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Stock Market Outlook for July 24, 2018

Financials breaking out ahead of period of seasonal weakness.

 

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:

The Chubb Corporation (NYSE:CB) Seasonal Chart

The Chubb Corporation (NYSE:CB) Seasonal Chart

Hawkins Chemical, Inc. (NASD:HWKN) Seasonal Chart

Hawkins Chemical, Inc. (NASD:HWKN) Seasonal Chart

Nasdaq OMX Group Inc. (NASD:NDAQ) Seasonal Chart

Nasdaq OMX Group Inc. (NASD:NDAQ) Seasonal Chart

The Travelers Companies, Inc.  (NYSE:TRV) Seasonal Chart

The Travelers Companies, Inc. (NYSE:TRV) Seasonal Chart

Citrix Systems, Inc.  (NASDAQ:CTXS) Seasonal Chart

Citrix Systems, Inc. (NASDAQ:CTXS) Seasonal Chart

Entree Gold (TSE:ETG) Seasonal Chart

Entree Gold (TSE:ETG) Seasonal Chart

 

 

The Markets

Stocks drifted higher on Monday as a rally in the financial sector had investors rotating out of defensive counterparts.  The S&P 500 Index added around two-tenths of one percent, continuing to hold above the psychologically important 2800 level.  Financials were clearly in the drivers seat with the ETF that tracks the space higher by around 1.4%.  The sector ETF has cleared a number of hurdles in the past few sessions, including declining trendline resistance, which formed the upper limit of a descending triangle.  Major moving averages are now in a position of support as investors start to rotate back to this unloved space from the first half of the year.  Next hurdle overhead is $28.15, which, if exceeded, would bring an end to the trend of lower-highs.  Continued strength in the sector would be conducive to the ongoing rotation in the broader market as investors place their bets for the remainder of the quarter.

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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

Of course, strength in the financial sector through the third quarter is not that common.  Between now and September 30th, the S&P 500 Financial Sector Index has only gained in 8 of the past 20 periods.  Average return over the timeframe is –2.20%.  Falling yields in the third quarter tends to act as the catalyst to lower stock prices in the financial sector.  Yields were sharply higher on Monday following speculation that Japan would alter its monetary policy.  The yield on the US treasury note jumped from 2.89% to 2.96%, making another run at the 3% hurdle.  Treasury bond ETFs sold off, including the almost half of a percent decline in the iShares 7-10 Year Treasury Bond ETF (IEF).  The ETF turning lower from its declining 200-day moving average, as well as horizontal resistance around $102.75.  The 50-day moving average, which was tested at the lows of the session, represents an important line in the sand to the intermediate trend.  Seasonally, treasury prices typically gain through the third quarter amidst the period of volatility for stocks.

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10 Year U.S. Treasury Notes Futures (TY) Seasonality

CME_TY1 Relative to the S&P 500
CME_TY1 Relative to the S&P 500

Monthly Seasonal 10 Year U.S. Treasury Notes Futures (TY)

On the economic front, a report on existing home sales provided a somewhat concerning look at the housing market for the month of June.  The headline print indicated that sales of existing homes fell by 0.6% in the month to a seasonally adjusted annual rate of 5.38 million.  The consensus estimate was for an increase of 0.6% to 5.44 million.  Stripping out the seasonal adjustments, existing home sales actually gained 6.5% in the month, which is below the 8.4% average increase for June.  Sales are up 33.5% through the first half of the year, which is half of a percent below the seasonal norm.  Above average strength in the midwest was insufficient to offset the below average trends in the northeast, south, and west.  As for prices, they were up 12.3% through the first half of the year, which is 3.6% above the average trend.  But despite the seemingly strong result, this is one of the lower first half increases in the past six years.  The increase in housing inventory, the concerning aspect of the report, is no doubt a factor.  Housing inventory is up by 34.9% through the first six month of the year, the largest increase in over two decades.  The average increase in inventories by this point in the year is 17.0%.  Historically, an above average increase in inventory has been a leading indicator to housing market weakness, which has in turn been been a leading indicator to economic and equity market weakness.  Housing inventory grew at an above average pace in 2005, 2006, and 2007, prior to the economy falling into the largest recession of this generation.  The months of supply of homes now sits at 4.3, up from 4.1 previous.  Typically six months of supply is considered to be a balanced market.  The trend with respect to inventories warrants monitoring since prices are becoming vulnerable the more that inventories build.  The lack of affordable housing remains a problem in this economy.  Seasonally, existing home sales tend to decline through the back half of the year as the peak summer buying season comes to an end.

Existing Home Sales Seasonal Chart

Monthly Existing Home Sales Data

Existing Home Sales Seasonal Chart

Existing Home Sales - Northeast Seasonal Chart Existing Home Sales - Midwest Seasonal Chart Existing Home Sales - West Seasonal Chart Existing Home Sales - South Seasonal Chart

Inventory of Existing Homes for Sale Seasonal Chart

Inventory of Existing Homes for Sale Seasonal Chart

Median Sales Price of Existing Homes Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bullish 0.81.

 

 

 

Sectors and Industries entering their period of seasonal strength:

Oil & Gas Exploration & Production Industry Seasonal Chart
S5OILP Index Relative to the S&P 500S5OILP Index Relative to the Sector

S5OILP Index Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

3M Company (MMM) Seasonal Chart Allegheny Technologies Incorporated (ATI) Seasonal Chart AT&T Inc. (T) Seasonal Chart Avery Dennison Corporation (AVY) Seasonal Chart Biogen Inc. (BIIB) Seasonal Chart Canadian National Railway Company (CNI) Seasonal Chart Centene Corporation (CNC) Seasonal Chart Chubb Limited (CB) Seasonal Chart Eli Lilly and Company (LLY) Seasonal Chart Equity Residential (EQR) Seasonal Chart Graphic Packaging Holding Company (GPK) Seasonal Chart Harley-Davidson, Inc. (HOG) Seasonal Chart Hawaiian Holdings, Inc. (HA) Seasonal Chart IDEX Corporation (IEX) Seasonal Chart Interpublic Group of Companies, Inc. (The) (IPG) Seasonal Chart iRobot Corporation (IRBT) Seasonal Chart JetBlue Airways Corporation (JBLU) Seasonal Chart Kimberly-Clark Corporation (KMB) Seasonal Chart Lockheed Martin Corporation (LMT) Seasonal Chart Navient Corporation (NAVI) Seasonal Chart PACCAR Inc. (PCAR) Seasonal Chart Peabody Energy Corporation (BTU) Seasonal Chart Quest Diagnostics Incorporated (DGX) Seasonal Chart Sherwin-Williams Company (The) (SHW) Seasonal Chart Stryker Corporation (SYK) Seasonal Chart Synovus Financial Corp. (SNV) Seasonal Chart Teradyne, Inc. (TER) Seasonal Chart Texas Instruments Incorporated (TXN) Seasonal Chart Total System Services, Inc. (TSS) Seasonal Chart  UBS AG (UBS) Seasonal Chart United Technologies Corporation (UTX) Seasonal Chart Verizon Communications Inc. (VZ) Seasonal Chart Waste Connections, Inc. (WCN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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