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Stock Market Outlook for May 16, 2018

Double-top pattern on the chart of the 10-year treasury note targets the 2008 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:

Tennessee Valley Authorit (NYSE:TVE) Seasonal Chart

Tennessee Valley Authorit (NYSE:TVE) Seasonal Chart

Westar Energy, Inc. (NYSE:WR) Seasonal Chart

Westar Energy, Inc. (NYSE:WR) Seasonal Chart

Gulfport Energy Corp. (NASD:GPOR) Seasonal Chart

Gulfport Energy Corp. (NASD:GPOR) Seasonal Chart

Brown & Brown Inc. (NYSE:BRO) Seasonal Chart

Brown & Brown Inc. (NYSE:BRO) Seasonal Chart

Westshore Terminals Investment Corp (TSE:WTE) Seasonal Chart

Westshore Terminals Investment Corp (TSE:WTE) Seasonal Chart

AGT Food and Ingredients Inc (TSE:AGT) Seasonal Chart

AGT Food and Ingredients Inc (TSE:AGT) Seasonal Chart

TC Pipelines, LP (NYSE:TCP) Seasonal Chart

TC Pipelines, LP (NYSE:TCP) Seasonal Chart

WD-40 Company  (NASDAQ:WDFC) Seasonal Chart

WD-40 Company (NASDAQ:WDFC) Seasonal Chart

Saputo Inc.  (TSE:SAP) Seasonal Chart

Saputo Inc. (TSE:SAP) Seasonal Chart

SCANA Corporation  (NYSE:SCG) Seasonal Chart

SCANA Corporation (NYSE:SCG) Seasonal Chart

Acadia Realty Trust (NYSE:AKR) Seasonal Chart

Acadia Realty Trust (NYSE:AKR) Seasonal Chart

Healthcare Services Group (NASD:HCSG) Seasonal Chart

Healthcare Services Group (NASD:HCSG) Seasonal Chart

Navigators Group, Inc. (NASD:NAVG) Seasonal Chart

Navigators Group, Inc. (NASD:NAVG) Seasonal Chart

Tanzanian Royalty Exploration Corp. (TSE:TNX.TO) Seasonal Chart

Tanzanian Royalty Exploration Corp. (TSE:TNX.TO) Seasonal Chart

Alamos Gold (TSE:AGI) Seasonal Chart

Alamos Gold (TSE:AGI) Seasonal Chart

Synchronoss Technologies, Inc. (NASD:SNCR) Seasonal Chart

Synchronoss Technologies, Inc. (NASD:SNCR) Seasonal Chart

H&R Block, Inc.  (NYSE:HRB) Seasonal Chart

H&R Block, Inc. (NYSE:HRB) Seasonal Chart

Permian Basin Rlty (NYSE:PBT) Seasonal Chart

Permian Basin Rlty (NYSE:PBT) Seasonal Chart

Enbridge Energy Partners, L.P. (NYSE:EEP) Seasonal Chart

Enbridge Energy Partners, L.P. (NYSE:EEP) Seasonal Chart

 

Upcoming BNN Appearance:

I will be on BNN’s Market Call Tonight at 6:00pm ET this Friday, May 18th taking your calls on Technical Analysis and Seasonal Investing.  CALL TOLL-FREE 1-855-326-6266,  EMAIL marketcall@bnnbloomberg.ca,  or TWEET @MarketCall  Be sure to send in your video questions for priority response on air.

 

The Markets

A negative session for stocks saw the S&P 500 Index shed around two-thirds of one percent as the yield on the 10-year note spiked above 3%.  The price of the 10-year treasury note also fell by around two-thirds of one percent, providing little refuge from the weakness in the equity market.  The move puts the cost of borrowing at the highest level since the middle of 2011 as investors increase their expectations for future rate hikes.  While we’ve frequently profiled the significance of the 3% level on the 10-year note, representing the upper limit of a long-term trading range, the alternate view of prices does little to ease concerns that the selloff in the bond market is done.  Referring to the CME CBOT 10-year treasury price chart, the break below the double-top pattern projects downside potential back to around the 2008 low around $112.  This represents a calculated move of almost 5.4% below present levels, enough to get any fixed income investor to question their allocation to this safe-haven asset class.  Of course, treasury bonds typically strengthen in the summer months as investors seek to hedge against equity market volatility and add yield to portfolios, but the negative setup in price and the trend of lower-highs and lower-lows suggests caution is warranted for this seasonal trade that ranges through to October.

