipment Seasonal Chart Industrial Production: Nonindustrial supplies Seasonal Chart Industrial Production: Materials Seasonal Chart Industrial Production: Mining Seasonal Chart Industrial Production: Mining: Drilling Oil and Gas Wells Seasonal Chart Industrial Production: Mining: Crude Oil Seasonal Chart Industrial Production: Residential Utilities Seasonal Chart Industrial Production: Durable consumer goods Seasonal Chart Industrial Production: Nondurable consumer goods Seasonal Chart Industrial Production: Mining: Gold ore and silver ore mining Seasonal Chart Industrial Production: Mining: Natural gas Seasonal Chart Industrial Production: Electric and gas utilities Seasonal Chart Industrial Production: Utilities: Electric power generation Seasonal Chart Industrial Production: Durable manufacturing: Motor vehicles and parts Seasonal Chart Industrial Production: Nondurable Goods: Clothing Seasonal Chart Industrial Production: Durable manufacturing: Wood product Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.79.

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Sectors and Industries entering their period of seasonal strength:

PHLX Oil Service Sector Seasonal Chart

^OSX Relative to the S&P 500
^OSX Relative to the S&P 500

^OSX Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

American Express Company (AXP) Seasonal Chart Bank Of New York Mellon Corporation (The) (BK) Seasonal Chart BB&T Corporation (BBT) Seasonal Chart Canadian Pacific Railway Limited (CP) Seasonal Chart Commerce Bancshares, Inc. (CBSH) Seasonal Chart  Home BancShares, Inc. (HOMB) Seasonal Chart Independent Bank Corp. (INDB) Seasonal Chart International Business Machines Corporation (IBM) Seasonal Chart J.B. Hunt Transport Services, Inc. (JBHT) Seasonal Chart KeyCorp (KEY) Seasonal Chart M&T Bank Corporation (MTB) Seasonal Chart Mellanox Technologies, Ltd. (MLNX) Seasonal Chart Morgan Stanley (MS) Seasonal Chart People's United Financial, Inc. (PBCT) Seasonal Chart PPG Industries, Inc. (PPG) Seasonal Chart Taiwan Semiconductor Manufacturing Company Ltd. (TSM) Seasonal Chart WNS (Holdings) Limited (WNS) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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