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Stock Market Outlook for August 21, 2018

Intermediate Treasury Bond ETF closing above the neckline of a reverse head-and-shoulders pattern.

 

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:

Turkcell Iletisim Hizmetleri AS (NYSE:TKC) Seasonal Chart

Turkcell Iletisim Hizmetleri AS (NYSE:TKC) Seasonal Chart

Microsemi Corp. (NASD:MSCC) Seasonal Chart

Microsemi Corp. (NASD:MSCC) Seasonal Chart

Dr. Reddy's Laboratories Ltd (NYSE:RDY) Seasonal Chart

Dr. Reddy’s Laboratories Ltd (NYSE:RDY) Seasonal Chart

 

 

The Markets

Stocks gained on Monday as investors continue to be encouraged that the US and China will be holding discussions to end to the current trade spat.  The S&P 500 Index gained around a quarter of one percent as cyclical sectors traded firmly higher.  The large-cap benchmark is attempting to overcome the high set earlier in the month when an island reversal, fuelled by rising geopolitical risks, raised concerns of a short-term peak.  The benchmark is around half of a percent from the all-time high charted in January; stocks are maintaining a trend of higher-highs and higher-lows, so the likelihood of an upside breakout is good, it is just a matter of when.

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While equity market performance gave all indications of a “risk-on” session (strength in cyclical sectors, weakness in defensives), activity in the bond market pushed back on this contention.  The iShares 7-10 year treasury bond ETF (IEF) gained three-tenths of a percent, showing a return rivalling that of the equity market performance on the session.  The resulting decline in yields may be the result of comments from President Donald Trump, indicating his desire to maintain low rates.  Monday’s move pushed the intermediate treasury bond ETF above the neckline to an apparent head-and-shoulders bottoming pattern, a bullish setup that projects upside potential towards $105.  Seasonally, bond prices gain through the month of September.

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10 Year U.S. Treasury Notes Futures (TY) Seasonality
CME_TY1 Relative to the S&P 500CME_TY1 Relative to the Sector

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

One of the best performing market segments on Monday was the transportation sector, which according to the Dow Jones Transportation Average gained 1.19% to close within a hair of its all-time.  Airlines were the top performer within this group in what appears to be a bet that oil prices are rolling over, helping to alleviate the strain that was created in recent months by the rising price of the commodity.  The strength in the broader transportation sector at this time of year is contrary to seasonal norms, which sees lower prices on average for many sector constituents.  Seasonal weakness in the price of oil at the end of summer is typically the catalyst for the sector to move higher through October and November.

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Dow Jones Transportation Average Seasonality

$TRAN Relative to the S&P 500

Monthly Seasonal Dow Jones Transportation Average

Fundamentally, the transportation sector appears strong, at least according to the recent report from CASS Information Systems.  Their monthly freight index indicated that shipments fell by 0.2% in July, while expenditures increased by 0.2%.  The average change for each in the month is –2.0% and –1.9%, respectively.  Both are showing a trend that is above average year-to-date.  CASS notes that “demand is exceeding capacity in most modes of transportation by a significant amount. In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy. “  For investors in the transportation sector, this is precisely what you would desire to hear to get bullish of companies in the space.  Seasonally, shipments and expenditures tend to reach their high of the year in September, as manufactured goods are shipped to wholesalers and retailers ahead of the important Christmas season.

Cass Freight Index: Shipments  Seasonal Chart

Monthly Cass Freight Index: Shipments  Data

Cass Freight Index: Shipments Seasonal Chart

Cass Freight Index: Expenditures Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.79.

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Seasonal charts of companies reporting earnings today:

BHP Billiton plc (BBL) Seasonal Chart  Coty Inc. (COTY) Seasonal Chart Ferroglobe PLC (GSM) Seasonal Chart Harmony Gold Mining Company Limited (HMY) Seasonal Chart  J.M. Smucker Company (The) (SJM) Seasonal Chart Jack Henry & Associates, Inc. (JKHY) Seasonal Chart Keysight Technologies Inc. (KEYS) Seasonal Chart Kohl's Corporation (KSS) Seasonal Chart La-Z-Boy Incorporated (LZB) Seasonal Chart Medtronic plc (MDT) Seasonal Chart Myriad Genetics, Inc. (MYGN) Seasonal Chart Premier, Inc. (PINC) Seasonal Chart  Red Robin Gourmet Burgers, Inc. (RRGB) Seasonal Chart Regis Corporation (RGS) Seasonal Chart  Super Micro Computer, Inc. (SMCI) Seasonal Chart TJX Companies, Inc. (The) (TJX) Seasonal Chart Toll Brothers, Inc. (TOL) Seasonal Chart Tuesday Morning Corp. (TUES) Seasonal Chart Urban Outfitters, Inc. (URBN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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