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Stock Market Outlook for April 25, 2018

If housing has anything to say about the broader economy, the risk of recession is low.

 

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:

Astro-Med, Inc. (NASD:ALOT) Seasonal Chart

Astro-Med, Inc. (NASD:ALOT) Seasonal Chart

AmTrust Financial Services, Inc. (NASD:AFSI) Seasonal Chart

AmTrust Financial Services, Inc. (NASD:AFSI) Seasonal Chart

Standard Motor Prod, Inc. (NYSE:SMP) Seasonal Chart

Standard Motor Prod, Inc. (NYSE:SMP) Seasonal Chart

Techne Corp. (NASD:TECH) Seasonal Chart

Techne Corp. (NASD:TECH) Seasonal Chart

TripAdvisor, Inc. (NASD:TRIP) Seasonal Chart

TripAdvisor, Inc. (NASD:TRIP) Seasonal Chart

Agnico Eagle Mines Ltd. (NYSE:AEM) Seasonal Chart

Agnico Eagle Mines Ltd. (NYSE:AEM) Seasonal Chart

TransAlta Corporation (TSE:TA) Seasonal Chart

TransAlta Corporation (TSE:TA) Seasonal Chart

Shaw Communications Inc. (USA) (NYSE:SJR) Seasonal Chart

Shaw Communications Inc. (USA) (NYSE:SJR) Seasonal Chart

Clarke, Inc. (TSE:CKI) Seasonal Chart

Clarke, Inc. (TSE:CKI) Seasonal Chart

Cerner Corp. (NASD:CERN) Seasonal Chart

Cerner Corp. (NASD:CERN) Seasonal Chart

Westport Fuel Systems Inc. (NASD:WPRT) Seasonal Chart

Westport Fuel Systems Inc. (NASD:WPRT) Seasonal Chart

 

 

The Markets

Stocks dipped on Tuesday as investors reacted negatively to earnings from some key economic bellwethers, such as Caterpillar and 3M.  The S&P 500 Index fell 1.34%, trading lower from its 50-day moving average, which was tested at the highs of the session.  The large-cap benchmark once again came close to testing its rising 200-day, which now hovers around 2608.  Price continues to trade within this massive descending triangle pattern that stems from the parabolic peak charted in January.  While the bearish price pattern gives bias to a break of the lower limit, at this point an upside break may be equally as likely.  Investors have found safety in the rising 200-day moving average amidst increasing headline risks and it may take a catalyst to break definitively below it.  Sentiment indicators remain cautious, a clear shift from the euphoria that surrounded the highs back in January, but it may be ideal to see a full bearish shift, similar to what was observed during the lows charted back in February.  This would create a better risk reward point for investors to really get aggressive again in equity positions.

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The rising yield of the 10-year treasury note was an easy culprit that analysts used to explain Tuesday’s decline.  But market activity suggested more was at play.  Utilities was the lone sector gainer on the session, undeterred by the rising cost of borrowing.  As well, small-caps significantly outperformed larger-cap counterparts.  These companies typically have greater sensitivity to increasing yields.  The small-cap Russell 2000 tested and bounced from its rising 20 and 50-day moving averages at the lows of the session.  The benchmark has shown positive relative performance since the end of February when threats of a trade war rattled markets.  This concern pertaining to the US relations with other countries, whether it pertain to a trade war or other geopolitical tensions, is causing investors to shift to companies that have more of a domestic focus, less exposed to an international market.  Technology, which has the greatest exposure to international sales, was lower by over 2% on the day, carving out a pattern that looks like a head-and-shoulders top.  A break of neckline support around 1100 suggests a calculated decline of an additional 130 points, or over 11%.  Technology is the largest sector constituent within the S&P 500 Index.  The loss of leadership in this former market darling could have longer-term negative implications on the direction of the broader market.

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On the economic front, a report on new home sales indicates strength in this spring home selling season.  The headline print indicated that the sales of new homes increased by 4.0% in March to a seasonally adjusted annual rate of 694,000.  Analysts were expecting a slight decline to 630,000.  Stripping out the seasonal adjustments, new home sales actually increased by 21.4%, well above the 17.2% gain that is average for this third month of the year.  The year-to-date gain now sits at 51.1%, well above the average gain by this point in the year of 38.2%.  Falling just behind the gain shown by this time last year, this is the second strongest increase in the past decade, emphasizing the strength in the consumer at this late stage in the economic recovery.  Low unemployment and the recently enacted tax cuts are certainly suggesting tailwinds, perhaps sufficient to offset the rising cost of borrowing.  Previously, the change in new home sales through February had been trending below average, but with revisions to prior data and the strong results for March, the concern that this leading economic indicator provided have now turned to optimism.  The result follows an upbeat report released on Monday pertaining to existing home sales, confirming a solid spring season, despite the adverse weather conditions in the US northeast during the month.  Sales of new homes not started and sales of homes under construction account for the vast majority of the strength, showing gains that are well above average on the year.  Completed homes, meanwhile, are showing gains that are lagging the historic norm.  These trends in itself have something to say about consumer sentiment as buyers look further out into the future and estimate their ability to finance the transaction, possibly at higher rates, once the home is complete.  With this strong result, the months of supply has flipped from 6, indicating a balanced market, to 4.4, which is back to around the lowest levels of the recovery.  This has elevated the median sales price, which rose 3.5% in March.  The average change for the month is –0.5%.  Historically, weakness in the housing market has preceded the vast majority of recessions in the US and this report effectively minimizes this risk.

