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Stock Market Outlook for August 16, 2018

Price of oil breaking trend following latest petroleum inventory report.

 

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:

Otelco Inc. (NASD:OTEL) Seasonal Chart

Otelco Inc. (NASD:OTEL) Seasonal Chart

Luna Innovations Inc. (NASD:LUNA) Seasonal Chart

Luna Innovations Inc. (NASD:LUNA) Seasonal Chart

salesforce.com, inc. (NYSE:CRM) Seasonal Chart

salesforce.com, inc. (NYSE:CRM) Seasonal Chart

Descartes Systems Group Inc (TSE:DSG) Seasonal Chart

Descartes Systems Group Inc (TSE:DSG) Seasonal Chart

Sierra Metals Inc.. (TSE:SMT) Seasonal Chart

Sierra Metals Inc.. (TSE:SMT) Seasonal Chart

 

 

The Markets

Stocks traded in a volatile manner on Wednesday as geopolitical concerns re-emerged.  The S&P 500 Index fell as much as 1.30% at the lows of the session, testing previous resistance at 2800 as a level of support.  The benchmark is now below its 20-day moving average and eyes are shifting to the rising 50-day moving average to support the positive intermediate market trend.  The session was noticeably risk-off with consumer staples, utilities, and REITs closing the session in the green.  Within the seasonal model that we run at CastleMoore, we took significant defensive action on Friday, taking profits in long equity positions and de-risking the portfolio.  Opportunities amidst the selloff are being sought.  To learn more about the proprietary strategy that we offer, visit http://www.equityclock.com/about/seasonal-advantage-portfolio/.

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Oil prices plunged on Wednesday following the latest petroleum inventory report, which indicated an abnormal increase in oil stockpiles.  The Energy Information Administration (EIA) reported that oil inventories increased by 6.8 million barrels, while gasoline declined by a mere 700,000 barrels.  The net result saw minor gains to the days of supply of each, but it wasn’t the size of the increase that is concerning, but rather the fact that it is increasing at a time when it should be falling.  The days of supply of oil sits at 23.6, two days above average for this point in August, while gasoline sits at 24.2, almost a day above the norm.  The level of oil stockpiles is showing signs of a short-term low, curling higher at a time when they should be falling.  The move is certainly abnormal in the midst of the summer driving season.  Seasonally, oil stockpiles tend to hit a low in the middle of September, once summer driving season fades.  On the product side, a slight rebound in the production of gasoline coinciding with an even slighter rebound in the level of product supplied raises concerns pertaining to demand as we progress through this peak demand period.  It is premature to conclude anything definitively, as of yet, but the argument to be long the energy sector is certainly weakening.

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 broke firmly below rising trend channel support following the result. A trading range through the remainder of the summer is a reasonable expectation.  Seasonally, oil prices tend to remain supported through the end of summer.

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Crude Oil Futures (CL) Seasonal Chart

Weakness in the energy commodity took a toll on the energy sector, the benchmark of which broke below the tight trading range from the past few months.  The approximately 40-point range between 580 and 540 projects a calculated downside target of 500, effectively back to the lows seen this past spring.  The benchmark is presently battling with support around its rising 200-day moving average.  Price remains with an ascending triangle pattern, the lower limit of which comes in around 515.  Both oil and stocks are trading approximately at the mid-point to their five-year range, having recovered from the lows charted in early 2016.

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On the economic front, a number of important reports were released on Wednesday.  First up, US retail sales.  The headline print indicated that retail sales increased by 0.5% in July, firmly above the 0.1% increase that was forecasted by analysts.  Less the more volatile components of gas and autos, the increase was even more robust at 0.6%, above the 0.4% consensus estimate.  Stripping out the seasonal adjustments, total retail trade actually declined by 0.7% in the month, weaker than the unchanged result that is average.  The year-to-date change is now a mere 0.3% above the seasonal norm, a significant convergence compared to the 1.0% above average pace seen just a month ago.  Excluding autos, the pace is a healthy 2.7% above average, which is the best rate since 2014.  Vehicle sales were down by 0.7% in the month, diverging from the 1.0% gain that is average for the summer month.  Another divergence was apparent in the food services and drinking places category, which fell by 0.4% in the July.  The average is for a 2.0% gain as consumers take advantage of the nice weather to enjoy restaurant patios.  A mix of warmer and wetter than average weather in the US was likely a factor.  Seasonally, retail sales tick mildly higher in August amidst the back-to-school shopping period and then decline into the month of September as consumers get back to their fall/winter routines, limiting shopping activity.  For further charts on this important read of consumer activity in the US, the data is available via the following link: https://charts.equityclock.com/u-s-retail-trade-sales.

