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Stock Market Outlook for July 11, 2018

Both Consumer Staples and Financial ETFs reaching up to touch 200-day moving average lines.

 

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:

Columbia Banking System, Inc. (NASD:COLB) Seasonal Chart

Columbia Banking System, Inc. (NASD:COLB) Seasonal Chart

Preferred Bank (NASD:PFBC) Seasonal Chart

Preferred Bank (NASD:PFBC) Seasonal Chart

Acorn International (NYSE:ATV) Seasonal Chart

Acorn International (NYSE:ATV) Seasonal Chart

Automatic Data Processing  (NASDAQ:ADP) Seasonal Chart

Automatic Data Processing (NASDAQ:ADP) Seasonal Chart

Umpqua Holdings Corp. (NASD:UMPQ) Seasonal Chart

Umpqua Holdings Corp. (NASD:UMPQ) Seasonal Chart

 

 

The Markets

Stocks grinded higher on Tuesday as the start-of-the-quarter bump continues.  The S&P 500 Index added close to a third of one percent, breaking marginally above the high set in June.  Since the lows set at the start of April, the large-cap benchmark has charted a series of higher-highs and higher-lows, conforming the positive intermediate path suggested by the rising 50-day moving average.  The clearing of June’s hurdle at 2791.47 is significant step in overcoming intermediate resistance that has been broadly classified as being 2800, the last point of reference on the path towards the all-time high at 2872.

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While investors take comfort in the gains in the broad market on Tuesday, the leadership behind the move gives little to take comfort in.  Defensive sectors (staples and utilities) topped the leaderboard, while the previous day’s leader, Financials, closed in the red as stocks react to points of resistance overhead.  The ETFs for the consumer staples and financial sectors are presently testing their 200-day moving averages as points of resistance, marking a pivotal point for the long-term path of each.  The two have been showing diverging paths of relative performance over the past month and a half as defensive assets have caught a bid at the expense of cyclical counterparts.  The reaction of each warrants monitoring in the days/weeks ahead.  While seasonally the more defensive sector has benefits on a relative basis during the period of volatility for stocks between mid-July and the beginning of October, both tend to trade lower, on average, through the remainder of the third quarter.  The two sectors have been the poster child for either the bear or the bull camp, therefore each side has a lot wagering on the move ahead.

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Consumer Staples Sector Seasonal Chart

STAPLES Relative to the S&P 500
STAPLES Relative to the S&P 500

STAPLES Monthly Averages

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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

While broad market indices recoup the highs charted in June, a couple of indicators suggest investor caution of the economic prospects under the threat of a trade war.  First, the price of copper has fallen by around 14% since the high charted in June, declining from resistance at $3.30.  Price swiftly broke below the lower limit of a long-term trading range, the lower limit of which was at $2.95.  The breakdown suggests downside implications of another 35 cents below the lower limit of the range, or a target of $2.60.  Price is presently significantly oversold following the parabolic shift lower, suggesting downside exhaustion in the near-term is probable.  Seasonally, the price of the metal tends to show strength between the end of June and the middle of September, potentially allowing for a near-term reprieve in selling pressures.  The commodity is often cited as being a predictor of strength in the economy, but with headlines pertaining to a trade war weighing on sentiment, price has diverged from what remains upbeat economic fundamentals.

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Copper Futures (HG) Seasonal Chart

FUTURE_HG1 Relative to the S&P 500FUTURE_HG1 Relative to Gold

FUTURE_HG1 Monthly Averages

The other canary in the coal mine is the relative performance of transportation stocks.  Over a month ago we highlighted the Dow Jones Transportation Average as showing resilience amidst the threat of a trade war, but as the rhetoric has continued, investors have  grown cautious of the cyclical market segment.  The benchmark has held support around its 200-day moving average, as well as horizontal support around 10,000, but reaction to resistance at the 50-day moving average was apparent on Tuesday.  Momentum indicators have fallen into bearish territory and the performance of the benchmark relative to the broad market has fallen to the lows of the year.  The industry group clearly has some overhanging burdens and the seasonal tendencies through the remainder of summer may not help.  Between the middle of July and the end of September, the Dow Jones Transportation Average tends to weaken considerably amidst the historically volatile time of year for stocks.  Rising energy commodity prices also do not help.  The benchmark has averaged a loss of 3.1% in the month of August, showing gains only 30% of the time over the past 20 years.  September isn’t much better with declines averaging 1.5% over the period.  But weakness through the remainder of the third quarter often allows for appealing buying opportunities for the end of year strength in transportation stocks as the travel of people and things ahead of the holiday season drive strength into equity prices.  For insight into the strength of transportation activity in the US economy, the charts can be accessed via the database at the following links:

https://charts.equityclock.com/u-s-transportation-data-statistics

https://charts.equityclock.com/cass-freight-index-north-american-freight-volumes-and-expenditures

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Dow Jones Transportation Average Seasonality

$TRAN Relative to the S&P 500

Monthly Seasonal Dow Jones Transportation Average

Sentiment on Tuesday, as gauged by the put-call ratio, ended close to neutral at 0.98.

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Seasonal charts of companies reporting earnings today:

AngioDynamics, Inc. (ANGO) Seasonal Chart Bank of the Ozarks (OZRK) Seasonal Chart Fastenal Company (FAST) Seasonal Chart MSC Industrial Direct Company, Inc. (MSM) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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