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On the economic front, retail sales for April gave little to be excited about.  The headline print indicated that sales increased by 0.3% last month, inline with the average analyst estimate.  Stripping out the seasonal adjustments, retail sales actually declined by 5.2%, much more than the average decline for April of 1.7%.  The earlier than average Easter would have taken a toll on the April tally. The event often leads many analysts to group the months of March and April into one to account for the roving holiday.  Year-to-date, retail trade is now seven-tenths of one percent below the average trend, which is about inline with the trend set this time last year.  The drag on the aggregate result continues to be autos, which posted very poor results in this first full month of spring.  The auto and other motor vehicle category was down by 9.3% in April, more than double the 4.6% average decline for the fourth month of the year.  Excluding autos, the year-to-date change in retail sales is running 1.6% above the seasonal norm through the first four months of the year as consumers spend more on goods and fuel.  Retail sales at gasoline stations are higher by 8.8% in 2018, which is the strongest start to a year since 2014 when the price of oil traded to a high of over $100 a barrel.  Other than perhaps autos, there is no evidence as of yet that higher gasoline prices are taking a toll on other areas of retail trade.  Clothing, general merchandise, sporting goods, electronics, and furniture sales are all trending above seasonal averages through April, suggesting strength in consumer spending.  Looking ahead, the month of May tends to be a big one for a number of categories, perhaps most prominently the building materials and garden equipment stores as the planting and home renovation season gets underway.  May also marks the intermediate peak in sales growth for many of the report’s categories; retail sales activity tends to show flat results through the summer.  Overall, while more would have been desired from April’s retail sales, particularly with respect to autos, your certainly can’t discount the consumer, yet, in this new tax era.  For a complete breakdown of the report, the charts have been uploaded to the database at https://charts.equityclock.com/u-s-retail-trade-sales.

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

Retail Trade and Food Services, excluding Auto Seasonal Chart

The retail results filter into business sales and inventories, of which the latest report was released just after the opening bell on Tuesday.  The headline print of March’s Business Sales and Inventories report indicated that business sales increased by 0.5%, while inventories were unchanged, below the consensus analyst estimate calling for a 0.2% increase.  Stripping out the seasonal adjustments, business sales actually increased by 15.4%, while inventories increased by 0.1%; the average gain for each in the month of March is 13.5% and 0.4%, respectively.  For the first quarter overall, sales are now 0.8% above the average trend, while inventories are 0.5% above this seasonal norm.  Previously, the pace of inventory gains had been causing concern as strength in sales had yet to materialize.  March’s result helps to alleviate some of that concern, at least for manufacturers and retailers, but the middleman, the wholesalers, are still seeing a below average pace on sales and above average gains in inventories.  In fact, wholesaler inventories are showing the third largest first quarter percentage increase in the past two decades.  Businesses have been ramping up inventories in anticipation of a strong sell through rate in the year ahead given the favourable tax environment, but sales have been lacklustre.  While confidence is still high that these inventories will match the sales rate in future quarters, the risk of excessive inventory levels warrants monitoring, particularly as we get into the slower summer months for production activity when inventories are utilized to satisfy demand.  If the pace in inventory gains continues to steepen through this mid-year slowdown, then it could spell disaster for corporate margins into the back half of the year as companies seek to liquidate product at cheaper prices.  For now, confidence amongst business is high and activity is solid, providing a supportive fundamental underpinning to equity markets.

Total Business Sales Seasonal Chart

Monthly Total Business Sales Data

Total Business Sales Seasonal Chart

Manufacturers Sales Seasonal Chart Retailers Sales Seasonal Chart Merchant Wholesalers Sales Seasonal Chart

Total Business Inventories Seasonal Chart

Total Business Inventories Seasonal Chart

Manufacturers Inventories Seasonal Chart Retailers Inventories Seasonal Chart Merchant Wholesalers Inventories Seasonal Chart

And finally on the economic front, the New York Fed released their latest glimpse of the strength of manufacturing conditions in the region.  The general business conditions index of the Empire Fed Survey came in at +20.1 for May, well ahead of estimates calling for +15.5.  Stripping out the seasonal adjustments, the index actually showed +28.1, which is well above the +18.5 that is average for this spring month.  The result speaks of strong manufacturing activity, continuing an above average trend that has been apparent for the past couple of years.  We’ll obtain further insight on manufacturing activity on Wednesday when April’s report on Industrial Production is released just before the opening bell.  We’ll have the breakdown in tomorrow’s report.

Empire State General Business Conditions Index Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.11.  With volatility making another appearance, investors were quick to hedge portfolios in case selling pressures escalate.

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Seasonal charts of companies reporting earnings today:

Acxiom Corporation (ACXM) Seasonal Chart Altimmune, Inc. (ALT) Seasonal Chart Bio-Path Holdings, Inc. (BPTH) Seasonal Chart Canadian Solar Inc. (CSIQ) Seasonal Chart Cisco Systems, Inc. (CSCO) Seasonal Chart Dynagas LNG Partners LP (DLNG) Seasonal Chart Flowers Foods, Inc. (FLO) Seasonal Chart  Jack In The Box Inc. (JACK) Seasonal Chart Macy's Inc (M) Seasonal Chart Magic Software Enterprises Ltd. (MGIC) Seasonal Chart NetEase, Inc. (NTES) Seasonal Chart  Take-Two Interactive Software, Inc. (TTWO) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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