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Stock Market Outlook for March 26, 2018

S&P 500 Index back testing its 200-day moving average. Difference this time: no bounce!

 

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:

Franklin Covey Co. (NYSE:FC) Seasonal Chart

Franklin Covey Co. (NYSE:FC) Seasonal Chart

Petrochina Co. (NYSE:PTR) Seasonal Chart

Petrochina Co. (NYSE:PTR) Seasonal Chart

Quanex Corp. (NYSE:NX) Seasonal Chart

Quanex Corp. (NYSE:NX) Seasonal Chart

Alexander & Baldwin, Inc. (NYSE:ALEX) Seasonal Chart

Alexander & Baldwin, Inc. (NYSE:ALEX) Seasonal Chart

Entergy Corporation  (NYSE:ETR) Seasonal Chart

Entergy Corporation (NYSE:ETR) Seasonal Chart

Bombardier, Inc. (TSE:BBD.B) Seasonal Chart

Bombardier, Inc. (TSE:BBD.B) Seasonal Chart

Pinnacle West Capital Corporation  (NYSE:PNW) Seasonal Chart

Pinnacle West Capital Corporation (NYSE:PNW) Seasonal Chart

Intertape Polymer Group (TSE:ITP) Seasonal Chart

Intertape Polymer Group (TSE:ITP) Seasonal Chart

SLM Corporation  (NYSE:SLM) Seasonal Chart

SLM Corporation (NYSE:SLM) Seasonal Chart

Enerplus Corp. (NYSE:ERF) Seasonal Chart

Enerplus Corp. (NYSE:ERF) Seasonal Chart

General Cable Corp. (NYSE:BGC) Seasonal Chart

General Cable Corp. (NYSE:BGC) Seasonal Chart

Kellogg Company  (NYSE:K) Seasonal Chart

Kellogg Company (NYSE:K) Seasonal Chart

HSBC Holdings PLC (NYSE:HSBC) Seasonal Chart

HSBC Holdings PLC (NYSE:HSBC) Seasonal Chart

U.S. Auto Parts Network Inc. (NASD:PRTS) Seasonal Chart

U.S. Auto Parts Network Inc. (NASD:PRTS) Seasonal Chart

 

 

The Markets

Another rough day for stocks saw major benchmarks in the US close deeply in the red.  The S&P 500 Index lost 2.10%, led by financials, as investors de-risk ahead of the weekend.  The 200-day moving average is being tested for the second time this year.  The difference this time around is that a bounce in the daily candlestick from this long-term moving average level has yet to be realized.

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For the week, the large-cap benchmark was lower by close to 6%, breaking below its 20-week moving average that had been supporting the market since election day.  The 50-week moving average around 2555 is now only 30 points below.  Momentum indicators on this weekly look continue to point lower, continuing to unwind from the overbought highs charted in January.  With month-end and quarter-end quickly approaching, followed soon thereafter by earnings season, chances are high that a low to this downturn will be realized by mid-week.  Whether it proves to be the ultimate low is very much up for debate.  Traders continue to react to the headline risks, even as economic fundamentals remain fairly solid.  This focus will often result in short-term fluctuations in equity values, but it would be difficult to see a more sustainable downturn until economic fundamentals are proven to have soured.  Seasonally, April is a strong month for equity benchmarks.

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A busy day for economic data provided a rather mixed look at activity in Canada and the US.  Starting with new home sales for February, the headline print indicated that activity fell by 0.6% in the month to a seasonally adjusted annual rate of 618,000.  The consensus estimate was for a print of 620,000.  Stripping out the seasonal adjustments, sales were actually higher by 8.5%, firmly below the average increase of 13.2% for the second month of the year.  Year-to-date, sales are running 10.4% below the seasonal norm.  This is the weakest start to a year since 2011 when the housing market was still sputtering from the significant crash in the years prior.  Sales of new homes under construction is the only category to show above average gains on the year, while sales of completed homes and sales of homes not started lag their historical averages.  Recall from the recent report on housing starts that completions have been maintaining a steady above average pace for a number of years, so builder inventories are growing as they have yet to see the benefits they expected from the recently passed tax cuts.  The months of supply of houses in the US has risen to around 6, which is characteristic of a balanced market.  This in turn is having an impact on prices, which are trending around 5.7% below average through the first two months of the year.  Housing is often a leading indicator to the broader economy and the activity that is being suggested is not encouraging.  The year remains young and there is still plenty of time for results to improve, therefore it would be premature to become overly concerned at this stage.  New home sales typically peak for the year in March as the spring selling season heats up.

