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Stock Market Outlook for January 26, 2018

Sales of completed new homes showing the best calendar year growth since 2006 – at the height of the housing market.

 

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:

Stella-Jones (TSE:SJ) Seasonal Chart

Stella-Jones (TSE:SJ) Seasonal Chart

Genworth Financial Inc. (NYSE:GNW) Seasonal Chart

Genworth Financial Inc. (NYSE:GNW) Seasonal Chart

Bank of Hawaii Corp. (NYSE:BOH) Seasonal Chart

Bank of Hawaii Corp. (NYSE:BOH) Seasonal Chart

Mattel, Inc.  (NASDAQ:MAT) Seasonal Chart

Mattel, Inc. (NASDAQ:MAT) Seasonal Chart

Pason Systems Inc.  (TSE:PSI) Seasonal Chart

Pason Systems Inc. (TSE:PSI) Seasonal Chart

Dover Corporation  (NYSE:DOV) Seasonal Chart

Dover Corporation (NYSE:DOV) Seasonal Chart

Praxair, Inc.  (NYSE:PX) Seasonal Chart

Praxair, Inc. (NYSE:PX) Seasonal Chart

Microchip Technology Inc.  (NASDAQ:MCHP) Seasonal Chart

Microchip Technology Inc. (NASDAQ:MCHP) Seasonal Chart

C.H. Robinson Worldwide, Inc.  (NASDAQ:CHRW) Seasonal Chart

C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) Seasonal Chart

 

 

The Markets

Stocks seesawed on Thursday as investors reacted to earnings as well as comments made at the World Economic Forum in Davos.  The S&P 500 Index closed essentially flat on the day as short-term resistance around 2850 becomes apparent.

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But perhaps the more important gauge of risk sentiment at present is the move in the Dow Jones Transportation Average, which has fallen by 3.2% in the past few days.  Weakness amongst the airlines and rails have been the culprit as investors react negatively to earnings.  Momentum indicators for this economically sensitive industry have rolled over as the the benchmark looks set to retrace the move from the past couple of months.  Next major level of support is apparent at the 50-day moving average closer to 10,500.  Seasonally, performance of the transportation average tends to be soft in January before taking off again closer to the spring.

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Dow Jones Transportation Average Seasonality

$TRAN Relative to the S&P 500
$TRAN Relative to the S&P 500

Monthly Seasonal Dow Jones Transportation Average

On the economic front, a report on new home sales indicated activity fell back sharply in the final month of 2017, but for the year as a whole results were quite strong.  The headline print indicated that sales of new homes fell by 9.3% in December to a seasonally adjusted annual rate of 625,000.  Analysts had forecasted a rate of 680,000.  Stripping out the seasonal adjustments, sales of new homes actually fell by 12.2%, more than double the average decline of 5.2% for December.  Despite the downbeat result for the month, likely impacted by below average winter temperatures, sales for the year were higher by 10.3%, the best calendar year performance since 2014.  The average calendar year change is +2.4%.  On a seasonally adjusted basis, the supply of homes as a factor of demand sits at 5.7 months, on the doorstep of what is considered to be a balanced market at six months.  But despite this apparent improvement in supply, the sales statistics still suggest that the diminished supply of new homes either not started of under construction is taking a toll on the overall sales tally.  Sales of completed new homes rose by 14.3%, the best calendar year increase since 2006.  Builders have been able to keep housing completions up to pace with seasonal norms, but the pace of starts is lagging, in part due to the lack of labour to build, as well as the lag from the previous year in the level of housing units authorized.  This has resulted in decreased supply for consumers to buy, particularly at the lower price point that consumers desire.  The pace at which housing units have been authorized, but not started, has since improved, but permits are still running below average, a potential impact to future sales and starts.  The median sales price of new homes is higher by only 2.6% for 2017, less than half of the average increase of 5.8%.  Consumers demanding homes at a lower price point is the factor behind that lag.  Overall, as with the other housing reports, while greater activity would be desired, new homes sales in the US can still be considered to be on the strong side of the spectrum.  The dynamics surrounding rising interest rates and the recently enacted tax legislation warrant monitoring for any shifts in the housing momentum.

New Home Sales Seasonal Chart

Monthly New Home Sales Data

New Home Sales Seasonal Chart

New Home Sales - Not Started Seasonal Chart New Home Sales - Under Construction  Seasonal Chart New Home Sales - Completed Seasonal Chart Median Sales Price for New Houses Sold Seasonal Chart

In Canada, Statscan released its look at retail sales for the month of November.  The headline print indicated that sales increased by 0.2% for the month, short of the 0.8% increase forecasted by analysts.  Stripping out the seasonal adjustments, sales were actually higher by 3.6%, firmly better than the 0.2% average increase that has been average for November over the past 20 years.  Shifting consumer habits as retailers on this side of the border adopt the Black Friday model to spur sales ahead of the Christmas holiday period looks to be altering the shape of the seasonal curve in this critical spending season.  Retail sales are trending 9.0% above average in 2017 with one month left to report in the year.  Among the categories, auto sales were a standout, bucking the sluggish results recorded in the US last year.  Motor vehicles and parts are running 12.7% above average through November, easily one of the best growth years on record.  Furniture, electronics, building materials, health, clothing, gasoline, jewellery, sporting goods, and liquor store are all showing above average gains on the year.  The strength in retail trade in 2017 has certainly been broad, reflecting the confidence of Canadian consumers.  Seasonally, December is the second best month of the year for retail sales in Canada, following just behind the month of March, which sees a bump in big ticket purchases following the conclusion of winter.  For a breakdown of the report, the seasonal charts are available in the chart database at http://charts.equityclock.com/canada-retail-trade-sales.

Retail trade Seasonal Chart

Monthly Retail trade Data

And briefly on jobless claims in the US, the 25.3% decline in initial claims so far this year is the best start to a year since 2007.  On average, the change typically hugs the flatline by the third week in January after spiking in the first half of the month amidst the layoff of holiday workers.  The initial claimant count could be perceived as a leading indicator to the strength of the labour market and what this indicator is telling in the first few weeks of the year is that employment in the US is strong, something that may be reflected in the next non-farm payroll report.  Seasonally, initial claims typically maintain a declining trend through to the start of June.

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Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.80.

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Seasonal charts of companies reporting earnings today:

AbbVie Inc. (ABBV) Seasonal Chart Air Products and Chemicals, Inc. (APD) Seasonal Chart Ameris Bancorp (ABCB) Seasonal Chart Colgate-Palmolive Company (CL) Seasonal Chart Gentex Corporation (GNTX) Seasonal Chart Hill-Rom Holdings Inc (HRC) Seasonal Chart Honeywell International Inc. (HON) Seasonal Chart Lear Corporation (LEA) Seasonal Chart Moog Inc. (MOG.A) Seasonal Chart NextEra Energy Partners, LP (NEP) Seasonal Chart NextEra Energy, Inc. (NEE) Seasonal Chart PolyOne Corporation (POL) Seasonal Chart Provident Financial Services, Inc (PFS) Seasonal Chart Rockwell Collins, Inc. (COL) Seasonal Chart World Acceptance Corporation (WRLD) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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