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Stock Market Outlook for June 5, 2018

Parabolic rise in the ratio of consumer discretionary vs. staples continues despite seasonal tendencies suggesting an opposing trend.

 

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:

Verizon Communications Inc.  (NYSE:VZ) Seasonal Chart

Verizon Communications Inc. (NYSE:VZ) Seasonal Chart

Nathans Famous, Inc. (NASD:NATH) Seasonal Chart

Nathans Famous, Inc. (NASD:NATH) Seasonal Chart

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) Seasonal Chart

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) Seasonal Chart

S&T Bancorp, Inc. (NASD:STBA) Seasonal Chart

S&T Bancorp, Inc. (NASD:STBA) Seasonal Chart

Community Bank Sys, Inc. (NYSE:CBU) Seasonal Chart

Community Bank Sys, Inc. (NYSE:CBU) Seasonal Chart

The Procter & Gamble Company  (NYSE:PG) Seasonal Chart

The Procter & Gamble Company (NYSE:PG) Seasonal Chart

HCP, Inc.  (NYSE:HCP) Seasonal Chart

HCP, Inc. (NYSE:HCP) Seasonal Chart

Harley-Davidson, Inc.  (NYSE:HOG) Seasonal Chart

Harley-Davidson, Inc. (NYSE:HOG) Seasonal Chart

 

 

The Markets

And add the Nasdaq Composite to the new all-time closing high list.  Stocks were lifted for a second day as investors put geopolitical concerns aside and instead focussed on the domestic fundamentals, which continue to excel under the recently enacted tax cuts.  The S&P 500 Index added just less than half of one percent, led by consumer discretionary as retail stocks rallied on the session.  Investor risk sentiment remains firmly positive, as gauged by the ratio of the Consumer Discretionary ETF (XLY) relative to the Consumer Staples ETF (XLP).  The ratio has charted a parabolic rise over the past year as investors gravitate towards cyclical assets amidst the strong economic backdrop.  Typically, this type of price action on its own would warrant caution as price overshoots to the upside, but, with staples seemingly presenting little value relative to the cyclical counterpart, the spread between the two sectors continues to widen.  Seasonally, consumer discretionary has tended to underperform consumer staples between the end of April and the beginning of October as investors hedge portfolios against equity market volatility.  But with economic data remaining strong and equity markets remaining risk-on, this seasonal play continues to move in the opposite direction of seasonal norms.

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Monday‚Äôs gains push the S&P 500 Index above short-tem resistance that had constrained the large-cap benchmark for the past few weeks.  The benchmark broke and closed above short-term resistance at 2742, now turning this short-term hurdle into a level of support.  A short-term reverse head-and-shoulders pattern targets 2778, or another 1.1% above present levels.  Resistance, both horizontal and psychological, can be found around 2800.  But what may prove to be the more important hurdle is 2850, representing the open gap that led to the weakness through the first four months of the year.  Should the benchmark reach this level, reaction from investors that were stuck in positions from the all-time highs is likely.

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On the economic front, a report on Factory Orders for the month of April was released just after the opening bell.  The headline print indicated that orders declined by 0.8% in the month, worse than the consensus analyst estimate calling for a 0.4% decline.  Stripping out the seasonal adjustments,  the Value of Manufacturers’ New Orders for All Manufacturing Industries actually fell by 7.6%, which is slightly more than the 7.2% decline that is average for the fourth month of the year.  Year-to-date, the trend for 2018 is 2.5% above average through the end of April, representing the best performance since 2011.  The Value of Manufacturers’ New Orders for Computers and Related Products Industries is trending 13.7% above average, which is the second best performance in over two decades.  A number of reports have indicated exceptional strength in the technology sector and the new all-time high close on the technology heavy Nasdaq Composite suggests that prices are catching up to this momentum.  The categories of the report suggest healthy strength amongst the consumer and business as the US economy shows signs of firing on all cylinders.  One standout in the report is very topical right now: new orders of steel and aluminum.  Steel shipments are running 12% above average through April as activity gets drawn back to the US following the imposition of tariffs on aluminum and steel imports.  The category barely budged in April, a month that is typically weaker for the group.  With tariffs on the metals expanded in recent weeks, this category may continue to expand through June, a month that is known for weaker activity ahead of the factory shutdown period in July.  For a complete breakdown of the results, the charts have been uploaded  to the seasonal chart 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 ChartValue of Manufacturers' New Orders for Computers and Related Products 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

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.81.

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Seasonal charts of companies reporting earnings today:

Ambarella, Inc. (AMBA) Seasonal Chart Analogic Corporation (ALOG) Seasonal Chart  Francesca's Holdings Corporation (FRAN) Seasonal Chart Genesco Inc. (GCO) Seasonal Chart G-III Apparel Group, LTD. (GIII) Seasonal Chart Guidewire Software, Inc. (GWRE) Seasonal Chart HD Supply Holdings, Inc. (HDS) Seasonal Chart Layne Christensen Company (LAYN) Seasonal Chart Navistar International Corporation (NAV) Seasonal Chart NCI Building Systems, Inc. (NCS) Seasonal Chart   YY Inc. (YY) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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