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Stock Market Outlook for June 20, 2018

Biotech ETF charting a bullish reversal candlestick at the start of its period of seasonal strength.

 

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:

Tanger Fctry Outlet Cntrs (NYSE:SKT) Seasonal Chart

Tanger Fctry Outlet Cntrs (NYSE:SKT) Seasonal Chart

China Telecom Corp. (NYSE:CHA) Seasonal Chart

China Telecom Corp. (NYSE:CHA) Seasonal Chart

MutualFirst Financial, Inc. (NASD:MFSF) Seasonal Chart

MutualFirst Financial, Inc. (NASD:MFSF) Seasonal Chart

Towne Bank (NASD:TOWN) Seasonal Chart

Towne Bank (NASD:TOWN) Seasonal Chart

MTY Food Group (TSE:MTY) Seasonal Chart

MTY Food Group (TSE:MTY) Seasonal Chart

Braskem SA (NYSE:BAK) Seasonal Chart

Braskem SA (NYSE:BAK) Seasonal Chart

 

 

The Markets

Trade war fears gripped markets for a third session, sending stocks firmly lower in the moments following the opening bell.  But once again, as cooler heads prevailed, major equity benchmarks closed well off of their lows as the perception prevails that a positive outcome will be achieved.  The S&P 500 Index closed down by four-tenths of one percent, testing the rising 20-day moving average as support.  Stocks most exposed to the international trade dispute were the hardest hit, while domestic oriented companies bucked much of the weakness during the session.   The small-cap Russell 2000 Index actually ended higher on the day, closing at a new all-time high.  Investors are showing signs of playing the offensive and defensive, keeping a bid under staples and utilities, as well consumer discretionary and technology, which continue to hold around their all-time highs.  These gyrations are occurring right around the time of year when portfolio managers rebalance their books ahead of the close of the quarter, a period that leads to a reweight out of areas that have performed well through the period and into those that performed poorly in order to bring allocations back inline with investment policy statements.  This quarter-end shift still has about another week to play out, which could keep volatility somewhat elevated until the summer rally period begins on June 27th, on average.

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Among the stocks that closed higher on the day were biotech as investors hunted for names that have minimal exposure to a China trade war.  The Biotech ETF (IBB) charted a massive outside reversal candlestick, closing at the highest level since the middle of March.  The ETF has bounced solidly from support around $100 in the past month and a half and soon new multi-year highs may be achieved.  Seasonally, the industry benefits from positive seasonal tendencies through the third quarter, leading to appealing buying opportunities at this time of year.  Major moving averages are all pointing higher, providing positive momentum across multiple timeframes.  Positive seasonal tendencies run through the middle of September, coinciding with the peak in pharmaceutical and medicines shipments for the year.

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Biotech Industry Seasonal Chart
S5BIOTX Index Relative to the S&P 500S5BIOTX Index Relative to the Sector

S5BIOTX Index Monthly Averages

On the economic front, a report on housing starts for the month of May suggests that builders remain optimistic of the housing market for the year ahead.  The headline print indicated that starts jumped 5.0% to a seasonally adjusted annual rate of 1.35 million.  Analysts were expecting a print of 1.32 million.  Stripping out the seasonal adjustments, starts actually increased by 6.2% last month, firmly above the 4.5% average increase for the fifth month of the year.  The result puts the year-to-date change 12.9% above the seasonal average trend, representing the best performance since 2012 as the housing market rebounded from the declining conditions in the years prior.  A 72.5% surge in starts in the midwest accounts for all of the strength behind the aggregate result; the north-east, south, and west all recorded declines for the mid-spring month.  Tallying the strength in the trends, three of the four regions are running above average so far in 2018, while just the west is showing a trend that is lagging its seasonal norm.  The west has shown a decline for the second month in a row, diverging from seasonal norms that call for rising activity through the spring.  The limited availability of land on which to build in the region is likely a factor in holding back activity, particularly for affordable housing.  As for the gauge of future activity, building permits are trending 4.1% above the seasonal norm, year-to-date, and the change in the units authorized, but not started, is showing a similar above average pace, indicating that builders are stockpiling plans for future builds, a sign of optimism in this new tax era.  Seasonally, both starts and permits peak for the year, on average, in June as the window to start new projects narrows ahead of the winter months.

Housing Starts Seasonal Chart

Monthly Housing Starts Data

Housing Starts Seasonal Chart

Housing Starts: Northeast Region Seasonal Chart Housing Starts: Midwest Region Seasonal Chart Housing Starts: South Region Seasonal Chart Housing Starts: West Region Seasonal Chart Building Permits Seasonal Chart Housing Units Authorized, But Not Started Seasonal Chart Housing Units Completed Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.84.

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Seasonal charts of companies reporting earnings today:

Actuant Corporation (ATU) Seasonal Chart American Outdoor Brands Corporation (AOBC) Seasonal Chart  Micron Technology, Inc. (MU) Seasonal Chart Renesola Ltd. (SOL) Seasonal Chart Steelcase Inc. (SCS) Seasonal Chart Winnebago Industries, Inc. (WGO) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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