New Home Sales Seasonal Chart

Monthly New Home Sales Data

New Home Sales Seasonal Chart

New Home Sales - Not Started Seasonal Chart New Home Sales - Under Construction  Seasonal Chart New Home Sales - Completed Seasonal Chart Median Sales Price for New Houses Sold Seasonal Chart

And staying on the housing front, Case-Shiller released their monthly report on home prices.  The headline print of the 20-city home price index indicated an increase of 0.8% in February, edging out estimates calling for a 0.7% gain.  Stripping out the seasonal adjustments, the actual increase was 0.7%, a positive divergence compared to the 0.2% decline that is average for the second month of the year.  Prices are now trending 1.6% above average year-to-date, the strongest start to a year since 2005.  Above average strength is fairly consistent across the regions with only Miami showing gains this year that are merely inline with seasonal norms.  Home prices tend to record the vast majority of their gains for the year between March and August, therefore the strength in prices could easily continue in the months ahead as the spring buying season heats up.  For a breakdown of the regions, the seasonal charts are available in the chart database at https://charts.equityclock.com/sp-corelogic-case-shiller-home-price-index-city-breakdown.

 S&P/Case-Shiller 20-City Composite Home Price Index Seasonal Chart

Monthly  S&P/Case-Shiller 20-City Composite Home Price Index Data

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.03

 

 

Sectors and Industries entering their period of seasonal strength:

Consumer Staples Sector Seasonal Chart

STAPLES Relative to the S&P 500
STAPLES Relative to the S&P 500

STAPLES Monthly Averages

Healthcare Sector Seasonal Chart

HEALTHCARE Relative to the S&P 500
HEALTHCARE Relative to the S&P 500

HEALTHCARE Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Advanced Micro Devices, Inc. (AMD) Seasonal Chart Aflac Incorporated (AFL) Seasonal Chart Align Technology, Inc. (ALGN) Seasonal Chart Anthem, Inc. (ANTM) Seasonal Chart AT&T Inc. (T) Seasonal Chart AvalonBay Communities, Inc. (AVB) Seasonal Chart Avery Dennison Corporation (AVY) Seasonal Chart Boeing Company (The) (BA) Seasonal Chart Boston Beer Company, Inc. (The) (SAM) Seasonal Chart Boston Scientific Corporation (BSX) Seasonal Chart Briggs & Stratton Corporation (BGG) Seasonal Chart Brink's Company (The) (BCO) Seasonal Chart Cenovus Energy Inc (CVE) Seasonal Chart Chipotle Mexican Grill, Inc. (CMG) Seasonal Chart Citrix Systems, Inc. (CTXS) Seasonal Chart Comcast Corporation (CMCSA) Seasonal Chart Credit Suisse Group (CS) Seasonal Chart Dr Pepper Snapple Group, Inc (DPS) Seasonal Chart eBay Inc. (EBAY) Seasonal Chart F5 Networks, Inc. (FFIV) Seasonal Chart Facebook, Inc. (FB) Seasonal Chart FLIR Systems, Inc. (FLIR) Seasonal Chart Ford Motor Company (F) Seasonal Chart Forward Air Corporation (FWRD) Seasonal Chart General Dynamics Corporation (GD) Seasonal Chart GlaxoSmithKline PLC (GSK) Seasonal Chart Goldcorp Inc. (GG) Seasonal Chart Ingersoll-Rand plc (Ireland) (IR) Seasonal Chart Laboratory Corporation of America Holdings (LH) Seasonal Chart Las Vegas Sands Corp. (LVS) Seasonal Chart Norfolk Souther Corporation (NSC) Seasonal Chart Northrop Grumman Corporation (NOC) Seasonal Chart O'Reilly Automotive, Inc. (ORLY) Seasonal Chart  Peabody Energy Corporation (BTU) Seasonal Chart QUALCOMM Incorporated (QCOM) Seasonal Chart Rockwell Automation, Inc. (ROK) Seasonal Chart The Goodyear Tire & Rubber Company (GT) Seasonal Chart Thermo Fisher Scientific Inc (TMO) Seasonal Chart Tupperware Brands Corporation (TUP) Seasonal Chart VALE S.A. (VALE) Seasonal Chart Viacom Inc. (VIAB) Seasonal Chart Visa Inc. (V) Seasonal Chart Xilinx, Inc. (XLNX) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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