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Stock Market Outlook for April 6, 2018

After a strong employment report for February, expect a more subdued result for March.

 

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:

PPL Corporation  (NYSE:PPL) Seasonal Chart

PPL Corporation (NYSE:PPL) Seasonal Chart

Keyera Corp (TSE:KEY) Seasonal Chart

Keyera Corp (TSE:KEY) Seasonal Chart

ADTRAN, Inc. (NASD:ADTN) Seasonal Chart

ADTRAN, Inc. (NASD:ADTN) Seasonal Chart

Kona Grill, Inc. (NASD:KONA) Seasonal Chart

Kona Grill, Inc. (NASD:KONA) Seasonal Chart

Richards Packaging Income Fund (TSE:RPI-UN) Seasonal Chart

Richards Packaging Income Fund (TSE:RPI-UN) Seasonal Chart

Johnson Outdoors, Inc. (NASD:JOUT) Seasonal Chart

Johnson Outdoors, Inc. (NASD:JOUT) Seasonal Chart

Edison International  (NYSE:EIX) Seasonal Chart

Edison International (NYSE:EIX) Seasonal Chart

Concordia Healthcare Corp. (TSE:CXR) Seasonal Chart

Concordia Healthcare Corp. (TSE:CXR) Seasonal Chart

Corrections Corp. of America (NYSE:CXW) Seasonal Chart

Corrections Corp. of America (NYSE:CXW) Seasonal Chart

Trans World Entertainment Corp. (NASD:TWMC) Seasonal Chart

Trans World Entertainment Corp. (NASD:TWMC) Seasonal Chart

Alexandria R E Eqty, Inc. (NYSE:ARE) Seasonal Chart

Alexandria R E Eqty, Inc. (NYSE:ARE) Seasonal Chart

Polaris Inds, Inc. (NYSE:PII) Seasonal Chart

Polaris Inds, Inc. (NYSE:PII) Seasonal Chart

 

 

The Markets

Stocks posted solid gains ahead of the release of the non-farm payroll report on Friday.  The S&P 500 Index returned just over two-thirds of one percent, continuing to bounce following the massive reversal charted in the previous session.  The declining 20-day moving average was tested at the highs of the day, providing resistance to the advance.  The 12,26,9 daily MACD appears poised to trigger a buy signal, as would be represented by a bullish crossover, potentially a catalyst to give investors greater confidence that the ABC corrective pattern that has played out over the past quarter has completed.  Energy and materials topped the leaderboard during Thursday’s session as investors set aside the risks pertaining to a tariff war and focus on the strong economic fundamentals that are ongoing within the US.

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Turning to employment in the US, Friday’s report on payrolls will be heavily scrutinized for the strength of the number, both with respect to the number of jobs added and the pace that wages are growing given that demand for labour is starting to outweigh supply.  Analysts are forecasting a gain in payrolls of 175,000, much less than the 313,000 that are indicated to have been added in February.  Non-seasonally adjusted, payrolls increase by 0.6%, on average, in this last month of the first quarter, which would imply the actual addition of 880,000, approximately inline with February’s 873,000 gain.  After an abnormally strong result, it is often fair to expect a weaker result for the month that follows. Take last February, for example.  Payrolls actually increased by 1.03 million, which was followed by a 655,000 gain in March. The equivalent seasonally adjusted numbers were 200,000 and 73,000, respectively.    The year-to-date change in payrolls is trending inline with last years result.  Initial claims suggest continued strength in the labour market given that the claimant count is currently at the lows of the year, showing a year-to-date change that is firmly below average.  This is characteristic of strong demand for labour and suggests that the above average trend in payrolls should continue into the spring.

Total Nonfarm Employment Seasonality

Monthly Seasonal Total Nonfarm Employment

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On the economic front, Statscan released its look at Merchandise Trade for the month of February.  The headline print indicated that the deficit increased to $2.7 Billion from $1.9 billion previous.  The consensus estimate was for a deficit of $2.2 Billion.  A 1.9% increase in imports and a 0.4% increase in exports contributed to the net result.  Stripping out the seasonal adjustments, exports actually declined by 7.7%, while imports increased by 0.8%; the average change for each is –2.0% and +2.3%, respectively.  The result puts the year-to-date change for exports down by 9.4%, almost four times the average decline of 2.6% for the first two months of the year.  A pronounced decline in energy and metal product exports weighed on February’s result.  Positives relate to exports of building materials for new homes as builders in the US rush to bring product to the market given the new tax regime.  And a category that we highlighted in yesterday’s US factory orders report, boats are showing strength not seen in years.  Canadian boat exports are up 67.8% in January and February, the best start to a year since 2008.  The report speaks a lot of the anticipated discretionary demand of big ticket consumer items now that tax cuts have been implemented.  The discretionary spend has yet to be picked up in a meaningful way in retail sales, or home sales for that matter.  For seasonal charts on all of the categories of the report, you can access the results in the seasonal chart database at https://charts.equityclock.com/canadian-international-merchandise-trade-exports-imports.

Total Exports of all merchandise Seasonal Chart

Monthly Total Exports of all merchandise Data

Total Imports of all merchandise Seasonal Chart

Monthly Total Imports of all merchandise Data

The prospects pertaining to strong discretionary spend in the year ahead leads to a trade idea in a stock that actually begins its period of seasonal strength today.  While no longer in the watercraft business, Polaris is manufacturer of recreational vehicles, a very cyclical business, dependent on the discretionary budgets of American consumers.  According to our chart database, the optimal seasonal holding period for the stock is from April 7th to July 29th, resulting in a geometric average return of 8.6% per year above the benchmark rate. The stock has outperformed the market in 17 of the past 20 years during this timeframe.  Shares of Polaris were higher by 3.09% during Thursday’s session, moving above its declining 20 and 50-day moving averages.  While support is holding below at the rising 200-day moving average, gap resistance between $124 and $133 presents a significant hurdle overhead.  The gap range was already tested at the March highs before pulling back.  We’ll get a better sense of the strength of the consumer in the US when retail sales for March are released on April 16th.

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Polaris Inds, Inc. (NYSE:PII) Seasonality
PII Relative to the S&P 500PII Relative to the Sector

Monthly Seasonal Polaris Inds, Inc. (NYSE:PII)

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.84.

 

 

Seasonal charts of companies reporting earnings today:

Greenbrier Companies, Inc. (The) (GBX)  Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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