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Stock Market Outlook for April 23, 2018

A number of indicators suggesting investor caution, including margin debt, which is showing second weakest first quarter change in a decade.

 

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:

Raven Industries, Inc. (NASD:RAVN) Seasonal Chart

Raven Industries, Inc. (NASD:RAVN) Seasonal Chart

Atmos Energy Corp. (NYSE:ATO) Seasonal Chart

Atmos Energy Corp. (NYSE:ATO) Seasonal Chart

SCANA Corporation  (NYSE:SCG) Seasonal Chart

SCANA Corporation (NYSE:SCG) Seasonal Chart

Ameren Corporation (NYSE:AEE) Seasonal Chart

Ameren Corporation (NYSE:AEE) Seasonal Chart

Veresen (TSE:VSN) Seasonal Chart

Veresen (TSE:VSN) Seasonal Chart

Techne Corp. (NASD:TECH) Seasonal Chart

Techne Corp. (NASD:TECH) Seasonal Chart

TransAlta Corp. (NYSE:TAC) Seasonal Chart

TransAlta Corp. (NYSE:TAC) Seasonal Chart

 

 

Monthly Outlook

The first monthly outlook and portfolio allocation will be released in the next couple of days, available exclusively to subscribers of the Seasonal Chart Database.  To receive a copy, simply subscribe to either the monthly or yearly option and access all of the benefits that this site has to offer.  Click here to learn more.

 

The Markets

Stocks dipped on Friday as shares of Apple weighed on broad market benchmarks.  The tech titan saw its stock fall by 4.1% after an analyst issued a warning pertaining to sales in the present quarter.  The stock is back to around its rising 200-day moving average, presenting a critical line in the sand to the longer-term uptrend in the value of company.  Horizontal support is implied around $165, which forms the basis of a neckline to a modified head-and-shoulders topping pattern.  A break of support below could result in a drop of another 13% back to the lows charted in February close to $150.  Seasonally, given the growth characteristics of the company, the stock has tended to be much less exposed to seasonal fluctuations than the broader market.  According to the seasonal chart database, the optimal holding period based on frequency, return, and volatility relative to the market benchmark is from June 12th to September 24th, resulting in a geometric average return of 13.78% above the S&P 500 Total Return Index.  The stock has outperformed the benchmark in 17 of the past 20 years during this timeframe.  This is generally the period following its annual developer conference, which provides all of the hoop-la of a product launch without the nuisance of the selloff thereafter.  This year’s developer conference runs between June 4th through the 8th.  Weakness ahead of this event could lead to ideal buying opportunities for the period of strength ahead.

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Apple Inc.  (NASDAQ:AAPL) Seasonality
AAPL Relative to the S&P 500AAPL Relative to the Sector

Monthly Seasonal Apple Inc.  (NASDAQ:AAPL)

The drag from Apple is putting a number of benchmarks at risk of confirming another lower-high stemming from the January peak.  A descending triangle can be derived on the charts of the S&P 500 Index and Dow Jones Industrial Average.  The Nasdaq Composite is at risk of recording a head-and-shoulders topping pattern.  Horizontal support for each of these bearish setups are around 3% to 5% below present levels, but a break of this lower limit could imply downside potential of roughly an additional 10%.  Technology will certainly be in focus. 

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One of the gauges of risk sentiment in the technology sector, and the market as a whole, is already testing the neckline to its bearish setup. The Philadelphia Semiconductor Index is  sitting on top of support at 1270, a break of which could see a giveback of almost a year’s worth of gains.  The semiconductor index is seasonally weak between early March and late May, a trend that is playing out almost exactly this year.

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PHLX Semiconductor Seasonal Chart

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

$SOX Monthly Averages

Recapping the week with a look at the weekly chart of the S&P 500 Index, the large-cap benchmark returned just over half of one percent, continuing to hold close the mid-point to the longer-term rising trend channel.  The benchmark is finding resistance at the 20-week moving average, while support is derived by the 50-week.  Momentum indicators continue to make progress in rebounding following the corrective pattern that dominated the first quarter, but it probably would not be reasonable to expect a swift rebound.  Sentiment indicators, while off of the overly bearish levels seen at each of the market lows, still appear very cautious.  The VIX is holding around levels that had acted as resistance over the past year as a risk premium remains embedded in the cost of protection.  While certainly more favourable for stocks than the complacent levels seen around the January peak, the activity in the market still suggests that investors are watching and waiting, looking for the all clear for the next move higher.

