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Stock Market Outlook for July 26, 2018

Convergence of resistance presenting a hurdle for the S&P 500 Index.


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*** 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:

TELUS Corporation  (TSE:T) Seasonal Chart

TELUS Corporation (TSE:T) Seasonal Chart

Cenovus Energy (TSE:CVE) Seasonal Chart

Cenovus Energy (TSE:CVE) Seasonal Chart

Interactive Brokers Group (NASD:IBKR) Seasonal Chart

Interactive Brokers Group (NASD:IBKR) Seasonal Chart

American Electric Power Company, Inc.  (NYSE:AEP) Seasonal Chart

American Electric Power Company, Inc. (NYSE:AEP) Seasonal Chart



The Markets

Stocks jumped on Wednesday as investors reacted to news that the European Union had agreed to trade concessions.  The S&P 500 Index ended higher by just over nine-tenths of one percent as investors lowered the risk of a trade was impacting the global economy.  The large-cap benchmark is quickly getting back to the highs of the year, but price will have to get through a hurdle overhead before new all-time highs can be achieved.  January’s gap lower at 2850, which kick-started a prolonged period of weakness, remains unfilled and investors that were caught long following this abrupt decline may be inclined to sell around this zone.  The gap also intersects with the upper limit of a rising intermediate trend channel, adding another layer of resistance to battle through.  Momentum indicators, while around overbought levels, continue to point higher, as are major moving averages, indicating positive trends on multiple timescales.


While stocks have developed a firmer footing following the weakness through the first four months of the year, recent data on margin debt suggests that investors remain hesitant to take on leverage in this uncertain market.  Margin debt for June declined by 3.3%, diverging from the 1.0% average increase for the month.  The year-to-date change now sits 7.1% below the seasonal norm as investors show refrain from taking aggressive bets.  The trend is opposite to what we saw coming into this year when complacency and euphoria led to parabolic gains at the start of 2018, subsequently hitting a peak on January 26th.  It has been six months to the day that the benchmark last charted a new high.  The good news for equity investors is that indications suggest that complacency is no longer an issue, decreasing the risk of a shock event leading to a rapid unwind in leveraged bets.  Seasonally, margin debt typically falls through August and September amidst the period of volatility for stocks.

NYSE Margin debt Seasonal Chart

Monthly NYSE Margin debt Data

On schedule for the Wednesday session, the weekly petroleum status report was released during the session.  The Energy Information Administration reported that oil inventories declined by 6.1 million barrels last week, while gasoline recorded a draw of 2.3 million barrels.  The result puts the days of supply of oil and gas at 23.2 and 24.1, respectively.  Crude oil continues to show a decline on the year that is well below seasonal norms and now gasoline is joining  that below average pace.  Inventories of gasoline are hovering around the level they ended last year and are positioned to decline further through the remainder of summer.  Demand for gasoline remains high with the level of product supplied jumping back to the highs of the year in the latest week.  Rounding off the dataset was a sharp decline in oil imports combined with an abrupt increase in exports.  Overall, this was a bullish report that indicates strength in demand and supplies that continue to fall at a faster pace than seasonal average trends.  This comes despite the record high domestic production of oil as US producers take advantage of the strength in prices.

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The price of oil was higher by over 1% in Wednesday’s session, continuing to rebound from the lower limit of a rising trend channel that was tested in the middle of the month.  Seasonally, the price of oil tends to remain supported through the end of summer.


Crude Oil Futures (CL) Seasonal Chart

On the economic front, another weak report on the housing market is raising concerns pertaining to this segment of the economy.  The headline print of June’s New Home Sales report indicated that activity declined by 5.3% to a seasonally adjusted annual rate of 631,000.  Analysts has been expecting a rate of 668,000.  Stripping out the seasonal adjustments, sales of new homes actually declined by 9.5%, which is significantly weaker than the 2.9% decline that is average for June.  The result puts the year-to-date pace 4.1% below the seasonal average trend.  Weakness in the sales of new homes under construction and completed new homes is behind the lacklustre aggregate result.  The median price of new homes sold took another leg lower, now down 12.0% on the year.  The average change through the first half of the year is +1.3%.  Affordability is becoming a big factor in the US housing market following years of above average gains.  Consumers priced out of the market are seeking homes at lower price points, but with higher input costs and the lack of available workers to build the homes, the ability for builders to fulfill this demand may be limited.  Seasonally, new home sales decline through the back half of the year as activity in the housing market wanes ahead of the colder winter months.

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 Wednesday, as gauged by the put call ratio, ended bullish at 0.82.






Seasonal charts of companies reporting earnings today:

Aflac Incorporated (AFL) Seasonal Chart Air Products and Chemicals, Inc. (APD) Seasonal Chart Alaska Air Group, Inc. (ALK) Seasonal Chart Alexion Pharmaceuticals, Inc. (ALXN) Seasonal Chart Allergan plc. (AGN) Seasonal Chart Altria Group (MO) Seasonal Chart, Inc. (AMZN) Seasonal Chart Ambev S.A. (ABEV) Seasonal Chart American Airlines Group, Inc. (AAL) Seasonal Chart Amgen Inc. (AMGN) Seasonal Chart Anheuser-Busch Inbev SA (BUD) Seasonal Chart Astrazeneca PLC (AZN) Seasonal Chart Baxter International Inc. (BAX) Seasonal Chart Bemis Company, Inc. (BMS) Seasonal Chart BorgWarner Inc. (BWA) Seasonal Chart Boston Beer Company, Inc. (The) (SAM) Seasonal Chart Bristol-Myers Squibb Company (BMY) Seasonal Chart Canon, Inc. (CAJ) Seasonal Chart Carter's, Inc. (CRI) Seasonal Chart Celgene Corporation (CELG) Seasonal Chart Cenovus Energy Inc (CVE) Seasonal Chart Chipotle Mexican Grill, Inc. (CMG) Seasonal Chart CME Group Inc. (CME) Seasonal Chart Comcast Corporation (CMCSA) Seasonal Chart ConocoPhillips (COP) Seasonal Chart Crescent Point Energy Corporation (CPG) Seasonal Chart D.R. Horton, Inc. (DHI) Seasonal Chart Eastman Chemical Company (EMN) Seasonal Chart Edwards Lifesciences Corporation (EW) Seasonal Chart Electronic Arts Inc. (EA) Seasonal Chart Hershey Company (The) (HSY) Seasonal Chart Intel Corporation (INTC) Seasonal Chart Mastercard Incorporated (MA) Seasonal Chart McDonald's Corporation (MCD) Seasonal Chart McKesson Corporation (MCK) Seasonal Chart National Oilwell Varco, Inc. (NOV) Seasonal Chart Newmont Mining Corporation (NEM) Seasonal Chart Raytheon Company (RTN) Seasonal Chart Republic Services, Inc. (RSG) Seasonal Chart Southwest Airlines Company (LUV) Seasonal Chart Starbucks Corporation (SBUX) Seasonal Chart Teck Resources Ltd (TECK) Seasonal Chart Valero Energy Corporation (VLO) Seasonal Chart Western Digital Corporation (WDC) Seasonal Chart Xerox Corporation (XRX) Seasonal Chart Yamana Gold Inc. (AUY) Seasonal Chart



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