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Stock Market Outlook for April 13, 2018

Short-term head-and-shoulder bottoming patterns on charts of major benchmarks present upside potential of around 4%. 

 

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:

Summit Industrial Income REIT (TSE:SMU-UN) Seasonal Chart

Summit Industrial Income REIT (TSE:SMU-UN) Seasonal Chart

Integer Holdings Corp. (NYSE:ITGR) Seasonal Chart

Integer Holdings Corp. (NYSE:ITGR) Seasonal Chart

LTC Properties, Inc. (NYSE:LTC) Seasonal Chart

LTC Properties, Inc. (NYSE:LTC) Seasonal Chart

Golden Entertainment, Inc. (NASD:GDEN) Seasonal Chart

Golden Entertainment, Inc. (NASD:GDEN) Seasonal Chart

Layne Christensen Co. (NASD:LAYN) Seasonal Chart

Layne Christensen Co. (NASD:LAYN) Seasonal Chart

Intel Corporation (NASDAQ:INTC) Seasonal Chart

Intel Corporation (NASDAQ:INTC) Seasonal Chart

Cambrex Corporation (NYSE:CBM) Seasonal Chart

Cambrex Corporation (NYSE:CBM) Seasonal Chart

Boyd Group Income Fund (TSE:BYD-UN) Seasonal Chart

Boyd Group Income Fund (TSE:BYD-UN) Seasonal Chart

j2 Global Communications Inc. (NASD:JCOM) Seasonal Chart

j2 Global Communications Inc. (NASD:JCOM) Seasonal Chart

BioScrip, Inc. (NASD:BIOS) Seasonal Chart

BioScrip, Inc. (NASD:BIOS) Seasonal Chart

Le Chateau (TSE:CTU) Seasonal Chart

Le Chateau (TSE:CTU) Seasonal Chart

 

 

The Markets

Stocks gained on Thursday as investors set aside some of the headline risks and start to focus on earnings, which get into gear on Friday with reports from Citigroup, JP Morgan, PNC Financial, and Wells Fargo.  The financial sector topped the leaderboard in anticipation of strong results, the earnings of which are expected to show growth of 19.8%, according to FactSet.  Overall, S&P 500 companies are expected to show an increase in earnings per share of 17.1%, which represents the largest gain since the first quarter of 2011.  But it is the underlying growth that will be scrutinized given that all companies are expected to see a substantial bottom-line benefit following the implementation of the Trump tax cuts.  Revenue is expected to grow by 7.3%, year-over-year, led by materials, energy, and technology.  Companies unable to show growth on the top-line are likely to be penalized.  It is closing in on the time of year that stocks start to fade relative to their benchmarks once investors have digested the reports.  The financial sector is one of the earlier cyclical sectors to hit a relative peak, concluding its period of seasonal strength on April 13th, on average.  The S&P 500 Financial Sector was higher by 1.82% on Thursday, closing marginally above its 20-day moving average.  Momentum indicators have curled higher in recent days, triggering momentum buy signals.  Resistance at the 50-day moving average hovers around 471.

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Financial Sector Seasonal Chart

FINANCIAL Relative to the S&P 500
FINANCIAL Relative to the S&P 500

FINANCIAL Monthly Averages

With financials taking a leadership role during Thursday’s session, the broader market closed higher with the S&P 500 Index adding around eight-tenths of one percent.  Price continues to coil on the daily chart, but it is a pattern on the hourly charts that is becoming intriguing.  The S&P 500 Index is showing a short-term head-and-shoulders bottoming pattern with the neckline apparent around 2672.  The tech heavy Nasdaq 100 shows a neckline to this bullish setup around 6640, a level that was broken and held as support during Thursday’s session.  Upside potential of these patterns suggest a move of around 4%, which, if fulfilled, could put the March highs to the test.  The S&P 500 Index, Nasdaq Composite, and Dow Jones Industrial Average all closed above their declining 20-day moving average lines on Thursday, breaking a hurdle that has constrained upside momentum over recent days.

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NASDAQ 100 Seasonal Chart

$NDX Relative to the S&P 500
$NDX Relative to the S&P 500

$NDX Monthly Averages

Given these short-term bullish setups on the charts of major equity indices, confirmation of investor risk sentiment is generally an ideal approach.  The headline risks have fuelled caution amongst investors over the past couple of months, giving rise to bonds and some of the defensive sectors of the market, such as utilities and REITs.  The trade in these defensive segments of the equity market unwound in a rather significant way on Thursday.  The S&P 500 Utilities Sector Index lost 1.28% and the MSCI US REIT Index shed 1.22%.  The utilities sector benchmark broke below its short-term rising trendline as investors rotate back towards cyclically sensitive sectors, such as the previously mentioned financials, as well as industrials, materials, and technology.  While considering the risk that this could be a short-term shakeout, particularly if headline risks re-emerge, the action on the day suggests a rotation back towards risk, which is conducive to fuelling the next wave higher in the broader market.  Aside from energy, defensive sectors have been the place to hide over the past few months, during an otherwise strong seasonal period for cyclical stocks, but the tide may be shifting back towards risk assets as investor refocus on the strong economic fundamentals.

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Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

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MSCI US REIT Index Seasonality

$RMZ Relative to the S&P 500
$RMZ Relative to the S&P 500

Monthly Seasonal MSCI US REIT Index

Sentiment on Thursday, as gauged by the put-call ratio, ended around neutral at 0.99.

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Seasonal charts of companies reporting earnings today:

Citigroup Inc. (C) Seasonal Chart First Horizon National Corporation (FHN) Seasonal Chart FIRST REPUBLIC BANK (FRC) Seasonal Chart Infosys Limited (INFY) Seasonal Chart J P Morgan Chase & Co (JPM) Seasonal Chart PNC Financial Services Group, Inc. (The) (PNC) Seasonal Chart  Wells Fargo & Company (WFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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