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Stock Market Outlook for January 19, 2018

S&P 500 Index at a short-term make-or-break point as government shutdown deadline looms.

 

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:

  • No stocks identified for today

 

 

The Markets

Stocks closed marginally lower on Thursday, seemingly unable to surpass the highs that opened the week.  The S&P 500 Index shed less that two-tenths of one percent as short-term resistance just above 2800 becomes apparent.  Momentum indicators on the hourly chart are showing signs of rolling over as investors await the outcome of a spending bill to keep the government open past the Friday deadline.  Interest rate sensitive sectors remain the market laggards as intermediate-term interest rates move back to the highs charted in the first quarter of last year.  A massive head-and-shoulders bottoming pattern on the chart of the yield of the 10-year treasury note projects upside potential to around 3.8% should resistance around 2.6% break.  A longer-term double-bottom pattern around 1.4% projects even further upside.

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But as stocks remain supported around all-time highs and treasury yields rise, yield spreads are falling to multi-year lows.  The spread of treasury 10’s over 2’s remains under pressure at 0.51%, the lowest since the last recession.  Treasury 30’s over 10’s is now down to around a quarter of one percent, inching closer to the point of becoming inverted.  Inverted yield curves have typically preceded economic recessions as market sentiment sours on the longer-term prospects for the economy.  Bond prices have continued to fall since peaking last summer, but the narrowing of the spread suggests that demand remains firm at the longer end of the curve, even as prices fall and the fed progresses along its tightening cycle.  The long-term treasury ETF (TLT) is just now testing its rising 200-day moving average, a significant test that the intermediate treasury bond ETF (IEF) failed at one month ago.  Treasury prices seasonally weaken through the first four months of the year, resulting in higher yields over the same timeframe.

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On the economic front, housing starts are indicated to have fallen sharply in December as the rebuilding effort in the south following recent hurricanes took a pause.  The headline print indicates that starts fell by 8.2% to a seasonally adjusted annual rate of 1.192 million.  The consensus estimate was for a decline of 1.5% to 1.28 million.  Stripping out the seasonal adjustments, starts actually fell by 18.1% last month, well below the 14.5% average decline for this last month of the year.  Weakness in the south appears to be leading the decline, down by 20.5%, giving up the gains that followed the post hurricane rebuild.  While limitations surrounding the cold winter weather in the northeast would have been an obvious strain, it is more difficult to pin the weakness in both the south and west on weather related factors where temperatures were around seasonal norms. Permits were similarly weak, falling by 3.9%, more than double the 1.6% average decline for December.  The report wasn’t all negative, however.  Completions were quite strong in the month, rising by 16.1% to conclude the year 7.8% above the average calendar-year change.  The average gain in completions for the month of December is 9.8%.  And while permits suggested weakness in future starts, the level of housing units authorized but not started was higher by 3.5% in December and 10.1% on the year, a significant improvement from the trend set during the year prior.  We’ll obtain insight to the demand side of the equation this time next week when the report on new home sales for December is released, but the trend on the supply side is suggestive of a housing market that is cooling as peak housing market activity slowly fades into the rear-view mirror.

Housing Starts Seasonal Chart

Monthly Housing Starts Data

Housing Starts Seasonal Chart

Housing Starts: Northeast Region Seasonal Chart Housing Starts: Midwest Region Seasonal Chart Housing Starts: South Region Seasonal Chart Housing Starts: West Region Seasonal Chart Building Permits Seasonal Chart Housing Units Authorized, But Not Started Seasonal Chart Housing Units Completed Seasonal Chart

Turning to the state of manufacturing in the US, a driving force of the economy over the past year, the Philadelphia Fed  is indicating that conditions remain robust coming into 2018 with its key survey gauge showing +22.2 for January.  The consensus estimate was for a print of +25.0.  Stripping out the seasonal adjustments, the level was actually +19.4, falling marginally from the +19.7 reported previous.  The average level for this time of year is +4.9.  Manufacturing activity typically ramps up through the end of winter and into spring, giving rise to stocks and commodities exposed to this area of the economy.

Philadelphia Manufacturing Business Outlook Survey Seasonal Chart

Flipping to the weekly release of petroleum inventories in the US, the EIA is reporting that oil stockpiles fell by 6.9 million barrels last week, while gasoline inventories rose by 3.6 million barrels.  The result continues to put pressure on the days of supply of oil, which is down another third of a day to 23.9.  The level is now just over two days above average as a balanced oil market comes into view.  The rebalancing of the oil market, however, is coming at the expense of a slight unbalancing in the gasoline market, which has seen the days of supply jump by another full day to 27.1, inline with the level seen at this time last year.  The average level of days of supply through mid-January is 25.7.  Product supplied of the refined commodity remains elevated, as is production, despite the cold weather in the US east cost limiting demand for driving purposes.  Product supplied and production of gasoline typically weaken through the winter season.

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The report on petroleum inventories continues to be supportive of the price of energy commodities.  Crude oil was little changed following the result, showing signs of short-term consolidation around $64.  Short and intermediate-term support are apparent at 20 and 50-day moving averages around $61 and $58.60, respectively.  Upside target remains towards previous long-term support around $77.  Seasonally, the price of oil tends to rise between mid-February and early May as the level of gasoline is drawn down into the summer.

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Crude Oil Futures (CL) Seasonal Chart
FUTURE_CL1 Relative to the S&P 500FUTURE_CL1 Relative to Gold

FUTURE_CL1 Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.83.

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Sectors and Industries entering their period of seasonal strength:

KBW Bank Index Seasonal Chart

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

^BKX Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Citizens Financial Group, Inc. (CFG) Seasonal Chart First Horizon National Corporation (FHN) Seasonal Chart Kansas City Southern (KSU) Seasonal Chart Regions Financial Corporation (RF) Seasonal Chart Schlumberger N.V. (SLB) Seasonal Chart SunTrust Banks, Inc. (STI) Seasonal Chart Synchrony Financial (SYF) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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