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

Staying in the US, a report on durable goods orders, while strong for the month of February, remains rather tame on the year.  The headline print indicates that durable goods orders increased by 3.1% in February, well above the consensus analyst estimate calling for a 1.7% rise.  Excluding transportation, the increase is a more moderate 1.2%, which is still double the 0.6% consensus estimate.  Stripping out the seasonal adjustments, Manufacturers’ New Orders for Capital Goods actually increased by 12.3%, five percent above the seasonal norm for this time of year.  Still, the tally across the first two months of the year is running around eight-tenths of one percent below average as defense and transportation orders weigh.  Orders for nondefense excluding aircraft are running 4.0% above average on the year.  The lack of orders on the aggregate scale continue to pressure inventories, which are up another 2.1% in February.  The average change for the second month of the year is 1.6%.  So while the factories are “humming,” the sell through rate has yet to become sufficient to absorb the products that are being produced.  The abundance of confidence in the economy surrounding the passing of the Trump tax cuts has fuelled an injection to inventories by manufacturers and home builders with the expectation that sales will be strong.  But with two months of the year now in the books, we have yet to see this materialize.  Seasonally, a big push in activity in the month of March typically provides a better gauge of the strength of this segment of the economy during the crucial manufacturing season.

Value of Manufacturers' New Orders for Capital Goods Industries  Seasonal Chart

Monthly Value of Manufacturers' New Orders for Capital Goods Industries  Data

Value of Manufacturers’ New Orders for Capital Goods Industries Seasonal Chart

Value of Manufacturers' New Orders for Capital Goods - Nondefense  Seasonal Chart Value of Manufacturers' New Orders for Capital Goods - Nondefense excluding Aircraft  Seasonal Chart Value of Manufacturers' Total Inventories for Capital Goods Industries  Seasonal Chart Value of Manufacturers' New Orders for Consumer Goods: Durable Goods Excluding Transportation Industries Seasonal Chart Value of Manufacturers' New Orders for Consumer Goods: Durable Goods Excluding Defense Industries Seasonal Chart Value of Manufacturers' New Orders for Capital Goods: Defense Capital Goods Industries Seasonal Chart Value of Manufacturers' New Orders for Durable Goods Industries: Transportation Equipment Seasonal Chart

North of the border, economic data on CPI and retail sales was enough to juice the Canadian Dollar higher on the day.  First was the key consumer inflation gauge, which jumped by 0.6% in February, exceeding the consensus estimate that called for a 0.5% gain, equal to the average change for the month.  The result puts the year-to-date gain at 1.3%, more than double the 0.6% average change by the end of February.  Ongoing gains in mortgage interest costs, which has been on a torrid pace during the past four months, is now providing an upward influence following years of relatively benign performance.  Internet access, financial services, dry cleaning, and durable goods showed abnormally large increases in the month, taking a toll on the budgets of consumers.  Other categories off to an above average pace in the new year include childcare, transportation, recreation & education, and alcoholic beverages, covering a wide range of items that are impacting the consumer.  For a complete breakdown of the report, you can access the seasonal charts via the database at http://charts.equityclock.com/canada-consumer-price-index-cpi.

Canada CPI - All-items Seasonal Chart

Monthly Canada CPI - All-items Data

The result, quite obviously, increased expectations that the Bank of Canada will be forced to raise rates sooner than later, fuelling a rise in the Canadian dollar.  The Philadelphia Canadian Dollar Index rose by half of one percent, moving above its declining 20-day moving average.  A bearish cross of the 50-day with the 200-day moving average appears imminent, even as momentum indicators turn back higher from the recent decline.  The currency is back within a longer-term consolidation range, which could cause some gyrations as investors attempt to gauge reaction of the central bank when monetary policy is announced on April 18th.  The intermediate trend of the Canadian currency is that of lower-highs and lower-lows.  Seasonally, the currency tends to rise through the month of April, benefitting from the strength in the price of oil.

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Canadian Dollar Forex (CAD) Seasonality

Monthly Seasonal Canadian Dollar Forex (CAD)

The last report released on Friday was Canadian retail sales for the month of January.  The headline print indicated that sales increased by 0.3% to start the year, well short of the consensus estimate that called for a 1.0% gain.  Stripping out the seasonal adjustments, retail sales declined by 22.7%, which is actually 3.9% above average for this time of year.  This comes following a weak December, which dragged on the calendar year performance of this segment of the economy.  The 3.3% gain in 2017 fell short of the 4.3% increase that is average for the calendar year, based on data from the past 20 years.  Strength in autos, furniture, electronics, and general merchandise helped to support January’s aggregate result.  Sporting goods, shoes, and grocery stores were among the drags on the overall tally.  Seasonally, March through to May is the strongest period of the year for retail gains, ramping up as consumers make big-ticket purchases following the winter season.  The report suggests that this was underway in the first month of the year, perhaps setting the stage for a strong result this spring as consumers open their wallets as the weather warms.  For a complete breakdown of the results, the charts are available via the database at http://charts.equityclock.com/canada-retail-trade-sales.

Retail trade Seasonal Chart

Monthly Retail trade Data

Sentiment on Friday, as gauged by the put-call ratio, ended overly bearish at 1.54.  This is the highest read since the end of August 2015 amidst a steep correction that saw stocks fall around 12% from peak to trough.  The low to that move was achieved in the days following that overly bearish sentiment read.  Traders are encouraged to continue to look for signs of capitulation in this market since sentiment indicators are suggesting a trading opportunity is near.

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Seasonal charts of companies reporting earnings today:

 Mountain Province Diamonds Inc. (MPVD) Seasonal Chart Paychex, Inc. (PAYX) Seasonal Chart  Red Hat, Inc. (RHT) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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