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Stock Market Outlook for May 2, 2018

Descending triangle patterns continue to dominate the price action.

 

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:

CorVel Corp. (NASD:CRVL) Seasonal Chart

CorVel Corp. (NASD:CRVL) Seasonal Chart

Rogers Sugar (TSE:RSI) Seasonal Chart

Rogers Sugar (TSE:RSI) Seasonal Chart

CBOE Holdings Inc. (NASD:CBOE) Seasonal Chart

CBOE Holdings Inc. (NASD:CBOE) Seasonal Chart

Ventas, Inc.  (NYSE:VTR) Seasonal Chart

Ventas, Inc. (NYSE:VTR) Seasonal Chart

TransCanada Corporation (TSE:TRP) Seasonal Chart

TransCanada Corporation (TSE:TRP) Seasonal Chart

 

 

The Markets

Stocks closed mildly higher on Tuesday, reversing sharp losses recorded intraday.  The S&P 500 Index added a quarter of one percent, closing right around its 20-day moving average, which was broken in the session prior.  The benchmark was down by just over eight-tenths of one percent at the lows of the session as strength in the US dollar weighed on risk assets.  In addition to the descending triangle pattern that remains at play, the battle between support at the 200-day moving average and resistance at the 50-day moving average is alive as well.  The limits for both setups are converging on one another, suggesting a break, one way or the other, is near.

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Despite the weakness seen intraday, investors were not seen running towards some of the defensive areas of the market.  The S&P 500 Consumer Staples sector index charted another 52-week low, shedding nearly nine-tenths of one percent by the closing bell.  Dollar strength is a particular burden on the low growth, multinational constituents that this sector presents.  The ratio of the consumer staples sector index versus the consumer discretionary sector index still favours the riskier, cyclically focussed, bet.  This is counter to the average seasonal tendency that favours the defensive sector starting from the middle of April as investors trim beta in market portfolios in order to hedge against volatility.  While strength in the US Dollar threatens to weigh on the broader market, some sectors have greater exposure than others.

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While we wait to determine the direction of the break from the descending triangle pattern on the charts of major market benchmarks, a similar setup has already been cracked for one of the sectors of the market.  The S&P 500 Industrial Sector Index moved below support around 600 intraday.  The benchmark ended right around horizontal support at the closing bell.  The triangle pattern can be seen across a number of charts, presenting downside potential of over 10%.  A move of this magnitude would meet the classification of a bear market, something that would be rare in the context of above average economic growth and strong corporate fundamentals.

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Industrials Sector Seasonal Chart

INDUSTRIAL Relative to the S&P 500
INDUSTRIAL Relative to the S&P 500

INDUSTRIAL Monthly Averages

Another sector showing the ominous triangle setup is the Canadian financial sector, which is just now testing the upper limit of its narrowing range.  The sector has moved off of its lows in recent days as the Canadian dollar declines relative to its US counterpart.  While the broader period of seasonal strength for the financial sector has concluded, Canadian financials tend to be less exposed to the seasonal fluctuations in the broader sector, or even the market.  In fact, we’ve identified Bank of Nova Scotia and Bank of Montreal as showing their optimal seasonal holding periods during the summer months.  The higher yields offered by the big Canadian banks makes them an ideal addition to mitigate the summer volatility.  To access the seasonal profiles, click on the following links: Bank of Montreal Seasonality | Bank of Nova Scotia Seasonality

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S&P/TSX Capped Financial Index Seasonal Chart

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

$SPTFS Monthly Averages

On the economic front, Statscan released their monthly look at Gross Domestic Product (GDP) in Canada.  The headline print indicated that GDP increased by 0.4% in February, edging out the consensus estimate that called for a 0.3% rise.  Stripping out the seasonal adjustments, GDP in Canada actually increased by 4.7% in February, which is two-tenths of one percent better than average for the month.  Year-to-date, the trend is lagging the seasonal norm by four-tenths of one percent, weighed down by sluggish activity amongst goods-producing industries.  Parsing the details, energy, utilities, and real estate are weighing on the year-to-date trend, each falling short of seasonal norms by 1% to 3%.  But outside of these categories, there are a number of areas that confirm the strength seen south of the border.  First is strength in the manufacturing economy, although it has become much more fragmented compared to the broad strength seen in the past year.  The manufacturing category is up by 11.1% in 2018, inline with the seasonal norm and 2.2% above the change shown by this time last year.  Beverage, chemical, pharmaceuticals, fertilizers, equipment, and steel are the bright spots in this manufacturing segment.  Pesticide, fertilizer and other
agricultural chemical manufacturing is showing a gain on the year that is almost 100% above average by the end of February, the best growth on record.  Fertilizer shipments typically peak in the spring of each year ahead of the planting season.  Another trend that we have highlighted in recent reports is the strength in technology, which is showing performance this year that is equivalent to the late 1990’s.  Electrical equipment manufacturing is up by 26.0%, well above the 6.0% gain that is average by the end of February.  The information and communication technology sector is trending 1.2% above the seasonal norm, which is the best performance based on data in this segment going back the past decade.  Overall, while there remains evidence that activity is being pulled away from Canada and back into the US, a number of categories, such as technology, appear to be picking up the slack.  The global synchronized growth has become disconnected in favour of the US with the implementation of the tax cuts at the end of last year, placing countries like Canada at risk of sluggish activity in the year ahead even though growth in the US remains above average.  Seasonally, GDP in Canada continues to rise through the spring before dipping into the month of July, the typical factory shutdown period.  For a complete breakdown of the results, you can access the seasonal charts via the database at https://charts.equityclock.com/canada-monthly-gross-domestic-product-gdp-by-industry.

