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Stock Market Outlook for July 20, 2018

Treasury yields testing long-term trendline support.

 

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:

Evercore Partners Inc. (NYSE:EVR) Seasonal Chart

Evercore Partners Inc. (NYSE:EVR) Seasonal Chart

Orosur Mining (TSE:OMI) Seasonal Chart

Orosur Mining (TSE:OMI) Seasonal Chart

Aqua America, Inc. (NYSE:WTR) Seasonal Chart

Aqua America, Inc. (NYSE:WTR) Seasonal Chart

IAMGOLD Corporation  (TSE:IMG) Seasonal Chart

IAMGOLD Corporation (TSE:IMG) Seasonal Chart

Haemonetics Corp. (NYSE:HAE) Seasonal Chart

Haemonetics Corp. (NYSE:HAE) Seasonal Chart

First Financial Bancorp. (NASD:FFBC) Seasonal Chart

First Financial Bancorp. (NASD:FFBC) Seasonal Chart

Hawaiian Electric Industries (NYSE:HE) Seasonal Chart

Hawaiian Electric Industries (NYSE:HE) Seasonal Chart

Park Lawn (TSE:PLC) Seasonal Chart

Park Lawn (TSE:PLC) Seasonal Chart

Eldorado Gold Corporation  (TSE:ELD) Seasonal Chart

Eldorado Gold Corporation (TSE:ELD) Seasonal Chart

 

 

The Markets

Stocks drifted slightly lower on Thursday as earnings and fears of a growing trade war weighed.  The S&P 500 Index shed four-tenths of a percent led by financials as yields ticked lower on the day.  Looking at the hourly chart of the large-cap benchmark, while the trend over the past week and a half has been that of higher-highs and higher-lows, a negative momentum divergence with respect MACD suggests waning buying pressures, although the indicators on the ultra-short-term look remain in bullish territory.  Investors seem to be looking for that next big catalyst for stocks, but at this point in the summer positive catalysts are not easy to achieve.

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Turning to yields, the level of the 10 and 30 year treasury bonds are at an important juncture within their longer-term trends.  Both are hovering close to rising long-term trendline support, presenting a make or break point to the longer-term path of the cost of borrowing.  Back in May, resistance for each led to a decline in yields coming into the traditionally risk-off period for stocks.  For the 30-year bond, that level of resistance was the neckline to an apparent head-and-shoulders bottoming pattern, suggesting significant upside potential should the hurdle around 3.2% break.  As for the 10-year, resistance was provided in the form of a rising trendline that spans the past few years.   The yield on the 10-year note broke above the neckline of its own head-and-shoulders bottoming pattern around 2.6% and it has been consolidating ever since.  The major psychological hurdle for the 10-year yield is 3%, a level that may stir reaction amongst equity investors should it be tested again.  Seasonally, yields tend to fall (prices rise) through the remainder of the third quarter as stocks enter the most volatile time of year.

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On the economic front, another positive indication of manufacturing activity was released on Thursday.  The general business conditions index of the Philadelphia Fed Business Outlook Survey improved to +25.7 in July from +19.9 previous.  The consensus analyst estimate was for a print of +22.0.  Stripping out the seasonal adjustments, the actual level was +11.3, well above the –7.0 that is average for this summer month.  This is the best July read since 2004 when the economy rebounded from the recessionary conditions of the years prior.   Factory shutdowns in the month have historically led to a contraction in activity for this summer period, but the index remains in expansionary territory as manufacturing activity thrives in the US.  Strength in manufacturing conditions has historically been a positive for commodities and material stocks, but with the threat of tariffs weighing on the global economy, these investments are under pressure.  Seasonally, material stocks tend to weaken through the summer months, reflecting the diminished manufacturing activity.

Philadelphia Manufacturing Business Outlook Survey Seasonal Chart

As highlighted, the strength in the manufacturing economy is failing to translate to strength to commodities, the metals of which took another leg lower on Thursday.  Strength in the US Dollar  amidst the tariff threat is weighing.  The US Dollar index broke out to a 52-week high during the session, continuing to hold support at its rising 50-day moving average.  Seasonally the US Dollar index has declined, on average, through the third quarter, providing support to metal commodities, but this headwind poses possible risks of further downside ahead.  The price of copper and gold have both broken below rising trendline support, suggesting a longer-term trend shift.  Over the short-term, however, the parabolic decline of each increases the odds of a near term bounce.  The period of seasonal strength for gold is between the end of July and the beginning of October.

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US Dollar Index Futures (DX) Seasonal Chart

DX.FUT Monthly Averages

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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

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Gold Futures (GC) Seasonal Chart

FUTURE_GC1 Relative to the S&P 500
FUTURE_GC1 Relative to the S&P 500

FUTURE_GC1 Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.90.

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Seasonal charts of companies reporting earnings today:

Acme United Corporation. (ACU) Seasonal Chart Baker Hughes, a GE company (BHGE) Seasonal Chart Citizens Financial Group, Inc. (CFG) Seasonal Chart Cleveland-Cliffs Inc. (CLF) Seasonal Chart General Electric Company (GE) Seasonal Chart Gentex Corporation (GNTX) Seasonal Chart Honeywell International Inc. (HON) Seasonal Chart Kansas City Southern (KSU) Seasonal Chart ManpowerGroup (MAN) Seasonal Chart Regions Financial Corporation (RF) Seasonal Chart Schlumberger N.V. (SLB) Seasonal Chart Stanley Black & Decker, Inc. (SWK) Seasonal Chart State Street Corporation (STT) Seasonal Chart SunTrust Banks, Inc. (STI) Seasonal Chart V.F. Corporation (VFC) Seasonal Chart Wipro Limited (WIT) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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