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Stock Market Outlook for March 5, 2018

Bearish weekly engulfing candlesticks on charts of major market benchmarks not very encouraging for the weeks ahead.

 

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:

Gaia, Inc. (NASD:GAIA) Seasonal Chart

Gaia, Inc. (NASD:GAIA) Seasonal Chart

Atlantic Power Corp. (NYSE:AT) Seasonal Chart

Atlantic Power Corp. (NYSE:AT) Seasonal Chart

Advantage Oil Gas Ltd. (NYSE:AAV) Seasonal Chart

Advantage Oil Gas Ltd. (NYSE:AAV) Seasonal Chart

Vail Resorts, Inc. (NYSE:MTN) Seasonal Chart

Vail Resorts, Inc. (NYSE:MTN) Seasonal Chart

Lydall, Inc. (NYSE:LDL) Seasonal Chart

Lydall, Inc. (NYSE:LDL) Seasonal Chart

Zions Bancorporation  (NASDAQ:ZION) Seasonal Chart

Zions Bancorporation (NASDAQ:ZION) Seasonal Chart

The Allstate Corporation (NYSE:ALL) Seasonal Chart

The Allstate Corporation (NYSE:ALL) Seasonal Chart

Citigroup Inc. (NYSE:C) Seasonal Chart

Citigroup Inc. (NYSE:C) Seasonal Chart

Christopher & Banks Corp. (NYSE:CBK) Seasonal Chart

Christopher & Banks Corp. (NYSE:CBK) Seasonal Chart

Waste Management, Inc.  (NYSE:WM) Seasonal Chart

Waste Management, Inc. (NYSE:WM) Seasonal Chart

Sanofi SA (NYSE:SNY) Seasonal Chart

Sanofi SA (NYSE:SNY) Seasonal Chart

HSBC Holding Plc (NYSE:HSEA) Seasonal Chart

HSBC Holding Plc (NYSE:HSEA) Seasonal Chart

Mine Safety Appliances Co. (NYSE:MSA) Seasonal Chart

Mine Safety Appliances Co. (NYSE:MSA) Seasonal Chart

RBC Bearings Inc. (NASD:ROLL) Seasonal Chart

RBC Bearings Inc. (NASD:ROLL) Seasonal Chart

 

 

The Markets

Stocks closed higher on Friday, shaking of trade war concerns as investors bid up sectors less exposed to an international conflict.   The health care and technology sectors saw gains of around one percent.  The small-cap Russell 2000 index, which tends to be more domestically focussed, charted a return of 1.71%, recouping a large chunk of this week’s loss.  Still, by the end of the week, a large cloud (and candlestick) looms over the equity market.  Looking at the weekly chart of the S&P 500 Index, a bearish engulfing candlestick has been charted, elevating concerns of more pain ahead as investors price in the risks that accompany the imposition of tariffs, along with the headwinds presented by rising interest rates.  Support at major weekly averages, such as the 20 and 50-week, continue to hold, but the pressure imposed on them may be becoming too much to bare.  In this type of trading action where levels of support below are in doubt, evidence of resistance should be sought in order to identify where sellers outweigh buyers.  This level may be at the 10-week moving average, roughly equivalent to the 50-day moving average.  The benchmark has now shown two sharply negative moves below this level in the past month, indicating that investors are respecting it and choosing to take some chips off the table around this level given the increasing market risks.  A break below the 20-week moving average, roughly equivalent to the 100-day, would likely coincide with significant market weakness on an intermediate-term scale.

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Looking at the chart of bonds versus stocks that was presented in a recent report, reaction to the lower limit of a declining trend channel remains apparent as bonds start to outperform stocks.  The trend still obviously favours stocks over the fixed income investment on a longer-term scale and the ratio could continue to grind along the lower limit of the channel for some time, but risk to the market is that the ratio moves back to the upper limit of the range, suggesting an intermediate period of outperformance.  The range of the declining channel is 25%, certainly a sizeable span that would cause a significant shakeup in the crowded trade of going long stocks and short treasury bonds.