Canada GDP - All industries Seasonal Chart

Monthly Canada GDP - All industries Data

Canada GDP - Manufacturing Seasonal ChartCanada GDP - Information and communication technology sector Seasonal ChartCanada GDP - Pesticide, fertilizer and other agricultural chemical manufacturing Seasonal ChartCanada GDP - Electrical equipment manufacturing Seasonal Chart

South of the border, a report on construction spending perhaps rattled some nerves from analysts that were looking for growth on the headline print.  Spending on construction projects fell 1.7% in March, a significant divergence versus expectations of a gain of 0.5%.  Stripping out the seasonal adjustments, construction spending was actually higher by 9.9% in March, which is below the 11.3% gain that is average for the third month of the year.  The impact of a number of storms hitting the US north-east would have taken a toll.  For the first quarter overall, spending is up by 2.0%, which is 1.2% above the seasonal norm.  Private residential and public spending account for the strength behind the aggregate result.  Parsing the details, office construction is running 3.4% above average as companies seek to build locations for employees in this hot labor market.  Commercial and health care are lagging the seasonal norms.  Highway and street construction are trending above average on the public side.  Overall, construction activity is strong in the US as companies look to expand and consumers look for homes, both arguable benefits of the recently passed tax cuts.  While the headlines certainly emphasized the decline on the seasonally adjusted basis, the trend is solidly higher and above average, a trajectory that would be expected to be maintained throughout the course of the construction season that peaks in August.  Data for April warrants monitoring (to be released in a month from now) as it was during this month last year that the trend started to lag its seasonal norm, resulting in merely an average year overall.  If results for April remain strong, an above average year for construction activity is a reasonable expectation.

Total Construction Spending  Seasonal Chart

Monthly Total Construction Spending  Data

Total Construction Spending Seasonal Chart

Private Construction Spending: Nonresidential  Seasonal Chart Private Construction Spending: Residential  Seasonal Chart Public Construction Spending Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.11.

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Seasonal charts of companies reporting earnings today:

3D Systems Corporation (DDD) Seasonal Chart American International Group, Inc. (AIG) Seasonal Chart American Water Works (AWK) Seasonal Chart AmerisourceBergen Corporation (Holding Co) (ABC) Seasonal Chart Annaly Capital Management Inc (NLY) Seasonal Chart Apache Corporation (APA) Seasonal Chart Automatic Data Processing, Inc. (ADP) Seasonal Chart Avis Budget Group, Inc. (CAR) Seasonal Chart Brookfield Infrastructure Partners LP (BIP) Seasonal Chart Bunge Limited (BG) Seasonal Chart  Cedar Fair, L.P. (FUN) Seasonal Chart Cerner Corporation (CERN) Seasonal Chart CF Industries Holdings, Inc. (CF) Seasonal Chart CGI Group, Inc. (GIB) Seasonal Chart Chesapeake Energy Corporation (CHK) Seasonal Chart Clorox Company (The) (CLX) Seasonal Chart Continental Resources, Inc. (CLR) Seasonal Chart Estee Lauder Companies, Inc. (The) (EL) Seasonal Chart Express Scripts Holding Company (ESRX) Seasonal Chart Gildan Activewear, Inc. (GIL) Seasonal Chart Harris Corporation (HRS) Seasonal Chart Host Hotels & Resorts, Inc. (HST) Seasonal Chart Hudbay Minerals Inc. (HBM) Seasonal Chart Humana Inc. (HUM) Seasonal Chart Hyatt Hotels Corporation (H) Seasonal Chart Manulife Financial Corp (MFC) Seasonal Chart Marathon Oil Corporation (MRO) Seasonal Chart Mastercard Incorporated (MA) Seasonal Chart MetLife, Inc. (MET) Seasonal Chart Mid-America Apartment Communities, Inc. (MAA) Seasonal Chart Molson Coors Brewing Company (TAP) Seasonal Chart Murphy Oil Corporation (MUR) Seasonal Chart Newtek Business Services Corp. (NEWT) Seasonal Chart Pioneer Natural Resources Company (PXD) Seasonal Chart Republic Services, Inc. (RSG) Seasonal Chart Southern Company (The) (SO) Seasonal Chart Strayer Education, Inc. (STRA) Seasonal Chart Tesla, Inc. (TSLA) Seasonal Chart The Kraft Heinz Company (KHC) Seasonal Chart  Waste Connections, Inc. (WCN) Seasonal Chart Williams Companies, Inc. (The) (WMB) Seasonal Chart Yamana Gold Inc. (AUY) Seasonal Chart Yum! Brands, Inc. (YUM) Seasonal Chart Zoetis Inc. (ZTS) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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