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Stock Market Outlook for April 3, 2018

S&P 500 Index has averaged a gain of 1.4% in April; positive in 70% of periods.

 

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:

Graham Corp. (NYSE:GHM) Seasonal Chart

Graham Corp. (NYSE:GHM) Seasonal Chart

Royal Dutch Shell Plc. A Shares (NYSE:RDS-A) Seasonal Chart

Royal Dutch Shell Plc. A Shares (NYSE:RDS-A) Seasonal Chart

Altria Group, Inc.  (NYSE:MO) Seasonal Chart

Altria Group, Inc. (NYSE:MO) Seasonal Chart

Intertape Polymer Group (TSE:ITP) Seasonal Chart

Intertape Polymer Group (TSE:ITP) Seasonal Chart

Cott Corporation  (TSE:BCB) Seasonal Chart

Cott Corporation (TSE:BCB) Seasonal Chart

Alaska Communications Systems Group, Inc (NASDAQ:ALSK) Seasonal Chart

Alaska Communications Systems Group, Inc (NASDAQ:ALSK) Seasonal Chart

 

 

The Markets

Stocks ended firmly higher on Thursday, closing out the month and quarter on a positive note.  The S&P 500 Index added 1.38%, bouncing from its 200-day moving average and taking back much of the mid-week losses.  Investor caution remains evident as buyers and seller battle for control around the rising 200-day moving average, a typical support zone in time of significant market uncertainty.

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For the month, the S&P 500 Index fell 2.69%, well below the 1.2% average gain for this time of year.  The decline places the benchmark around the mid-point to the long-term rising trend channel, which spans between 2300 and 3050.   Sell signals have been triggered with respect to stochastics and RSI as the momentum indicators fall out of overbought territory.  MACD is also showing signs of rolling over, perhaps setting up to chart a sell signal of its own.  The 20-month moving average, which has been supportive of the bull market trend on any intermediate “blips” comes in around 2433.  Perhaps optimistic for the months ahead is the fact that the benchmark did not chart a new monthly low below the February bottom.  The range in March remained within the span of the prior month, charting an indecisive candlestick.  A similar setup was charted in July of 2011, just before the selling pressures escalated in the month that followed.  The downfall from the highs of 2011 followed a test of the upper limit of the rising trend channel, creating a waterfall decline back to the lower limit of the span.  The benchmark would need to rally by over 400-points from present levels to reach the trendline limit.  As of present, the weakness in stocks appears to be a corrective move following January’s overshoot that created the most overbought monthly read on the monthly relative strength index (RSI) in decades.  A move to the lower limit of the rising span is currently not expected.  Things could change if weakness persists below the mid-point to the long-term span.

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Looking forward, April is the second strongest month of the year for the S&P 500 Index, gaining an average of 1.4% over the past 50 years.  The benchmark has shown positive results in 70% of the periods with returns ranging from a low of –9.0% in April of 1970 to a high of +9.4% in April of 2009.  Just like March, the average trend is firmly positive throughout the course of the month, leading to the average peak to the period of seasonal strength for stocks in the US around the start of May.  Earnings season and the ramp up in economic activity through the spring tend to be supportive of the equity benchmark in this fourth month of the year.

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As for the sectors, materials and energy have shown the best performance in the month with returns averaging over 3%.  The seasonal uptick in manufacturing activity is certainly a benefit.  Meanwhile, the more defensive consumer staples and health care sectors saw gains average less than one percent as investors adopt a cyclical bias in this first month of the second quarter.  But despite the weak performance for the month overall in these more defensive areas of the market, both staples and health care enter their period of seasonal strength in the month, charting a low, on average, relative to the market later in the period and trading higher through the volatile summer months.  A rotation away from financials and consumer discretionary following the release of earnings leads to the average conclusion to the average period of strength in each of these market segments.

Energy Sector Seasonal Chart

ENERGY Relative to the S&P 500
ENERGY Relative to the S&P 500

ENERGY Monthly Averages

Materials Sector Seasonal Chart

MATERIALS Relative to the S&P 500
MATERIALS Relative to the S&P 500

MATERIALS Monthly Averages

Some of the notable stocks to start their average period of seasonal strength in April, using our proprietary optimal seasonal strength algorithm, are Kansas City Southern (KSU), Agnico Eagle Mines (AEM), Shaw Communications (SJR), AT&T (T), Lockheed Martin (LMT), Boston Beer (SAM), Activision Blizzard (ATVI), McKesson (MCK), Constellation Brands (STZ), Kroger (KR), Franco-Nevada (FNV), Vertex Pharmaceuticals (VRTX), Campbell Soup (CPB), Altria (MO), Dollar General (DG), and Enbridge (ENB).  As you may derive, there is a fairly defensive stance in this list of names as investors have typically been well suited to reducing risk in portfolios going into the summer months.  It will be interesting to see reaction to earnings ahead as there has been a heavy cyclical bias amongst analysts, elevating earnings forecasts based on the favourable fiscal backdrop.  Sell on news could indicate that analyst expectations are thought to be too optimistic, perhaps forcing this shift to more defensive areas of the market through the end of April and into May.

