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Stock Market Outlook for April 9, 2018

Despite risk-off shift, treasury bond prices continue to hold below neckline of H&S topping pattern.

 

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:

Gartner Group, Inc. (NYSE:IT) Seasonal Chart

Gartner Group, Inc. (NYSE:IT) Seasonal Chart

Prosperity Bancshares, Inc. (NYSE:PB) Seasonal Chart

Prosperity Bancshares, Inc. (NYSE:PB) Seasonal Chart

NuVasive, Inc. (NASD:NUVA) Seasonal Chart

NuVasive, Inc. (NASD:NUVA) Seasonal Chart

Brookfield Infrastructure Partners (TSE:BIP-UN) Seasonal Chart

Brookfield Infrastructure Partners (TSE:BIP-UN) Seasonal Chart

Algonquin Power & Utilities Corp (TSE:AQN) Seasonal Chart

Algonquin Power & Utilities Corp (TSE:AQN) Seasonal Chart

PG&E Corporation  (NYSE:PCG) Seasonal Chart

PG&E Corporation (NYSE:PCG) Seasonal Chart

ABIOMED, Inc. (NASDAQ:ABMD) Seasonal Chart

ABIOMED, Inc. (NASDAQ:ABMD) Seasonal Chart

Campbell Soup Company  (NYSE:CPB) Seasonal Chart

Campbell Soup Company (NYSE:CPB) Seasonal Chart

Petroquest Energy, Inc. (NYSE:PQ) Seasonal Chart

Petroquest Energy, Inc. (NYSE:PQ) Seasonal Chart

Sanderson Farms, Inc. (NASD:SAFM) Seasonal Chart

Sanderson Farms, Inc. (NASD:SAFM) Seasonal Chart

 

 

The Markets

Stocks sold off on Friday as fears of a full blown trade war were revived as President Trump asked the United States Trade Representative to consider $100 Billion in additional tariffs against China.  The S&P 500 Index plunged by 2.19%, once again testing the 200-day moving average as support at the lows of the session.  The 20-day moving average has been confirmed as resistance overhead. 

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For the week, the 1.38% decline charts another “spinning top” candlestick, indicating indecision.  While investors are seemingly not inclined to step into the market in a big way given the headline risks, the present  catalysts have been insufficient to push the large-cap benchmark below long-term variable support.  Momentum indicators on this weekly look continue to point lower, not yet showing signs of rebounding from what remains a typical ABC correction from the parabolic highs charted at the start of last year.

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As stocks fall, investors are rotating to defensive bets in the consumer staples, utilities, and REIT sectors.  The relative performance of each of these market segments has noticeably ticked higher as portfolio managers seek to reduce risk.  As reported previous, while strength in Utilities and REITs is typical through this spring period, it is fairly early for staples to be showing this relative rise during a month that is typically favourable for cyclical sectors.  The ratio of the Consumer Discretionary sector relative to Consumer Staples, a key gauge of risk, is showing signs of resistance at its 20-day moving average, seemingly kick-starting a tendency towards risk aversion that plays out closer to the end of April.  Seasonally, the consumer staples sector typically outperforms discretionary between the end of April and the beginning of October.

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Turning to the treasury market, the classic risk-off trade is also on the rise, despite the risks posed by further rate increases expected later this year.  The 30-year treasury bond price is seemingly grinding along the lower limit of its long-term rising trend channel.  As highlighted previously, tests of the lower limit of this channel have typically coincided with negative reaction in the equity market, and it appears we have gotten just that.  But the bounce appears to not be as pronounced as previous risk-off shifts.  Typically, two months out from the initial test, treasury bond prices tend to be noticeably higher.  The gains this round have been fairly muted, rising just less than 2.5% from the February low.  While obviously outperforming the equity market return in the last many weeks, the move does not suggest that investors are positioning for a longer-term move higher in the treasury bond price, along with the continuation of the bull market trend.  Now this may end up being a contrarian indicator, but the likelihood of a break of the rising channel is increasing.  A break-down could leave a sizeable chunk of this asset class seeking alternative investments, some of which may make their way into equities and commodities.  Horizontal resistance on the chart of the 30-year bond sits at $146.50, or just less than one percent above present levels.  Seasonally, treasury bond prices rise, on average, between May and October.

