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Stock Market Outlook for May 4, 2018

While everyone watches the descending triangle pattern on the S&P 500 Index, a break of this descending triangle would likely coincide with gains for stocks.

 

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:

Steris Corp. (NYSE:STE) Seasonal Chart

Steris Corp. (NYSE:STE) Seasonal Chart

Valener (TSE:VNR) Seasonal Chart

Valener (TSE:VNR) Seasonal Chart

RioCan Real Estate Investment Trust (TSE:REI.UN) Seasonal Chart

RioCan Real Estate Investment Trust (TSE:REI.UN) Seasonal Chart

Humana Inc.  (NYSE:HUM) Seasonal Chart

Humana Inc. (NYSE:HUM) Seasonal Chart

Express Scripts, Inc.  (NASDAQ:ESRX) Seasonal Chart

Express Scripts, Inc. (NASDAQ:ESRX) Seasonal Chart

Omega Healthcare Invs, Inc. (NYSE:OHI) Seasonal Chart

Omega Healthcare Invs, Inc. (NYSE:OHI) Seasonal Chart

First Majestic Silver Corp. (NYSE:AG) Seasonal Chart

First Majestic Silver Corp. (NYSE:AG) Seasonal Chart

United Therapeutics Corporation (NASDAQ:UTHR) Seasonal Chart

United Therapeutics Corporation (NASDAQ:UTHR) Seasonal Chart

Algonquin Power & Utilities Corp (TSE:AQN) Seasonal Chart

Algonquin Power & Utilities Corp (TSE:AQN) Seasonal Chart

Seabridge Gold, Inc. (NYSE:SA) Seasonal Chart

Seabridge Gold, Inc. (NYSE:SA) Seasonal Chart

Canadian REIT (TSE:REF.UN) Seasonal Chart

Canadian REIT (TSE:REF.UN) Seasonal Chart

TransCanada Corp. (NYSE:TRP) Seasonal Chart

TransCanada Corp. (NYSE:TRP) Seasonal Chart

Electronic Arts Inc.  (NASDAQ:EA) Seasonal Chart

Electronic Arts Inc. (NASDAQ:EA) Seasonal Chart

Fresh Del Monte Produce (NYSE:FDP) Seasonal Chart

Fresh Del Monte Produce (NYSE:FDP) Seasonal Chart

Sun Life Financial Inc. (NYSE:SLF, TSE:SLF) Seasonal Chart

Sun Life Financial Inc. (NYSE:SLF, TSE:SLF) Seasonal Chart

 

 

The Markets

Stocks ended slightly lower on Thursday, overcoming a substantial dip recorded intraday.  The S&P 500 Index shed just less than a quarter of one percent, recovering from a dip of 1.55% recorded at the lows of the day.  The early session weakness caused the benchmark to move below its rising 200-day moving average, a level that is being widely followed by market participants.  Historically a break of such a major hurdle would escalate selling pressures, such as when the benchmark broke the 50-day moving average on February 5th, but traders maintained a level head, stepping in around the lows to see the benchmark hold the 200-day moving average by the close.  While the overhanging descending triangle pattern remains threatening for a downside move, you cannot help but be encouraged by the action on Thursday.  The session marks a win for support at the lower limit of this bearish setup, pushing back on the number of wins presented by resistance at the declining trendline.

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While we continue to monitor the descending triangle pattern on the major market benchmarks, the Volatility Index (VIX) is showing a descending triangle of its own.  The lower limit of the pattern can be derived around 14.50.  The so-called “fear gauge” spiked on Thursday, hitting a high around the declining 50-day moving average, which held as resistance.  So two bearish setups that have two alternate implications.  Obviously a break of the lower limit of the descending triangle pattern on the VIX suggests strength in the equity market as fear subsides.  However, a move below the lower limit of the descending triangle pattern on the S&P 500 Index would likely coincide with a significant move higher on the VIX, perhaps above declining trendline resistance.  Both patterns are nearing a peak, waiting for a catalyst to breakout.  Perhaps Friday’s payroll report will be that fuel.

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Looking ahead to Friday’s employment report, analysts are expecting the addition of 191,000 payrolls, which would be significantly better than the 103,000 reported for March.  On a non-seasonally adjusted basis, payrolls increase by 0.8%, on average, in the fourth month of the year, representing the best monthly performance on the calendar.  This would suggest the actual addition of 1.179 million jobs in this first full month of spring.  The change in non-farm employment is running three-tenths of one percent above average so far this year and if the trend in initial jobless claims are suggestive of the results to be expected in the payroll report, it is reasonable to expect the above average pace to continue once the results for April are released.  Initial claims are down by 43.1% through the non-farm payroll survey period, representing the largest decline in the claimant count through this time of year since 2006.  The strength of the payroll report will be heavily scrutinized by analysts to form expectations of how the Fed will react in implementing monetary policy.

