Stock Market Outlook for July 25, 2019
Stocks pushing to the highs of the year, but so too is complacency, as gauged by the low level of the put-call ratio.
*** 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:
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Corby Spirit and Wine Ltd. (TSE:CSW/A.TO) Seasonal Chart
Nu Skin Enterprises, Inc. (NYSE:NUS) Seasonal Chart
The Markets
Stocks gained on Wednesday as investors shook off downbeat earnings from economic bellwethers Boeing and Caterpillar. The S&P 500 Index added just less than half of one percent, closing at a fresh all-time high. The Nasdaq Composite charted a new all-time highs of its own. The technology heavy benchmark had been consolidating above previous resistance in recent days around 8150 and Wednesday’s move provides lift-off from this level as investors buy into the breakout. Momentum indicators on both the S&P 500 and the NASDAQ had been rolling over in recent sessions, even charting a sell signal with respect to MACD, but renewed momentum into the core of earnings season has mitigated declines with respect to price.
As we have been suggesting in recent days, a shift from defensive into cyclical sectors appears to be underway. The consumer staples sector traded firmly lower in a positive tape. Utilities, real estate, and health care were essentially flat on the day. Financials, technology, and communication services topped the leaderboard. The defensive trade has become an exhausted bet as investors express their scepticism in the equity market fundamentals, choosing to invest in the safer, lower beta counterparts of the market. The small-cap Russell 2000 index has also remained depressed as investors maintain this risk-off mode. Wednesday’s 1.64% jump in the small cap benchmark hints of investors moving back towards the riskier bets. A defined trend of outperformance of the small caps relative to the large-caps has yet to be confirmed, which would provide confidence that the market is back in risk-on mode.
On schedule for the Wednesday session, the weekly petroleum status report was released. The Energy Information Administration (EIA) is reporting that oil stockpiles fell by 10.8 million barrels last week, while gasoline stockpiles fell by 226,000 barrels. The result stripped half a day of supply of oil from the market, which now sits at 25.8 days of supply. The average for this time of year is 22.0. Gasoline, meanwhile, fell by one-tenth to 24.4 days of supply, which is half of a day above the seasonal average for the middle of July. We broke down the results for subscribers in a report released intraday. Subscribe now and we’ll send you our analysis.
On the economic front, a report on new home sales in the US was released during Wednesday’s session. The headline print indicated that sales increased by 7.0% in June to a seasonally adjusted annualized rate of 646,000. Analysts were expecting a rate of 660,000. Stripping out the seasonal adjustments, new home sales actually declined by 1.7% in June, which is better than the 2.6% decline that is average for the month. The year-to-date change is now trending 19.0% above average, which is the best pace since 2013. Subscribers can login to view our full report on this important gauge of housing activity in the US.
Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.73. This is the lowest level of the year and is suggestive of the return of complacency to the market.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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