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On the economic front, the US monthly employment report for March was unable to hold the pace charted in the month prior.  The headline print indicated that payrolls increased by 103,000, well short of the 175,000 increase forecasted by analysts.  The unemployment rate remained unchanged at 4.1% and average hourly earnings ticked higher by three-tenths of one percent.  Stripping out the seasonal adjustments, 655,000 jobs were added last month, or an increase of 0.5%.  The average increase for the third month of the year is 0.6%.  The result puts the year-to-date trend three-tenths of one percent above the seasonal norm through the first quarter, inline with the pace set last year as the manufacturing economy rebounds from the recessionary conditions of the years prior.  Parsing the details, the manufacturing economy appears live and well with manufacturing payrolls increasing by 1.0% in the first quarter, the best start to a year since 2012.  Durable goods manufacturing continues to factor prominently in the result, showing gains on the year that are much earlier than average following the winter slowdown.  Materials and machinery are both contributing to the healthy result, suggesting a certain robustness in the manufacturing economy over two years into the recovery.  Elsewhere in the report, retail employment is running 1.3% above average through the first three months of the year as autos and building materials show gains year-to-date.  Yet again, we are seeing indications that companies are preparing for strong discretionary spend in the year ahead given the implementation of the Trump tax cuts.  A recent report on vehicle sales for March indicated that the pace set out of the gate this year is well above the trend set at this time last year when strength of the discretionary budgets of consumers was in question.  The vehicle sales result, however, still remains slightly below the average trend through the first quarter, but the gap is closing.  Rounding off the report, utilities employment spiked in the month, perhaps no surprise given the colder and snowier than average weather in the US north-east.  The 1.2% gain in employment in this sector during March was well above the 0.1% gain that is average in a month that encompasses the last day of winter.  Overall, albeit a lagging indicator, the employment report suggests that corporations are upbeat on both the industrial and consumer economy.  While more data is needed to confirm the sell through rate, corporations are not hesitant about putting the resources obtained from the tax cuts to work, increasing the employee base of their companies in anticipation of strong activity ahead.  This would otherwise bode well for risk assets, but, as headline risks continue to dominate, equity investors are remaining skittish.  The headlines can vary from session to session, but the more sustainable trend higher in domestic fundamentals provides an upside bias to equity markets over the longer-term.  Comments from CEOs in the upcoming earrings season will be closely scrutinized to determine the threats, as they see it, proposed by the ongoing trade rhetoric.  For a complete breakdown of all of the categories in the employment report, the seasonal charts are available in the database at https://charts.equityclock.com/u-s-employment-situation.

Total Nonfarm Seasonal Chart

Monthly Total Nonfarm Data

Manufacturing Seasonal ChartRetail trade Seasonal ChartUtilities Seasonal Chart

North of the border, Statscan released its look at the state of employment in Canada, and while the result did exceed expectations, the underlying trend is not as upbeat as the US.  The headline print indicated that 32,300 jobs were added in March, firmly better than the 20,000 increase forecasted by analysts.  Stripping out the seasonal adjustments, employment actually increased by 43,800, or 0.2%, which is precisely inline with the average increase for this time of year.  Year-to-date, the change in employment is running three-tenths of one percent below average, weighed down by weakness in part-time employment.  Full-time employment, meanwhile, is running three-tenths of a percent above average.  Parsing the details, while goods producing jobs are thriving in the US, the growth on this side of the border is starting to lag seasonal averages as manufacturing moves in the opposite direction to the US counterpart.  Finance, insurance, and real estate employment is also weak, down by 2.9% through the first three months of the year, a full three percent below seasonal norms as the housing market struggles and mortgage activity declines.  Construction, health care, and utilities were the few bright spots in this report that was far from robust.  The strength of the manufacturing economy that had previously shown benefits on a global scale is slowly deviating in favour of the US given their new tax regime that makes business more favourable.  Uncertainty surrounding NAFTA also does not help.  Along with the sluggish performance of employment in the new year, unemployment is rising above average, showing the second largest increase through the first quarter since the economic recovery began in 2009.  The 16.8% increase is firmly above the 14.5% increase that is normal for the first three months of the year.  Perhaps needless to say, the results are not encouraging, and certainly places the economy on a different trajectory than the US.  The “me-first” mentality of the US could cause a strain on activity in Canada through the remainder of the year, despite the favourable backdrop for resources that would have otherwise boosted activity.  For a complete breakdown of the report, the seasonal charts are available in the database at https://charts.equityclock.com/canada-labour-force-survey.

Canada Employment Seasonal Chart

Canada Employment full-time Seasonal Chart Canada Employment part-time Seasonal Chart Canada Unemployment Seasonal Chart

The Canadian dollar traded lower following the result, in part due to the over 2% decline in the price of oil on the day.  The Canadian currency tested resistance at the declining 50-day moving average at the highs of the session.  Support has recently become apparent at the 20-day.  Seasonally, the Canadian dollar tends to strengthen through the end of April.

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Canadian Dollar Forex (CAD) Seasonality

Monthly Seasonal Canadian Dollar Forex (CAD)

Sentiment on Friday, as gauged by the put-call ratio, ended slightly bearish at 1.03.

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Seasonal charts of companies reporting earnings today:

Sigma Designs, Inc. (SIGM) Seasonal Chart Simulations Plus, Inc. (SLP) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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