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Stock Market Outlook for June 27, 2018

Financial sector benchmark testing the lower limit of a descending triangle pattern.

 

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:

International Paper Company  (NYSE:IP) Seasonal Chart

International Paper Company (NYSE:IP) Seasonal Chart

Trinity Industries Inc. (NYSE:TRN) Seasonal Chart

Trinity Industries Inc. (NYSE:TRN) Seasonal Chart

Rush Enterprises Inc. (NASD:RUSHA) Seasonal Chart

Rush Enterprises Inc. (NASD:RUSHA) Seasonal Chart

Teligent, Inc. (NASD:TLGT) Seasonal Chart

Teligent, Inc. (NASD:TLGT) Seasonal Chart

HollyFrontier Corp. (NYSE:HFC) Seasonal Chart

HollyFrontier Corp. (NYSE:HFC) Seasonal Chart

Comtech Telecommunications (NASD:CMTL) Seasonal Chart

Comtech Telecommunications (NASD:CMTL) Seasonal Chart

AGF Management Limited (TSE:AGF.B) Seasonal Chart

AGF Management Limited (TSE:AGF.B) Seasonal Chart

Packaging Corp Of America (NYSE:PKG) Seasonal Chart

Packaging Corp Of America (NYSE:PKG) Seasonal Chart

 

 

The Markets

Stocks obtained a reprieve from Monday’s selling pressures, trading marginally higher in Tuesday’s session.  The S&P 500 Index added just over two-tenths of one percent, charting a doji indecision candlestick right above variable support at the 50-day moving average.   Strength in energy, consumer discretionary, and technology offset weakness in consumer staples, health care, and financials as the quarter-end rotation remains very much in play.  For the S&P 500 Financial Sector Index, the 12th straight session of declines is the longest stretch of consecutive losing sessions on record, indicating investor reluctance to hold the sector constituents amidst the flattening of the yield curve.  The sector benchmark is sitting right at horizontal support of 440, also the lower limit of a descending triangle pattern. The bearish setup targets previous support around 380, or over 14% below present levels, should the lower limit of the triangle pattern break.  Seasonally, the sector has gained an average of 1.1% in the month of July, but positive tendencies top out mid-month, leading to a negative average trend that spans the remainder of the third quarter.  August is the weakest month of the year for the sector benchmark, declining by an average of 1.5% as yields move lower.

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Financial Sector Seasonal Chart

FINANCIAL Relative to the S&P 500
FINANCIAL Relative to the S&P 500

FINANCIAL Monthly Averages

The financial sector had become a crowded play coming into the year as investors bet on higher rates in the year ahead.  But first quarter earnings season quickly revealed that rising rates may not be the positive catalyst that everyone expected.  A flattening yield curve has not been a benefit to margins and loan growth through the year that past was rather lacklustre as yields rise off their low base achieved during the easy money policy of the past many years.  But loan growth may be returning as strong economic conditions fuel borrowing activity.  In a report released in the past few days, the change in commercial and industrial loans year-to-date is showing a gain of 4.4%, firmly above the 2.6% average increase through this point in the year.  This is a significant improvement from the 0.6% gain charted by this point last year as loan growth became exhausted following years of cheap money. Consumer loans, on the other hand, are still trending below average on the year, but the pace versus last year’s trend has shown significant improvement in the last two months.  The trends bode well for upbeat results when second quarter earnings reports from lending institutions are released in the weeks ahead.  Loan growth is often a lagging indicator of economic conditions, often peaking beyond the downturn in activity as consumers and business continue to borrow amidst the slowdown.

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And while on the subject of debt, FINRA released their margin statistics for the month of May.  Debit Balances in Customers’ Securities Margin Accounts are indicated to have risen by 2.6% in May, which is well above the 0.4% average increase for the fifth month of the year.  But even with the above average increase for the month, the year-to-date change remains firmly below average as investors refrain from making aggressive bets in this uncertain market.  Margin debt is higher by 4.1% through the end of May versus the average change by this point in the year is 6.3%.  In retrospect, the large increase in margin debt in 2017 looks to have been a contrarian indicator of what was to come in the first few months of this year.  At this point, complacency looks to have been alleviated from the market, changing the risk-reward profile of the market compared to the start of the year.  Seasonally, margin debt tends to remain rather flat through through the months ahead as investors adopt a cautious bias on equities during the summer months.

NYSE Margin debt Seasonal Chart

Monthly NYSE Margin debt Data

NYSE Margin debt Seasonal Chart

NYSE Credit balances in margin accounts Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.91.

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Sectors and Industries entering their period of seasonal strength:

Copper Futures (HG) Seasonal Chart
FUTURE_HG1 Relative to the S&P 500FUTURE_HG1 Relative to Gold

FUTURE_HG1 Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Bed Bath & Beyond Inc. (BBBY) Seasonal Chart CalAmp Corp. (CAMP) Seasonal Chart Eros International PLC (EROS) Seasonal Chart Franklin Covey Company (FC) Seasonal Chart General Mills, Inc. (GIS) Seasonal Chart H. B. Fuller Company (FUL) Seasonal Chart Investors Real Estate Trust (IRET) Seasonal Chart Novagold Resources Inc. (NG) Seasonal Chart Paychex, Inc. (PAYX) Seasonal Chart Pier 1 Imports, Inc. (PIR) Seasonal Chart Progress Software Corporation (PRGS) Seasonal Chart Rite Aid Corporation (RAD) Seasonal Chart Unifirst Corporation (UNF) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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