Constellation Brands, Inc.  (NYSE:STZ) Seasonality
STZ Relative to the S&P 500STZ Relative to the Sector

Monthly Seasonal Constellation Brands, Inc.  (NYSE:STZ)

On the economic front, Statscan released its monthly look at Gross Domestic Product (GDP) in Canada.  The headline print indicated that GDP declined by 0.1% in January, missing the consensus estimate that called for a gain of the same margin.  Stripping out the seasonal adjustments, GDP actually fell by 3.8%, which is below the average decline for the first month of the year of 3.5%.  The sub-par print follows a strong 2017 when GDP increased by 3.5%, the largest calendar year growth since 2010.  A slight giveback following last year’s strong result perhaps isn’t that unreasonable.  Goods producing industries are indicated to be the drag on the aggregate result, falling four-tenths of one percent below the seasonal norm in January.  Diving deeper, energy started the year 2.8% below average as oil & gas extraction recorded a rather unexpected decline, a shift from the strong gain shown for the first month of 2017.  Industrial production was also indicated weaker than average for the month, however, strength in manufacturing remained. 

Canada GDP - All industries Seasonal Chart

Monthly Canada GDP - All industries Data

One of the standouts in the report was chemical manufacturing, which jumped by 16.1%, almost 10% above the seasonal norm for this time of year.  An abnormally large jump in fertilizer and pharmaceutical manufacturing contributed to the robust strength in the chemical segment.  As for the focus of the recently announced Trump tariffs, steel and aluminum are showing a weak start to the year.  The contribution from these categories to GDP was below average by 3.0% and 1.2%, respectively, even before the announcement of the punitive charges that may be imposed by the US.  While the manufacturing category shows strong growth, very gradually we are seeing indications that the strongest growth is behind us, despite the catalyst that the Trump tax cuts should have provided for activity in both the US and Canada.  Manufacturing tends to see its strongest growth for the year in the spring and reports for March could provide a make or break point for the optimism that the manufacturing sector has inherited following the significant rebound over the past couple of years.  Seasonally, Canada GDP tends to trend higher into June, just before the summer factory shutdown period in July.  For a complete breakdown of the report, including the approximately 130 categories included within, you can access the charts via the database at https://charts.equityclock.com/canada-monthly-gross-domestic-product-gdp-by-industry.

Canada GDP - Chemical manufacturing Seasonal Chart

Canada GDP - Pesticide, fertilizer and other agricultural chemical manufacturing Seasonal ChartCanada GDP - Pharmaceutical and medicine manufacturing Seasonal Chart

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

Just briefly on the report of industrial product prices (IPPI) in Canada, the index increased by 0.1% in February, well short of the 0.6% increase that is average for the second month of the year.  The result puts the year-to-date trend below the seasonal average by half of one percent, weighed down by prices of machinery equipment, non-ferrous metals, electrical products, furniture, and packaging materials.  Yet again, further hints that the manufacturing economy is cooling as inflationary pressures in some of the categories that rely on this segment of the economy show sluggish results.  Inventory levels, which have been rising at an above average pace, may be taking a toll as margins become compressed.  This report combined with a weaker than expected read on GDP may present caution to the Bank of Canada as it seeks to normalize rates at the next meeting.  The Canadian Dollar added almost a third of a percent on the day, continuing to chart a short-term consolidation pattern around its declining 20-day moving average.  For a complete breakdown of the results, you can access the seasonal charts via the following link: https://charts.equityclock.com/canada-industrial-product-price-index-ippi-by-north-american-product-classification-system-napcs

Canada Total, Industrial product price index (IPPI) Seasonal Chart

Monthly Canada Total, Industrial product price index (IPPI) Data

Shifting to the weekly read on natural gas inventories in the US, the EIA is reporting that stockpiles of the energy commodity fell by 63 billion cubic feet last week.  The result puts the year-to-date change lower by 55.8%, firmly below the average decline in stockpiles by this time of year of 50.7%.  Colder than average weather along the east coast is helping to maintain the below average pace, a trend that may continue into April, beyond the seasonal low in stockpiles at the end of the first quarter.  The price of natural gas remains supported in the range between $2.50 and $2.60.  Seasonally, natural gas prices typically gain through to the middle of June.

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Natural Gas Futures (NG) Seasonal Chart
FUTURE_NG1 Relative to the S&P 500FUTURE_NG1 Relative to Gold

FUTURE_NG1 Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.95.

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Seasonal charts of companies reporting earnings today:

Cal-Maine Foods, Inc. (CALM) Seasonal Chart Quest Resource Holding Corporation. (QRHC) Seasonal Chart  Titan Pharmaceuticals, Inc. (TTNP) Seasonal Chart  Aehr Test Systems (AEHR) Seasonal Chart Dave & Buster's Entertainment, Inc. (PLAY) Seasonal Chart International Speedway Corporation (ISCA) Seasonal Chart Landec Corporation (LNDC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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