The market opened without much bang then quietly made its way to another new high.

Introduction

The Dow Jones Industrials, the Dow Jones Transports and the S&P 500 all made their way to new highs today. Last weeks employment data plus some better than expected news from the Asia-Pacific sector over the weekend combined to quietly propel all the major US indices higher in today's session. In China the trade surplus increased more than expected on higher exports and is now up 7% year to date. In Japan 1st quarter GDP was revised higher by nearly a full point to 6.7% from 5.9%. While these two bits of news are positive for the global economy and us in turn what was really important for the market going into the start of this week was the jobs report on Friday. Jobs creation remains steady and somewhat strong if not robust and high enough to support the current rate of expansion.


Futures trading was mostly flat to positive in the early morning hours. The Dow was indicated to open up by about a point, the SPX down by about a point. These levels held pretty steady going into the open. After the bell the indices opened at about these levels, dipped for about three minutes then began a steady march up to the morning high around +6 for the SPX and +45 for the Dow Industrials. There were no economic releases today and no earnings reports of consequence. This week is fairly light in terms of data and earnings but there are a few to be aware of. Tomorrow the JOLTS report on expected job openings, later in the week retail sales, jobless claims, business inventories, PPI and Michigan Sentiment are on the list.


During the afternoon portion of today's session the indices drifted back down to test the early lows. The S&P traded into the red by about a point or two before bouncing once again back into the green around 3PM. The last hour of trading was fairly quiet with the indices holding steady just above last weeks closing prices.

The Economy

According to Moody's weekly survey of Business Confidence administered by Mark Zandi businesses in the US, those participating, remain upbeat. Sentiment remains strong and shows “no sign of wavering”. According to the report this is the 2nd week in which there were no negative responses. Sales, pricing, inventory and hiring are also all still strong.

James Bullard, St Louis Federal Reserve President, spoke today at a conference. Among his statements he said that the US economy is as close “to a normal state” as it has been since the housing bubble. The new challenge for the Fed as he sees it is determining the appropriate pace of accommodation.

The Bank Of Japan is meeting this week. They are scheduled to release their statement early on Thursday morning. The bank is not widely expected to make any sort of move with their current policy. Economic data, most recently the revised 1st quarter GDP, supports earlier comments and statements to the effect that the current QE was enough, that Japan was improving and that the bank saw no need to increase stimulus now or in the near future. The USD/JPY hovered in a tight range just above the 102.50 level and the near the mid point of the 6 month trading range.


Merger Monday

M&A activity was semi hot over the weekend. Several companies announced acquisitions or the advancement of plans for acquisition. Topping the list was Tyson's bid for Hillshire Brands. Tyson beat out rival Pilgrims Pride in a deal worth $8.55 billion. There are still some small hurdles to cross before the deal can be finalized such as Hillshire being released from it's agreement to acquire Pinacle Foods. Today shares of Hillshire surged 5% to trade near $62, the deal values the company at $63. Shares of Tyson and Pilgrims Pride both fell, Tyson by about -2%, Pilgrims Pride by about -5%.

Carl Icahn announced a new 9.4% stake in Family Dollar. The stock surged more than 13% in the pre market and traded even higher during the day. Icahn is seeking to increase shareholder value through several initiatives and may seek a board seat. One possibility is a sale to Dollar General which also surged in today's trading.

Merck agreed to buy Idenix Pharmaceuticals in a deal that values the company at roughly 3.5X Friday's closing price of $7.23. The total value of the deal is roughly $3.85 billion. Shares of Idenix jumped more than 300% in today's session.

Analog Devices agreed to buy Hittite Microwave Corp at $78 a share, a 29% premium to Friday's close. Shares of both stocks traded higher, Analog by about 5%, Hittite by about 30%.

Story Stocks

Apple's much anticipated 7-for-1 stock split went into effect today. The new shares traded opened around $92.50 and showed a little volatility going into the lunch hour. Shares initially traded lower, pushing to an adjusted three day low before rebounding and moving to a new high. I would expect some more volatility in this stock throughout the week simply because of the massive amount of new shares on the market. Some investors will want to take some profits and some investors will want to get in at this new and attractive lower price. For now it looks likes there may be more interested buyers than sellers.


McDonald's announced that global comp store sales increased by 0.9%, about a half % better than expected. There were areas of strength and weakness with the US the notable area of weakness. US comp sales decreased by -1% while Europe and Asia both saw gains. Europe is up 0.4% and the Asia-Pacific region is up more than 2.5%. Shares of McDonald's fell about 1% in today's session but found support around the short term moving average which helped to reduce some of the loss. Momentum is bearish in the near term but there is some evidence of support in the MACD and stochastic. Current resistance is around $102.50 with next support just below the current level around $100.


