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Stock Market Outlook for June 26, 2018

S&P 500 Index breaks below support at 2743 as quarter-end rebalance continues.

 

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:

Entree Gold (TSE:ETG) Seasonal Chart

Entree Gold (TSE:ETG) Seasonal Chart

Sun Bancorp, Inc. (NASD:SNBC) Seasonal Chart

Sun Bancorp, Inc. (NASD:SNBC) Seasonal Chart

Noah Holdings Ltd. (NYSE:NOAH) Seasonal Chart

Noah Holdings Ltd. (NYSE:NOAH) Seasonal Chart

Opiant Pharmaceuticals, Inc. (NASD:OPNT) Seasonal Chart

Opiant Pharmaceuticals, Inc. (NASD:OPNT) Seasonal Chart

 

 

The Markets

A sharp selloff in stocks continues the typical tendency that accompanies the end of the second quarter.  The S&P 500 Index shed almost 1.4% on Monday, led by the quarter’s outperformers in the technology and consumer discretionary sectors.  Consumer staples and utilities, two of the quarter’s underperformers, closed higher as portfolio managers rebalanced portfolios to bring allocations back inline with investment policy statements.  The weakness in stock prices that typically dominates that back half of June reaches a low on the 27th, on average, leading to the summer rally period that spans the following three weeks.  While markets remain in a precarious position, investors have the opportunity to pick up positions at a discount compared to levels charted closer to the start of the month.  Support on the S&P 500 Index at the rising 50-day moving average provides a logical propping point for the upside tendency ahead.  But the benchmark now has an overhead hurdle to overcome.  The benchmark gapped below short-term support around 2743 to start the Monday session, immediately trading down to an important level of psychological support around 2700.  The large-cap benchmark is firmly oversold, which may allow for a rebound in the near-term, but confirmation of the previous level of support around 2743 as a level of resistance could reignite selling pressures, particularly if the trade rhetoric continues.

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Back to the daily chart of the large-cap benchmark, the short-term trend of higher-highs and higher-lows stemming from the lows of April remains intact, but momentum indicators are becoming concerning.  While daily momentum indicators, like MACD and RSI, are showing a similar trend of higher-highs and higher-lows from the April low, the recent downshift in stocks has caused these gauges of momentum to fall below the end of May low, suggesting damage to the trend of improving buying demand.  The Relative Strength Index (RSI) has even fallen into bearish territory, moving below 50 for the first time in about a month and a half.  These changes in momentum typically coincide with sentiment shifts, which could take some time to confirm a change in the trend for prices.  The days ahead could be key: should buying demand fail to materialize in the summer rally period ahead, concerns pertaining to the intermediate trend would be presented.

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On the economic front, a report on new home sales indicated buyers were busy purchasing properties at lower price points last month.  The headline print indicated that sales of new homes increased by 6.7% in May to a seasonally adjusted annual rate of 689,000.  The consensus estimate was for a rate of 665,000.  Striping out the seasonal adjustments, sales actually increased by 4.8% in May, diverging from the average decline of 0.6% for the fifth month of the year.  A surge in the sales of new homes not started, which were higher by 22.2% in the month, accounts for most of the strength behind the aggregate result as the consumer looks to get their hands on affordable housing, whether built or not.  The median sales price of new homes fell by 1.7% in the month, now down 8.8% year-to-date.  The average change in the median price of new homes sold at the end of May is +1.1%.  There remains significant demand for affordable housing in the US following years of above average house price increases, which had forced new buyers out of the market.  Economic fundamentals are conducive to fuelling strength in the housing market, even with the trend of higher mortgage rates, therefore the more inventory that builders can bring to the market at lower price points, the more likely to see sales activity improve.  Seasonally, new home sales activity typically declines between April and December.

New Home Sales Seasonal Chart

Monthly New Home Sales Data

New Home Sales Seasonal Chart

New Home Sales - Not Started Seasonal Chart New Home Sales - Under Construction  Seasonal Chart New Home Sales - Completed Seasonal Chart Median Sales Price for New Houses Sold Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.10.

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Seasonal charts of companies reporting earnings today:

AeroVironment, Inc. (AVAV) Seasonal Chart Danaos Corporation (DAC) Seasonal Chart Determine, Inc. (DTRM) Seasonal Chart FactSet Research Systems Inc. (FDS) Seasonal Chart IHS Markit Ltd. (INFO) Seasonal Chart JinkoSolar Holding Company Limited (JKS) Seasonal Chart Lennar Corporation (LEN) Seasonal Chart Schnitzer Steel Industries, Inc. (SCHN) Seasonal Chart Sonic Corp. (SONC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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