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Stock Market Outlook for March 20, 2018

Topping pattern on shares of Facebook suggests risks of further declines in the popular FANG trade.

 

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:

American National Insurance Co. (NASD:ANAT) Seasonal Chart

American National Insurance Co. (NASD:ANAT) Seasonal Chart

China Petroleum and Chemical (NYSE:SNP) Seasonal Chart

China Petroleum and Chemical (NYSE:SNP) Seasonal Chart

Hugoton Royalty Trust (NYSE:HGT) Seasonal Chart

Hugoton Royalty Trust (NYSE:HGT) Seasonal Chart

China National Offshore Oil (NYSE:CEO) Seasonal Chart

China National Offshore Oil (NYSE:CEO) Seasonal Chart

Live Nation Entertainment (NYSE:LYV) Seasonal Chart

Live Nation Entertainment (NYSE:LYV) Seasonal Chart

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) Seasonal Chart

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) Seasonal Chart

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

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

 

 

The Markets

Stocks dipped on Monday as investors gave up on the FANG stocks amidst a report that data from 50 million Facebook users was used by a political data analytics firm.  Shares of Facebook (FB) plunged by eight percent at the lows of the session, intersecting with its rising 200-day moving average, a level that was tested during the early February decline.  Horizontal support at $170 forms the basis of a neckline to a head-and-shoulders topping pattern, which calculates a move lower towards $147, or around 15% below Monday’s close.  The stock has been underperforming the market since early November, suggesting no real buying demand was materializing even as the market moved higher into the start of the new year.  Shares of Google, Amazon (AMZN), and Netflix (NFLX) fell in sympathy, declining more than the market in what was generally a weak day for the technology sector.  Gap resistance across the charts raises concerns that gains in this market segment may be capped into the near future as this crowded trade unwinds.  Seasonally, the technology sector is weak through to mid-April, then picks up through late spring as developer conference season gets underway.

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Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500
TECHNOLOGY Relative to the S&P 500

TECHNOLOGY Monthly Averages

The Tech slump acted as a significant weight on the large-cap S&P 500 Index, of which technology represents approximately a quarter of the benchmark’s allocation.  The index gapped below its rising 50-day moving average, charting what appears to be an island reversal.  The jump comes around the same range that the benchmark gapped above following the latest non-farm payroll report.  The range between 2740 and 2750 nicely borders the rising 50-day moving average, highlighting the significance that investors are placing on this intermediate hurdle.  What was support is now resistance as investors wait for the next catalyst to move the market benchmark.  Support at the rising 100-day moving average is now looked to as a critical line in the sand for the longer-term move higher for stocks.  The market is still a couple of weeks out from the first quarter earnings season, which tends to act as a distraction to any overhanging macro concerns, thereby supporting stocks.  Therefore, over the near-term, until the month-end/quarter-end window-dressing period, stocks may just gyrate with the headlines as economic momentum, valuations and possible threats are scrutinized, influencing volatility higher at a time when it typically declines.

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On Friday, a number of datapoints on the economy were released, but due to the March break holiday we were unable to provide analysis.  So let’s look back at these reports, which are providing insight as to how the 2018 calendar year is shaping up.  First out was housing starts for February, which, according to the headline print, fell by 7.0% to a seasonally adjusted annual rate of 1.236 million.  The consensus estimate was a 3.3% decline to a rate of 1.285 million.  Stripping out the seasonal adjustments, housing starts actually fell by 4.8%, a negative divergence compared with the 5.0% gain that is average for the second month of the year.  Taking the performance of the first two months of the year, starts are still running 3.4% above the seasonal norm as builders seek to increase supply amidst the implementation of the Trump tax cuts.  Looking at the trends across the regions, the east and the south are both showing above average gains year-to-date, while the mid-west and the west lag their historic norms.  Above average temperatures in February in the east and the ongoing rebuilding effort in the south would have benefitted the tally in these first two months of the year.  The more steady figure in the report, housing units completed, rose 8.2% in the month, now trending 9.2% above average on the year in what is looking to be another strong year of new homes coming to the market.  The threat of rising mortgage rates has yet to deter builders, instead focussing on the upbeat economic fundamentals, particularly with respect to the job market.  We’ll obtain further insight on the sale rate when reports on existing and new home sales are released later this week.  Seasonally, homebuilding stocks tend to perform around the market return through the end of April then underperform through the late spring once news of the spring selling season is fully digested.