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Another gauge of investor sentiment that is suggesting caution is the level of margin debt.  The year-to-date change in margin debt has come well off of the above average level recorded in January when investors were leveraged within equity portfolios.  As of the end of March, margin debt is effectively unchanged on the year, representing the second weakest start to a year since the March 2009 lows.  The only other time in the past decade that the change in margin debt was weaker was in March of 2016, following the corrective low in February.  While the gauge of leverage in the market does move inline with the direction of the broader equity market, it is often useful to highlight extremes, such as complacency or scepticism.  At the present time, while not at the extreme end of the equation, caution is certainly representative of how investors are positioned.

NYSE Margin debt Seasonal Chart

Monthly NYSE Margin debt Data

With economic news light in the US, we turn to data released out of Canada.  First up was the consumer price index (CPI) for March.  Statscan indicates that  prices rose by 0.3% last month, slightly below estimates calling for a 0.4% rise.  Year-to-date, the gauge of inflation is higher by 1.6% in the first quarter, firmly above the seasonal average trend that calls for a 1.1% rise by this point in the year.  Mortgage interest costs continue to be significant, rising by a magnitude not seen in a decade.  This in turn is contributing to above average growth in shelter costs, including rent, which is showing the highest first quarter growth since 2013.  Other categories having a significant influence on the aggregate result include internet access, child care, financial services, household appliances, dry cleaning services, public transportation, air transportation, health & personal care, and alcoholic beverages.  Some of these categories are showing some of the largest price gains for the first quarter on record as businesses respond to the higher costs of labour and input prices.  Inflation is certainly embedded in the economy, covering virtually all aspects of the lives of consumers.  While the result would appear to give the green light to the Bank of Canada to be more aggressive in its monetary policy, higher rates could have the impact of further constraining the budgets of Canadians given the increase in debt financing costs.  A number of categories in the report have seen sizable price jumps due to fiscal policy, such as the recently enacted minimum wage increase in Ontario, and are not necessarily the result of an overheating economy that requires the central bank to interject in order to calm activity. Rising commodity prices through the month of April are sure to pressure inflation higher in the months ahead, more so the result of strength in the US rather than here at home.  For a complete breakdown of the results, the seasonal charts can be accessed via the chart database at https://charts.equityclock.com/canada-consumer-price-index-cpi.

Canada CPI - All-items Seasonal Chart

Monthly Canada CPI - All-items Data

Also released on Friday was the report on retail sales for the month of February.  The headline print indicated that sales increased by 0.4% in the month, a slight miss versus estimates of a 0.5% gain.  Stripping out the seasonal adjustments, sales were actually lower by 4.7% in the month, below the 4.4% decline that is average for this period.  Despite the weaker than average print on the month, the year-to-date trend remains above average by around 3.6%, very close to the pace set this time last year.  Helping to maintain this above average rate are health, electronic, home furnishings, and general merchandise stores, highlighting the strength in discretionary spending.  Grocery stores, meanwhile, are trending below average and auto retail locations are showing year-to-date gains that are inline with seasonal norms.  Even with reports of high consumer debt in Canada, consumers are still finding the ability to spend.  It is unclear when rising transportation and housing costs will take a toll, but when it doesn’t it would be a reasonable expectation that a recession in this country will follow.  Retail sales typically show a calendar year decline about once every four years; we are now in the sixth year that retail sales activity could show calendar year growth.  To browse the seasonal charts of this report, you can access the results in the database at https://charts.equityclock.com/canada-retail-trade-sales.

Retail trade Seasonal Chart

Monthly Retail trade Data

Sentiment on Friday, as gauged by the put-call ratio, ended close to neutral at 0.98.  Once again, the activity in the options market is indicative of investor caution.  The indicator hit an overly bearish high almost one month ago, suggesting favourable risk-reward in the equity market.

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Seasonal charts of companies reporting earnings today:

Alaska Air Group, Inc. (ALK) Seasonal Chart Alphabet Inc. (GOOGL) Seasonal Chart American Campus Communities Inc (ACC) Seasonal Chart AMERIPRISE FINANCIAL SERVICES, INC. (AMP) Seasonal Chart Bank of Hawaii Corporation (BOH) Seasonal Chart Barrick Gold Corporation (ABX) Seasonal Chart Canadian National Railway Company (CNI) Seasonal Chart Chicago Bridge & Iron Company N.V. (CBI) Seasonal Chart Crane Company (CR) Seasonal Chart Halliburton Company (HAL) Seasonal Chart Hasbro, Inc. (HAS) Seasonal Chart Kimberly-Clark Corporation (KMB) Seasonal Chart Lennox International, Inc. (LII) Seasonal Chart Owens-Illinois, Inc. (OI) Seasonal Chart TD Ameritrade Holding Corporation (AMTD) Seasonal Chart Tennant Company (TNC) Seasonal Chart Whirlpool Corporation (WHR) Seasonal Chart Zions Bancorporation (ZION) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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