The Ten Year Treasury

The yield on the ten year treasury note climbed today to near a one month high. The yield is now near 2.610%. Indications are bullish at this time with a potential upside target near the top of the range around 2.750%. Current resistance is the 150 day EMA at 2.644%.


The Gold Index

Gold prices held steady around $1253 today. Early trading saw the price rise a few dollars, later trading saw it fall a few dollars. Although above $1250 the price of gold is still near a four month low. I still can find no reason to get bullish on gold and data from the CFTC released last week shows that fund managers have cut their bullish positions on gold to the lowest levels since January, just before the start of the most recent decline. At the same time the Ukraine situation, which had been driving some money into gold, is quieting down and the global equities markets are rallying to new highs. The Gold Index traded marginally higher today but is still below near and short term resistance. Indicators are turning bullish but without a break above resistance and/or some major shift in the outlook for gold I expect this to be a relief rally and entry point for bearish positions. The BOJ meeting this week could shift gold values but I see the FOMC meeting next week as more of a potential catalyst.


Sector Snap

Among today's leaders, including the industrials and the transports, was the banking sector. The Banking Index surged more than 1.5% today, making a very strong white candle and breaking resistance. The index has been very strong since hitting bottom in mid May and now looks good to test recent highs and potentially break out to new highs. Momentum in the index is very strong and rising in the short and long term. Helping the move today was a string of positive news in the sector. Suntrust, a southeastern regional, received an upgrade. Wells Fargo hit a new all time high and Chase received a new round of tax credits for it's efforts to support jobs in low income areas under the New Markets Tax Credit.


The health sector was today's notable laggard. Among the 9 S&P Spyder Sectors there were four trading in the red today led by the Health Sector, -0.58%, and followed by utilities and consumer staples with roughly a -0.2% drop each. The Health Sector Spyder (XLV) is falling from long term resistance and in danger of a double top. Bullish MACD has peaked and is convergent with a top over the longer term. Stochastic is overbought and making a bearish cross in the top of the upper signal range. These signs do not mean reversal is definite but this sector will bear watching over the next few weeks and months. Current resistance is just above $60 with first support around $57.50 on a drop below the short term 30 day moving average.


The Indices

The S&P 500 made a new high today but did it the hard way. The index opened slightly lower, moved a little lower still, bounced back up, made a new high about 6-7 points above last weeks close, drifted back into the red and then hovered just above break even into the close. Regardless, the index made a new high but now the question of short term pull back or consolidation is in my mind. Today's action was bullish but shows there is some resistance to higher prices. This resistance may be due to earnings expectations, earnings season starts in about 5 weeks, or it could be due to the FOMC meeting next week which I think more likely at this time. Momentum is still bullish and on the rise but stochastic has made a bearish cross. In terms of the trend the stochastic cross is not a bearish entry signal but could be a warning for the bulls; the market is in rally but now may not be the best time to get into new positions. The rest of the week could see the index move more sideways than up until the data comes out on Thursday and Friday. Support is now at 1950 for the near term with stronger support around 1925. My upside targets around 2000-2020 still stand, we probably wont get there in a straight line though.


The Dow Jones Industrials also made a new high today and is also similarly signaling that a near term peak may be at hand. Today's candle was small compared to the last two days with a significant upper wick for its size. This is indicative of selling but not necessarily a sign of reversal. The index is trending up and supported by indicators in the short and long term but is also at a level where some profit taking could be taking place.


The Dow Jones Transports broke out of a near term consolidation just last week, Friday to be exact. Today's action took the index up to yet another new high but similar price action to the blue chips and broad market suggest a possible near term top or peak may have been reached. Looking at the indicators the MACD is most troubling here because it is forming a potential H&S pattern that can precede a correction. I don't see any catalyst for a real reversal in this index but the weeks data could bring some pull back if it is weaker than expected. The long term trend is up and the long term outlook for the economy is up so any pullback or correction that does happen should be a potential buying opportunity.


The Nasdaq Composite climbed marginally higher today, in line with the other indices, and made a similar candle formation. The difference is that with this index the resistance is more tangible. The SPX, the Dow and the Trannies are all wrestling with new all time high resistance, the Techs are fighting with longer term, previous all time high resistance set in March at the beginning of the last correction of this index. The indicators are bullish but also suggest the top of a range is being approached. The Nasdaq could enter a significant period of consolidation once it meets the previous all time high and could in fact be the cause of consolidation in the other indices.


This week is relatively quiet compared to what we have had to deal with over the past two months. If there wasn't data or earnings to contend with it was the Ukraine. For now, the economic calendar is very light, earnings are very light and the Ukraine situation is calm and quiet, which, with the FOMC next week, could keep trading very light. Things to keep an eye on will be the BOJ and then the few points of data we will get on Thursday and Friday. The trends are up but some caution is due.If the economic trends continue as is then it will be time really soon to start talking about earnings expectations and whether or not the current consensus is too low or too high.

Until then, remember the trend!

Thomas Hughes