Total Nonfarm Seasonal Chart

Monthly Total Nonfarm Data

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On the economic front, a report on factory orders showed solid growth in the last month of the first quarter.  The headline print showed that factory orders increased by 1.6% in March, better than the consensus estimate that called for a 1.3% rise.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries actually increased by 15.9%, much better than the 11.9% increase that is average for this time of year.  For the quarter overall, factory orders were higher by 9.5%, which is a full three percent above average, one of the best first quarter performances in the past decade.  Parsing the details, orders for information technology again factored prominently in the results, showing a gain of 1.8% through the first three months of the year.  The average first quarter change in this category is –5.3%.  The strength in technology production is a trend that we have seen across a number of reports as employers look to invest in their company and their workforce.  Greater discretionary spending amongst consumers also helps.  We have compared the growth to that of the late 1990’s, but fortunately for investors the valuations of technology companies are nowhere near the levels seen back then.  Elsewhere in the report, orders of aluminum and steel produced by US companies were significantly higher in the March following the announcement of tariffs on these commodities entering the country.  Orders of aluminum rose 12.2%, while steel saw a 10.2% rise; the average gain for each in the month is 5.9% and 3.1%, respectively.  The 27.8% rise in steel orders in the first quarter is the best since 2010, emphasizing the immediate impact that these tariffs had on activity.  Overall, with very few areas of weakness in the report, the results present a good breadth of consumer, business, and manufacturing activity in the economy.  Last year, the economy was primarily driven by the rebound in manufacturing activity, but, with the Trump tax cuts, consumers and businesses have joined the race, showing that the US is firing on all cylinders.  Yet again, another report that bodes well for equity prices in the year ahead.  For a complete breakdown of the results, you can access the charts via the database at https://charts.equityclock.com/u-s-factory-orders.

Value of Manufacturers' New Orders for All Manufacturing Industries Seasonal Chart

Monthly Value of Manufacturers' New Orders for All Manufacturing Industries Data

Value of Manufacturers' New Orders for All Manufacturing Industries Excluding Transportation Seasonal Chart Value of Manufacturers' New Orders for All Manufacturing Industries Excluding Defense Seasonal ChartValue of Manufacturers' New Orders for Information Technology Industries Seasonal ChartValue of Manufacturers' New Orders for Durable Goods Industries: Primary Metals: Aluminum and Nonferrous Metals Seasonal ChartValue of Manufacturers' New Orders for Durable Goods Industries: Primary Metals: Iron and Steel Mills Seasonal Chart

North of the border, Statscan released their look at merchandise trade for the month of March.  The government agency indicated that the trade deficit widened to $4.1 Billion from $2.7 Billion previous.  The consensus estimate was for a deficit of $2.3 Billion.  A 6.0% rise in imports and a 3.7% rise in exports contributed to the aggregate result.  Stripping out the seasonal adjustments, exports actually increased by 17.8%, while imports actually increased by 18.7%.  Both results were well above the average change for the month of +12.2% and +13.2%, respectively.  But the story really unravels when you look at the year-to-date trend.  Exports are running 2.6% below average through the first quarter, while imports are running 1.1% above the seasonal norm.  The impact of the America first policies implemented by the Trump administration appear to be taking a toll on goods leaving the country, despite a lower Canadian dollar through the quarter.  The lag on the export side covers a number of categories, none of which when tied together suggests weakness in any particular segment of the economy.  Touching on the standouts, exports of computers were up by 20.4% in the first quarter, showing the best first quarter change since 2005.  The export of boats and other personal transportation equipment was higher by a whopping 402% in the first quarter, well above the 42% average increase for this time of year.  The  trend suggests anticipation amongst businesses that discretionary consumer spending will be very strong under this new tax regime.  Also, fertilizer exports stand out, not due to the magnitude with which it is running above average, but simply the fact that it is now running above average.  This category showed a 23% decline in 2017 and fertilizer stocks ended up lagging the market as a result.  The tide may be turning for this beleaguered industry that has been impacted by robust crop yields in recent years.  Overall, the report highlights that economic activity is running strong, but performance is becoming skewed towards countries with better fundamentals, such as the US, who are benefitting from the recently passed tax cuts.  For a complete look at the report, you can access the charts via the database at https://charts.equityclock.com/canadian-international-merchandise-trade-exports-imports

Total Exports of all merchandise Seasonal Chart

Monthly Total Exports of all merchandise Data

Total Imports of all merchandise Seasonal Chart

Monthly Total Imports of all merchandise Data

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.02.

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Seasonal charts of companies reporting earnings today:

ACADIA Pharmaceuticals Inc. (ACAD) Seasonal Chart Alibaba Group Holding Limited (BABA) Seasonal Chart American Axle & Manufacturing Holdings, Inc. (AXL) Seasonal Chart Aon plc (AON) Seasonal Chart Buckeye Partners L.P. (BPL) Seasonal Chart Cboe Global Markets, Inc. (CBOE) Seasonal Chart Celgene Corporation (CELG) Seasonal Chart CenterPoint Energy, Inc. (CNP) Seasonal Chart Cheniere Energy, Inc. (LNG) Seasonal Chart EMC Insurance Group Inc. (EMCI) Seasonal Chart Gibraltar Industries, Inc. (ROCK) Seasonal Chart Heska Corporation (HSKA) Seasonal Chart IDEXX Laboratories, Inc. (IDXX) Seasonal Chart ITT Inc. (ITT) Seasonal Chart Johnson Outdoors Inc. (JOUT) Seasonal Chart Newell Brands Inc. (NWL) Seasonal Chart STARWOOD PROPERTY TRUST, INC. (STWD) Seasonal Chart V.F. Corporation (VFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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