Economic data, along with FOMC outlook and a string of positive guidance carried the market higher.

Introduction

Today was a good day to be in the market. Economic data, FOMC outlook support and plain old good news added forward momentum to the indices and lifted not only our own, but markets around the world. Asian and European indices both moved more than 1% higher with those in the EU gaining upwards of 3%. Helping to support the EU markets is yesterday's read on inflation for the region which is leading traders to speculate heavily on potential QE moves by the European Central Bank.

Futures trading was positive from the very start. The S&P 500, Dow Jones Industrials and NASDAQ Composite were all indicated about 1% higher with some signs of strength going into the bell. Labor data and guidance news released in the pre-market session helped early trading reach it highest levels. All ten S&P sectors were in the green once the opening bell sounded and quickly moved higher. The SPX was up about 1% in the first 10 minutes of trading and extended the gain all morning.

Market Statistics

Trading held steady through the lunch hour and was buoyed by all the news. A minimum of 5 retail stocks including American Eagle, Cato and Aeropostale raised guidance for 2015 along with several health companies and an auto-industry wide upgrade from GM. GM CEO Mary Barra came out during the morning, speaking at a conference, and upgraded US automotive sales to over 16.5 million this(2015) year. I believe her outlook is shared by execs at Ford because they announced an increase to the dividend.

After lunch the market made another high, and then another and another. No sector was left out with gains in the range of 2% or more. The gains were broad with advancers leading decliners by at least 3 to 1. By 2:30 there was still no indication of the rally letting up. Buying persisted throughout the afternoon and into the close keeping the indices at or near the intra-day high.

Economic Calendar

The Economy

Challeger Gray&Christmas released their report on planned layoffs leading off this mornings line-up. The firm reports that the number of planned lay-offs fell in December to 32,640. This is 9.2% lower than the previous month, the 2nd month of declines and the third lowest reading for this year. While slightly above December levels last year, the total for 2014 is 5% lower than 2013 and the lowest level since 1997. This is looking pretty good to me and should help to keep the labor market on track. And also help to reverse some of the gains in jobless claims we saw last month as well.

Challenger Gray&Christmas see this as very positive for the labor market and job seekers. Company CEO John A. Challenger had this to say in response to the numbers, “Layoffs aren’t simply at pre-recession levels; they are at pre-2001-recession levels. This bodes well for job seekers, who will not only find more employment opportunities in 2015, but will enjoy increased job security once they are in those new positions,” His statements jibe with other data, such as the JOLTS/Quits rate, which suggest that employees are growing more confident in the market. The next JOLTS is due next week.

It's been three weeks since I've been able to touch base on jobless claims and in that time not much happened. Claims have held steady at or near current low levels. This weeks report shows a drop of 4,000 from last week's unrevised figure. This puts claims at 294,000, below the 300K mark and firmly in line with long term trends. At this level claims are indicating low amounts of turnover in the market and are conducive to declining unemployment. On an not adjusted basis claims rose by 9.1% versus a 10.6% gain expected by seasonal factors. Michigan and New York led with increases of 11,000 and 9,000 respectively; Texas and North Carolina led with declines in claims of -7,000 and -2,400.


Continuing claims ticked higher this week by 101,000. This is above expectations for ongoing claims to remain flat or mildly rise. The previous week was revised lower by -2,000 but doesn't lessen the gain this week. Continuing claims are back over 2.4 million but remain near long term lows set in November.

Total claims for unemployment benefits fell by -135,432 making this fourth week of increased volatility in this number. Claims are down from their recent peak and near long lows but remain elevated off of those lows. This is most likely coincidental with the November increase in initial and continuing claims (total claims lag initial claims by two weeks) but bears watching. Regardless, claims are still near the long term lows and at levels consistent with the long term decline in unemployment.


Tomorrow be on the lookout for the ever important NFP payrolls and unemployment data. Payrolls are expected to be around 250K, just like the ADP, with unemployment holding steady. After last months surprisingly big NFP I would not be surprised to see a downward revision and/or a drop this month. An upward revision would just be over the top I think.

What may be more important now and into the future is earnings and workweek. We need to see hourly earnings and wage inflation on the rise as well as the work week holding steady or improving in order to maintain the momentum that is growing in the economy.

The Oil Index

Oil prices held steady today. WTI traded just below $49 while Brent hovered just below $51. This is most likely on bottom picking as there is no other sign of support for prices. The cold weather may have some impact but is most likely factored in. WTI is hanging around the 5.5 year low and now at extended levels and possibly susceptible to a snap back.

The Oil Index traded to the upside today, gaining more than 2.5%. Today's action is driven on the so-called stabilization of oil prices and the broad market rally. While a positive, today's move has only brought the index up to retest resistance along the now 4 month down trend. The index is now at resistance with bearish indicators and still looks set up to test support along the 1,212 level. However, there is a divergence in the indicators suggesting that support could be strong at this level. Not only that, if oil prices are able to snap back then the index could break back above the trend line.


The Gold Index

Gold was basically flat around $1210 today after making a mid day surge to $1215. Gold prices are now above $1200 for the third day and are being supported by economic trends. Economic data released today, along with the FOMC minutes yesterday, are leading the market to think more and more that interest rates will rise sooner and not later. This same data is causing a spike in the dollar that sent the Dollar Index to new highs but its affects on gold are being dampened by the longer term outlook. Also, reports that physical buying is on the rise is helping support prices too.

