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Stock Market Outlook for February 13, 2018

30-Year US Treasury Bond Price testing the lower limit of a long-term rising trend channel.

 

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:

Group I Automotive Inc. (NYSE:GPI) Seasonal Chart

Group I Automotive Inc. (NYSE:GPI) Seasonal Chart

Dycom Industries, Inc. (NYSE:DY) Seasonal Chart

Dycom Industries, Inc. (NYSE:DY) Seasonal Chart

Scripps Networks Interactive Inc. (NASD:SNI) Seasonal Chart

Scripps Networks Interactive Inc. (NASD:SNI) Seasonal Chart

Dollar General Corp. (NYSE:DG) Seasonal Chart

Dollar General Corp. (NYSE:DG) Seasonal Chart

Ecolab Inc.  (NYSE:ECL) Seasonal Chart

Ecolab Inc. (NYSE:ECL) Seasonal Chart

Genpact Ltd. (NYSE:G) Seasonal Chart

Genpact Ltd. (NYSE:G) Seasonal Chart

 

 

The Markets

Stocks surged to open the week as investors snapped up beaten down names following last week’s selloff.  The S&P 500 Index added 1.39%, continuing to bounce from its rising 200-day moving average.  The rebound comes as a welcome relief to investors that saw their positions shift from significantly overbought to significantly oversold in brief period of time, leading to a collapse of the low volatility trade that had drawn in so many over the past couple of years.  As of the middle of last week, close to 500 stocks had charted a new 52-week low and the percent of stocks in the S&P 500 Index trading above 50-day moving averages hit a low of 13.6%.  Both of these indicators hit levels in which lows have historically followed as the downside move becomes exhausted.  For the S&P 500 Index, keep in mind the levels of resistance highlighted in yesterday’s report.  The first was broken today at the 100-day moving average.  The next is the 50-day moving average, which could be a tough nut to crack over the short-term.  Finally, gap resistance between 2840 and 2850 could keep a lid on the market from achieving a new all-time high anytime soon.  Last week’s decline was a shock, bringing an end to the low volatility trade and giving investors something to mull over as they consider portfolio allocations.

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One area of concern that traders have been pinpointing as culprit for the recent market weakness is the cost of borrowing as the yield on the 10-year treasury note nears 3%.  The move in the rate has been as parabolic as what the move in the equity market once was, suggesting that the short-term trend is similarly unsustainable.  Yields and prices had broken out of short-term head-and-shoulders patterns that have now been fulfilled and the psychologically important level overhead could give pause to this bond trade.  Looking at the chart of the 10-year treasury note price versus the S&P 500 index , the ratio recently tested and turned higher from the lower limit of a declining trend channel, suggesting a period of bond market outperformance may be upon us.  Longer-term, the 30-year treasury bond price is testing rising trend channel support.  The reaction to these boundaries could suggest a mean reversion trade is imminent where bond prices attempt to recoup at least some of the losses recorded since last summer, perhaps one last gasp in this fading bull market for bonds.  Seasonally, treasury bonds remain in a period of weakness through the end of April.

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As for sectors of the market sensitive to rates (utilities and REITs), they have been showing signs of slight outperformance versus the market over the past couple of weeks, possibly setting up for a mean reversion trade of their own.  These sectors of the market have been considered to be a “no go” for the past few months as investors fear the impact of higher rates.  Seasonally, both utilities and REITs benefit from a period of strength in March and April.

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Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

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MSCI US REIT Index Seasonality

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

Monthly Seasonal MSCI US REIT Index

Released on Friday was the monthly look at the state of employment in Canada.  The headline print of January’s Labour force Survey indicated that 88,000 jobs were lost to start the year, far more than the 9,000 that analysts were forecasting.  The seasonally adjusted result represents the largest decline in nine years and the third weakest result in over four decades.  Stripping out the seasonal adjustments, Canada actually shed 329,100 jobs in January, or 1.8%, slightly more than the 1.6% decline that is average for the first month of the year.  Declines were led by part-time employment, which fell by 3.8%, much more than the 0.4% average drawdown in this post holiday period.  Offsetting the weakness attributed to the layoff of temporary/seasonal workers was strength in full time employment, which was six-tenths of one percent better than the average change for January.  These results follow the strongest calendar year increase in employment since 2002, therefore a giveback following a strong holiday season is not unexpected as the economy (and seasonal adjustment factors) adapt to the shifting habits of consumers in the last two months of the year.  Transportation is one such area that is prone to the evolving shift to online purchases at the end of the year, creating higher demand for temporary workers through this busy season of shipping goods to residential locations.  This category was lower in January by 1.7%, around seven-tenths of a percent below the average change for this first month of the year.  Transportation employment has been showing above average growth for the past couple of years and this trend is not expected to slow anytime soon as companies like Amazon take a greater share of the retail industry.  To provide a one-word summary for the overall report it would have to be “reversal.”  As highlighted with transportation employment, strength at the end of the year reverted to weakness in January.  The opposite is true for those areas that were weak going into the end of last year.  Utilities, business, and information employment each showed results that were well above average in January, rebounding from the weakness recorded last year.  So while the headline print may have suggested a gloomy outlook for the year ahead, the fluctuations pertaining to January’s results should prove to be temporary and the strength in full-time employment is always an encouraging sign.  Employment in Canada seasonally ramps up between February and June as the economy comes back online following the colder winter months.  For a complete breakdown of the report, the charts can be accessed via the chart database at http://charts.equityclock.com/canada-labour-force-survey.

Canada Employment Seasonal Chart

Canada Employment full-time Seasonal Chart Canada Employment part-time Seasonal Chart Canada Unemployment Seasonal ChartCanada Labour force Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.94.

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Seasonal charts of companies reporting earnings today:

Aircastle Limited (AYR) Seasonal Chart AllianceBernstein Holding L.P. (AB) Seasonal Chart Antero Midstream Partners LP (AM) Seasonal Chart  Baidu, Inc. (BIDU) Seasonal Chart  Carbonite, Inc. (CARB) Seasonal Chart Charles River Laboratories International, Inc. (CRL) Seasonal Chart Compass Minerals International, Inc. (CMP) Seasonal Chart Dana Incorporated (DAN) Seasonal Chart DaVita Inc. (DVA) Seasonal Chart Denny's Corporation (DENN) Seasonal Chart Diamondback Energy, Inc. (FANG) Seasonal Chart Fossil Group, Inc. (FOSL) Seasonal Chart Franklin Street Properties Corp. (FSP) Seasonal Chart Generac Holdlings Inc. (GNRC) Seasonal Chart HCP, Inc. (HCP) Seasonal Chart  Louisiana-Pacific Corporation (LPX) Seasonal Chart Martin Marietta Materials, Inc. (MLM) Seasonal Chart MetLife, Inc. (MET) Seasonal Chart Occidental Petroleum Corporation (OXY) Seasonal Chart Omega Healthcare Investors, Inc. (OHI) Seasonal Chart Pepsico, Inc. (PEP) Seasonal Chart Radcom Ltd. (RDCM) Seasonal Chart Regional Management Corp. (RM) Seasonal Chart Sina Corporation (SINA) Seasonal Chart Tallgrass Energy Partners, LP (TEP) Seasonal Chart Tower International, Inc. (TOWR) Seasonal Chart    Voya Financial, Inc. (VOYA) Seasonal Chart Weibo Corporation (WB) Seasonal Chart Western Union Company (The) (WU) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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