Stock Market Outlook for March 31, 2016

Todays_Markets4

The peak in oil inventories should be revealed within the next month, according to seasonal trends.

Real Time Economic Calendar provided by Investing.com.

**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates. 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.

USANA Health Sciences, Inc. USNA Seasonal Chart

The Markets

Stocks jumped on Wednesday, following through with the gains charted on Tuesday related to the dovish comments from Fed Chair Janet Yellen. The S&P 500 Index gapped up above the highs of the year, instantly trading to levels around the 2080 level of resistance that was highlighted in yesterday's report. The gap on the large-cap index was opened between 2055 and 2058, which, although may see a gap fill in the short-term, presents yet another range from investors to shoot off of as a point of support as the short and intermediate-term trend continue to push higher. Gains on the day were fairly evenly split across the sectors as portfolio managers chase returns into the end of the quarter by "window dressing" portfolios. The new quarter begins on Friday, followed shortly thereafter by earnings season, which will be a major event for equity markets as valuations are put to the test.

While most sectors are looking at gains for the quarter, recouping the losses recorded in January, two sectors remain lower on the year: Health Care and Financials. While the short-term trend of the financial sector continues to point higher, the health care sector has remained capped around the late January high, unable to catch a bid amidst all of the news surrounding the biotech industry and the uncertainty related to the presidential election. But there may be reason to be hopeful for this market laggard in the new quarter. Looking at the S&P 500 Health Care sector, resistance around 790 has formed the basis of a neckline for a head-and-shoulder bottoming pattern, the target of which points to around 850, or around 8% above present levels. Keep in mind that until price exceeds resistance, the pattern remains unconfirmed. Health care enters its seasonal stride in the second quarter of the year, outperforming the broad market through May and June, potentially providing the support the beleaguered sector needs to rebound from the lows of the year. Longer-term resistance remains easily apparent around the declining 200-day moving average, which is presently around 815.

HEALTHCARE Relative to the S&P 500

As always for this time of week, an update on oil inventory levels was released. According to the Energy Information Administration, inventories for crude oil rose by 2.3 million barrels, while gasoline inventories continued their decline, falling by 2.5 million barrels in the latest week. As a result, the days of supply of oil declined by a tenth of a day to 33.4, remaining around multi-decade highs, and the supply of gasoline declined by three-tenths of a day to 25.8, inline with the seasonal average. Domestic oil production continues to decline, diverging from the significant gains recorded through the first three months of 2015. Overall, despite the significant supply of oil in storage, the direction of the trend so far in 2016 is following seasonal norms for both oil and gasoline. Assuming this trend continues, we could see the peak in oil inventories within the next month. Days of supply of the commodity peaks, on average, at the end of March, leading the peak in inventories. The price of oil is currently testing support around its rising 20-day moving average as it battles with resistance around the 200-day. With the two averages converging, a break in one direction or the other will inevitably be realized.

Crude Oil Futures (CL) Seasonal Chart

Looking out towards Friday's Non-Farm Payroll report, ADP released its estimate of employment gains for the past month, providing insight as to what to expect from the government report. ADP reported that 200,000 jobs were added in March, slightly below estimates calling for 203,000. Analysts are currently targeting 210,000 for Friday's report. Seasonally, March through to June is a strong period for employment gains as layoffs attributed to the Christmas holiday season are put firmly behind us and employers ramp up seasonal hiring for the summer. Average non-seasonally adjusted increase in payrolls for March is 0.6%, which would imply an actual increase of 852,000 jobs. The change in nonfarm employment has been running above average through the first two months of the year, a trend that should persist into the months ahead.