The GDX Gold Miners ETF is trying really hard to break out of its current pattern, to the upside. The ETF and sector as a whole has been exhibiting signs of potential bottoming based on the stabilization in gold prices, the long term economic outlook and expectations for inflation/rising interest rates. Over the last 2 ½ months it has been in a pattern that, along with the MACD and stochastic, indicating support at $17.50. Today's action is the third day of trading since bouncing off of that support and could now be confirming resistance. The indicators are bullish but MACD has peaked which is in line with price meeting resistance. If the index does break above resistance targets are equal to the height of the previous pattern, about $2.50. If resistance is not breached downside potential is equally $2.50 with a target at or near the long term low just below $17.50.


In The News, Story Stocks and Earnings

Biogen hit the news this morning as well, providing its own amount lift to the market. The company announced that one of its drugs has shown promising results in a 2nd stage trial for optic nuerosis. This, along with an upgrade for Boston Scientific and upwardly revised guidance from Valeant and ISIS Pharma helped lift the entire health care sector. Shares of Biogen tried to gap open but lost the gain, ending up down for the day. The stock lost about a half percent today but is trading near the top of the 12 month range. While the news for Biogen is good, drugs in 2nd stage trials are still a long way from making money for this company.


The retail sector is another to receive a number of upgrades and other positive developments. At least 5 retailers raised guidance today. The companies cited strong holiday sales as well as benefits from restructuring and brand repositioning. American Eagle, Aeropostale and Cato are among the five. Some caution is due however as many of these companies had very low hurdles to beat in the first place. The upward revisions may merely be putting expectations more firmly in reality. The XRT Retail Spyder moved higher in the pre market and made a small gap at the open. Today's action created a small doji and set a new all-time closing high, but not an all-time intra-day high. Resistance may be found at the all-time intra-day high with indicators suggesting a shift in momentum to the upside may be in progress. If so expect a test of resistance near $97.


Constellation Brands reported better than expected results driven by higher deliveries of beer. I am not surprised, I know I do my part to help. The company was able to raise full year guidance because of the increase in business and expects strong volumes and sales increases into calendar 2015. Guidance is now in the $4.25-$4.35 range, above the previous range. Shares of Constellation, which have been in a mild up trend for the past 12 months, moved higher in early trading and gapped up nearly 5% at the open. Shares traded in a wild range throughout the day but the bulls were able to keep control into the closing bell. My take; if beer is gods gift to the working man, and there are more and more working men (and women) everyday as evidenced by the trends, Constellation should do well into the foreseeable future.


Family Dollar reported earnings and revenue below expectation. The company reported adjusted earnings of $0.44 versus an expectation of $0.59. The miss is blamed on a “very challenging” fiscal quarter do in part to the companies transition from a “promotional brand to a more everyday low price brand”. In hindsight maybe this isn't surprising. Another big name company, cough JCP cough, tried to do that and failed ... and then someone got fired. Shares of the stock were little changed as they are caught between a merger agreement with Dollar Tree and a tender offer from Dollar General. Both Dollar General and Dollar Tree fell in today's session, led by DG with a drop of 1.22%.


The Indices

The markets wanted to move higher, and it did. Much higher, near 2% in most cases with no sector losing out. The gains were broad and by all accounts strong, led by the Dow Jones Transportation Average. The transports gained 2.15% today, moving up 188.85 points to finish the day right at the 30 day moving average. Today's action brings the index to the middle of the two month range with indicators that remain bearish. The long term trend is up, but the short term trend is sideways until resistance is broken. Resistance is the all time highs and top of the two month range near 9,250. Failure to break above resistance could keep the index range bound into the short term.


The NASDAQ Composite is runner up today. The tech heavy index made a gain of 1.89% and created a gap at the open. Today's action broke above the short term moving average and is approaching the long term high set over the Christmas holiday. The index is moving higher in a trend following bounce but is not yet confirmed by the indicators. Both MACD and stochastic are consistent with the trend and support in the long term but have only begun to turn bullish in the near term. Current target is the long term high, near 4,800, with support just above the long term trend line.


The Dow Jones Industrial Average was next biggest gainer in today's session. The blue chip index climbed 1.84%, over 320 points, and is fast approaching its current all time high. Today is now the 2nd day in a month of trading in which the index moved 300 points or more, up, from support at 17,500. While the transports look like they are trading sideways, the industrials have a slightly more upward tilt to price action over the past two months.


The S&P 500 is last up in today's action. The broad market gained 1.79% and erased all its losses year-to-date. Today's move extends the trend following bounce that began yesterday and confirms the long term trend. The indicators have not yet confirmed but they are shifting to the upside so not a worry as yet. The index looks like it is on the way up with the current all time as a first target for resistance. Support is along the long term trend line between 2,000 and 2,020 should the bulls go running for cover. I'm bullish in the near term, and in the long term, but with resistance just above and earnings season starting on Monday the index could continue to be volatile over the next month or so.


I have to say it looks like the bull market is alive and well. The bulls were out in force today, driving stocks higher across the board with a broad rally. Today's action is a trend following bounce with economic tailwinds that looks likely to carry the indices to retest current highs if not move higher. The only thing standing in the way right now is economic data and how it affects future outlook, along with earnings and geopolitics.

Tomorrow we get a big dose and perhaps the most important piece of monthly data at this time, Non Farm Payrolls. Provided the data remains in line with trends and does nothing to dispel the idea that 2015 will be as good or better than 2014 then the bull market should continue.

After the data the next hurdle for us to get past is earnings season. Based on today's action the expectations are good but the season could add some churn to the market. The season starts on Monday and heats up toward the end of the week but the bulk of companies are not scheduled to report for another week or two.

Until then, remember the trend!

Thomas Hughes

 

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