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On the economic front, Statscan provided its final look at GDP for 2017.  The headline print indicated that Gross Domestic Product increased by 0.1% in December, matching the consensus analyst estimate.  Stripping out the seasonal adjustments, GDP was actually lower by 2.7% in the last month of the year, inline with the seasonal average change.  For the year, the 3.5% gain in 2017 was a full percentage point above the 20 year average increase in this key economic indicator, the best performance since 2010.  Goods producing sectors were by far the leader last year, advancing by 4.3%, firmly above the 1.5% average increase.  Service producing industries saw an increase of 3.1%, marginally above the 2.9% average increase for the calendar year.  Much of the strength in the report was attributed to strength in the industrial economy as strength in manufacturing in both Canada and the US flourished coming out of recessionary conditions from the years prior.  Everything from the raw inputs to the manufacturing process to the machines that produce the products saw above average growth.  Strength in transportation and energy rounded off the robust gains seen last year as commodity prices rebounded, helping the beleaguered energy industry find a footing following the sharp decline in the price of oil in the years prior.  On the consumer side, a weak December reading in retail sales caused the final tally to merely fall inline with the historical average change, but as highlighted in the recent breakdown of the report on retail trade for the month, some of that was negatively influence by anomalous factors.  The push and pull in the Canadian dollar is certainly creating some waves in activity in the Canadian economy, at some times making exports more expensive to foreigners, weighing on activity in August and September, and at other times providing a boost to activity, as was evident through the winter and spring of last year.  The Canadian Dollar is presently testing horizontal support at 0.775, a break of which could see a four cent move lower, based on the target of an apparent double top-pattern.  The currency recently broke below support at its 200-day moving average and the 50-day moving average is starting to curl lower, altering the intermediate profile of the currency’s direction. Seasonally, the Canadian Dollar tends to rise through the month of April, following the strength in the price of oil.  For a complete breakdown of the GDP report, including the 100+ categories included within, the seasonal charts can be found via the chart database at http://charts.equityclock.com/canada-monthly-gross-domestic-product-gdp-by-industry.

Canada GDP - All industries Seasonal Chart

Monthly Canada GDP - All industries Data

Canada GDP - Goods-producing industries Seasonal ChartCanada GDP - Service-producing industries Seasonal Chart

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Canadian Dollar Forex (CAD) Seasonality

Monthly Seasonal Canadian Dollar Forex (CAD)

As for the categories that have taken the center stage of the recently announced tariffs by the US, the strength in steel product manufacturing is certainly at risk.  This category was higher by 31.4% in 2017, one of the best growth rates on record, falling only behind 2010’s 46.0% gain as the economy in the US rebounded from the steep recession in the years prior.  Aluminum, on the other hand, saw activity that was 1.6% below average for the calendar year, the result of a larger than normal fall in the month of December.  Prior to the month, aluminum production had similarly been running above average on the year.  With these growth rates given the manufacturing thrust over the past year and a half, it is no wonder that US producers want to take a larger slice of that pie, but the risk of an all out trade war is potentially threatening to a wider range of categories.  Investors may have been cheering tax cuts to start the year, but the offsets to this economic catalyst are mounting, including higher costs that would accompany tariffs and inflation, the higher costs involved with financing debt, and the higher expense of importing into the US given the weaker US dollar.  The scale is tilting in both directions and it is still very much unclear what will be the end result as economic data continues to emerge for 2018, the start of which hasn’t exactly been euphoric.  Data ahead will likely be more meaningful, hopefully defining a path given these new economic realities.

Canada GDP - Steel product manufacturing from purchased steel Seasonal ChartCanada GDP - Alumina and aluminum production and processing Seasonal Chart

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.16.  As noted in the last report, it is very difficult to get the selling momentum going when investors are hedged, which certainly proved to be the case on Friday when stocks struggled to stay lower even amidst headlines of an impending trade war.  The VIX remains elevated and defensive assets, such as bonds and gold, have started to attract some strength.  The ingredients for a panic plunge that were apparent in January have been taken off the table, but whether this is enough to offset the growing fundamental threats is up for debate.

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Seasonal charts of companies reporting earnings today:

Analogic Corporation (ALOG) Seasonal Chart Ascena Retail Group, Inc. (ASNA) Seasonal Chart CRH Medical Corporation (CRHM) Seasonal Chart Eagle Bulk Shipping Inc. (EGLE) Seasonal Chart Famous Dave's of America, Inc. (DAVE) Seasonal Chart Newtek Business Services Corp. (NEWT) Seasonal Chart Orchids Paper Products Company (TIS) Seasonal Chart PetroQuest Energy, Inc. (PQ) Seasonal Chart Sterling Construction Company Inc (STRL) Seasonal Chart The Descartes Systems Group Inc. (DSGX) Seasonal Chart Vericel Corporation (VCEL) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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