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

As for the job market, a report on job openings and labour turnover provided a bit of a mixed view of the state of the labour market into the new year.  The headline print indicated that openings increased by 11.4% in January to 6.312 million, the highest level in the 17-year history of the report.  The consensus estimate was for a print of 5.8 million.  Stripping out the seasonal adjustments, openings were actually higher by 19.7%, a notable improvement from the 6.9% gain reported this time last year, but marginally below the average increase for the first month of the year of 20.5%.  Above average growth in construction, transportation, and professional/business services helped to offset weakness in retail, finance, and real estate.  Hires, meanwhile, were higher by 30.6% in the month, shy of the 33.3% gain that has been average over the past 15 years.  Hires showed growth of 5.5% in 2017, 4.5% above the seasonal norm.  January’s result merely represents a pullback from the above average pace observed at the end of last year.  The same can be said of the gauge of confidence of the American worker, the change in quits.  Quits in the month of January were 13.9% below average, offsetting the 11.5% above average gain recorded for all of 2017.  Weakness in transportation and professional/business services, the same areas that are showing above average growth in openings, were culprits behind the weak quit rate in January.  The front half of the year tends to be the busy period for hiring activity and while we may see slowing momentum compared to prior years, the strength at this point in the economic cycle is still impressive, boosted by the Trump tax cuts implemented at the end of last year.  The strength suggests that wage inflation should be expected as the year progresses as employers struggle to fill the open positions that are at record high levels.  Seasonally, April is the third strongest month of the year for wage increases as companies seek to fill positions ahead of the summer season.

Job Openings: Total Nonfarm Seasonal Chart

Monthly Job Openings: Total Nonfarm Data

Job Openings: Total Nonfarm Seasonal Chart

Quits: Total Nonfarm Seasonal Chart Hires: Total Nonfarm Seasonal Chart Layoffs and Discharges: Total Nonfarm Seasonal Chart

One of the drivers of the strength in the labor market has been manufacturing, which has shown above average growth for the past year.  The headline print for February’s report on Industrial Production showed a 1.1% increase versus the month prior, more than double the 0.4% consensus forecast.  Stripping out the seasonal adjustments, industrial production actually increased by 0.4%, which is a touch below the 0.5% average increase for the second month of the year.  Year-to-date, industrial production continues to hold a healthy lead above its seasonal average pace, up 0.7% versus the 0.4% average increase through the end of February.  Weakness in utility production given the above average temperatures in the month offset strength in manufacturing and consumer durable goods, each of which showed broad strength in the month.  Industrial production and manufacturing tends to be the strongest in the first half of the year as activity rebounds from the winter slowdown and so far in this new year the data suggests that the seasonal ramp-up should be strong, typically supportive of cyclically sensitive sectors of the market through this timeframe.  Obviously, other factors are presently at play in the market, including the threat of a trade war.  For a complete breakdown of the report, you can find the seasonal charts in the database at http://charts.equityclock.com/u-s-industrial-production.

Industrial Production: Total Seasonal Chart

Monthly Industrial Production: Total Data

Sentiment on Monday, as gauged by the put-call ratio, ended slightly bearish at 1.02.

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Seasonal charts of companies reporting earnings today:

AAR Corp. (AIR) Seasonal Chart  Children's Place, Inc. (The) (PLCE) Seasonal Chart DXP Enterprises, Inc. (DXPE) Seasonal Chart Elbit Systems Ltd. (ESLT) Seasonal Chart FedEx Corporation (FDX) Seasonal Chart  NovaBay Pharmaceuticals, Inc. (NBY) Seasonal Chart Steelcase Inc. (SCS) Seasonal Chart UQM Technologies Inc. (UQM) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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