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

Retail Trade and Food Services, excluding Auto Seasonal ChartRetail Trade: Auto and Other Motor Vehicles Seasonal ChartRetail Trade: Food Services and Drinking Places Seasonal Chart

From the consumer to business, manufacturing conditions remain very strong in the US.  The headline print for July’s read of industrial production was a gain of 0.1%, which is short of the 0.3% increase forecasted by analysts.  Manufacturing was inline with the consensus estimate, higher by 0.3%.  Stripping out the adjustments, industrial production was actually lower by 1.4% in the month, which is half of the 2.8% decline that is average for the summer month.  The result increases the gap versus the seasonal average trend to 2.4% from 0.8% previous.  The manufacturing category is running a similar 2.3% above the seasonal norm.  A wide variety of categories are running at an above average pace, perhaps most notably the production of business equipment, materials, and defense equipment.  Business and defense equipment are two categories that we have highlighted in recent months given the strength in business activity, but the materials production category warrants highlighting.  The category is running 4.3% above average through the month of July, the second best pace in the last two decades.  The only year that saw a pace better than the present rate was in 2010 when the economy was emerging from the great recession.  Chemicals and energy are drivers behind the upbeat result.  This activity would otherwise be supportive of prices in the respective equity sectors, but with dollar strength acting as a headwind, the sectors are faltering.  The S&P 500 Materials Sector Index has shown a consistent underperforming trend ever since the year began.  Should the dollar strength alleviate, the fundamental underpinnings can be argued for a strong move higher in prices.  Seasonally, industrial production tends to peak for the year in August as factories come back online following the summer shutdown. Declines in activity through the remaining four months of the year are typical as economic activity shifts to shipping those goods produced in the first eight months of the year, ahead of the end of year holidays.  For greater insight into the state of industrial production in the US, the seasonal charts can be obtained via the chart database at https://charts.equityclock.com/u-s-industrial-production.

Industrial Production: Total Seasonal Chart

Monthly Industrial Production: Total Data

Industrial Production: Business equipment Seasonal ChartIndustrial Production: Defense and space equipment Seasonal ChartIndustrial Production: Materials Seasonal Chart

Further to the state of manufacturing in the US, the New York Fed is reiterating the strength in this segment of the economy.  The General Business Conditions index of the Empire State Manufacturing Survey came in at +25.6, firmly above the consensus analyst estimate.  Stripping out the seasonal adjustments, the gauge increased from +11.1 to +22.2 in August, which is well above the +7.4 that is average for this time of year.  This is the best August read since 2007 and indicative of expanding conditions.  Seasonally, manufacturing conditions, according to this gauge, tend to rise into September, then decline through the last quarter of the year.

Empire State General Business Conditions Index Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.16.

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Seasonal charts of companies reporting earnings today:

21Vianet Group, Inc. (VNET) Seasonal Chart 58.com Inc. (WUBA) Seasonal Chart Accuray Incorporated (ARAY) Seasonal Chart Adtalem Global Education Inc. (ATGE) Seasonal Chart Aegon NV (AEG) Seasonal Chart America's Car-Mart, Inc. (CRMT) Seasonal Chart Applied Materials, Inc. (AMAT) Seasonal Chart  Elbit Systems Ltd. (ESLT) Seasonal Chart Gold Fields Limited (GFI) Seasonal Chart J.C. Penney Company, Inc. Holding Company (JCP) Seasonal Chart JD.com, Inc. (JD) Seasonal Chart LSI Industries Inc. (LYTS) Seasonal Chart Nordstrom, Inc. (JWN) Seasonal Chart NVIDIA Corporation (NVDA) Seasonal Chart QIWI plc (QIWI) Seasonal Chart   Vascular Biogenics Ltd. (VBLT) Seasonal Chart voxeljet AG (VJET) Seasonal Chart Walmart Inc. (WMT) Seasonal Chart Zoe's Kitchen, Inc. (ZOES) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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Seasonal Advantage Portfolio by CastleMoore

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