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Stock Market Outlook for April 11, 2018

Energy sector breaks out of its consolidation range: Is the broader market next?

 

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:

S&P Global Inc. (NYSE:SPGI) Seasonal Chart

S&P Global Inc. (NYSE:SPGI) Seasonal Chart

Republic Bancorp, Inc. (NASD:RBCAA) Seasonal Chart

Republic Bancorp, Inc. (NASD:RBCAA) Seasonal Chart

Lockheed Martin Corporation  (NYSE:LMT) Seasonal Chart

Lockheed Martin Corporation (NYSE:LMT) Seasonal Chart

 

 

The Markets

Stocks jumped on Tuesday as investors reacted to a speech from Chinese President Xi Jinping, who discussed plans to to open up the country’s economy.  The S&P 500 Index surged by 1.67%, testing, once again, the declining 20-day moving average.  The benchmark has been gyrating between resistance at this short-term moving average and support at the 200-day moving average for the past three weeks, charting large intraday swings as investors attempt to find a level of comfort amongst equity prices.  The more formidable level of resistance to watch is the gap around 2700, which is now intersecting with the declining 50-day moving average.  Significant negative reaction to this hurdle would increase the likelihood of a break of horizontal support below around 2575.  A bullish MACD crossover was triggered during Tuesday’s session, presenting some hope that the next move on the benchmark is higher, barring some catalyst that destabilizes markets, yet again.

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Topping the leaderboard on Tuesday was the energy sector as commodity prices moved higher following the Chinese President’s remarks.  The S&P 500 Energy Sector index broke out from its intermediate consolidation range, as well as advanced beyond significant moving averages in the process.  The energy benchmark has significantly outperformed the market for the past three weeks, benefitting from the strength in the price of oil, which remains around multi-year highs.  Strong demand for product commodities and a return to normal levels for stockpiles of the raw input have been a significant influence.  Seasonally, the price of oil and the stocks of the companies that produce it tend to gain through the start of May.  We’ll obtain further insight as to the state of the oil market when the EIA releases their official tally on Wednesday.

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Energy Sector Seasonal Chart

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

ENERGY Monthly Averages

On the economic front, reports on PPI and Wholesale Trade provided insight as to what is going on behind the scenes at businesses in the US.  Starting with February’s report on Wholesale Trade, the headline print indicated that both sales and inventories increased by 1.0%, inline with the consensus analyst forecast.  Stripping out the seasonal adjustments, wholesale sales were actually lower by 5.8%, while inventories increased by 0.7%.  The average change for each in the second month of the year is –2.2% and +0.1%, respectively.  This places the year-to-date change for sales firmly below the average trend, while inventories are firmly above.  Inventories  are showing the strongest start to the year since 2011 as businesses build up stockpiles expecting a strong sell-through rate in the year ahead given the new tax environment.  Obviously, the sales statistics have yet to match up to expectations.  Parsing the details on the sales side, both durable and non-durable goods are showing weakness with furniture, commercial equipment, electronic goods, drugs, and petroleum products some of the notable laggards.  Rising inventory levels have increasingly become a concern across the economic reports as it suggests that the optimism that most companies had coming into the new year may be misplaced, forcing them to liquidate their products at prices cheaper than initially planned.  Keep in mind that it remains early in the year, particularly with this report, which is delayed by over a month.  March typically provides a conclusive gauge of activity across a number of reports as companies attempt to button up activity ahead of the close of the first quarter; March is the strongest month for wholesale sales growth, rising 15.1%, on average, to the highs of the year.  If sales fail to materialize by this last month of the first quarter, reason for concern may be justified, particularly if inventories maintain their above average trend.  Until then, reports on retail sales and industrial production to be released in the coming week will have to suffice as indication to the strength of the consumer and business in the first quarter.  For a breakdown of the report, the seasonal charts are available in the database at https://charts.equityclock.com/u-s-wholesale-trade-sales-and-inventories.

Wholesale Sales  Seasonal Chart

Monthly Wholesale Sales  Data

Wholesale Sales Seasonal Chart

Wholesale Inventories Seasonal Chart

Also released on Tuesday was the latest gauge of inflation in the US.  The headline print for March of the Producer Price Index for Final Demand increased by 0.3% last month, firmly above the 0.1% increase that was consensus amongst analysts.  Stripping out the seasonal adjustments, the increase in the Producer Price Index by Commodity for Final Demand: Finished Goods was actually 0.4%, which is two-tenths of one percent below the average gain for the month.  By this gauge, the year-to-date change is running  two-tenths of a percent below the seasonal norm, a shift from the above average pace charted in 2017.  Less food and energy, PPI for finished goods is running two-tenths of a percent above average, although still below the pace set last year.  While many details in the report still suggest strong inflationary growth in prices, the report is not overly hot to suggest immediate action is required on the part of the Fed.  Bottom line is that inflationary pressures are here and it will inevitably result in a higher cost of borrowing as the Fed looks to control the pace of gains, but, so far, the rise appears orderly, certainly not enough to change forecasts away from the three hikes projected by policy makers for this year.

http://charts.equityclock.com/seasonal_charts/economic_data/WPUFD49207_seasonal_chart.PNG

 Producer Price Index by Commodity for Final Demand: Finished Goods Less Foods and Energy Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.85.  Following numerous bearish reads over the past few weeks as investors hedged their books, portfolio managers are now leaning on the bullish side, offsetting bearish bets and focussing on the upside potential for stocks.  Unfortunately, this increases the vulnerability of the equity market to some type of shock event as managers can no longer lean on their hedges in the event of a selloff.  The recent bullish reads certainly haven’t been as extreme as the January lows, but the trend is heading that way.

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Seasonal charts of companies reporting earnings today:

Bed Bath & Beyond Inc. (BBBY) Seasonal Chart Fastenal Company (FAST) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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