The indices "patiently" bounced back from yesterday's FOMC inspired swoon.

Introduction

The market bounced back from yesterday's FOMC inspired swoon as earnings, corporate news and economic outlook helped to lift stocks. On the earnings front a number of big names including Boeing helped to lift stocks before the bell. This has also lifted the number of companies beating the mean estimate to near 80% and growing. In corporate news, a surprise changing of the guard at McDonald's has investors cheering. Don Thompson, who has been CEO for only a few years, is stepping down, the news sending shares of the stock soaring. In terms of outlook a several factors contributed included earnings, the FOMC and economic data.

Market Statistics

Global markets did not fare as well as we today. Asian indices fell the most, losing more than 1% on average in a move echoing yesterday's drop. The bearish vibe held over into the European session where markets were mostly lower in early trading. Those market also opened lower, but were able to recover most if not all of the losses before the close.

Our markets were mixed in the early pre-market session. Futures were up, but compared to fair value indicated an opening near to flat. The Dow was the notable exception as it was positively affected by trading in both McDonald's and Boeing. Index futures lifted mildly at 8:30AM, just after a surprise drop in jobless claims was announced, and managed to hold into the open. After the bell the indices held positive territory for a few minutes, and then quickly fell until the selling began to let up just after 11AM. From that point forward the market perked up, the bulls came out and pushed the indices back to break even and into the green. Once they had their heads back above water the bulls were able to drive the indices up by nearly 1% on average.

Economic Calendar

The Economy

Only two economic releases today, jobless claims and pending home sales. Jobless claims was much better than expected and is the first sign that seasonal employment shifts are working their way out of the system. Initial claims was reported as dropping 43,000 to 265,000. This is much better than the expectation for them to remain flat. Claims are now at their lowest levels, on an adjusted revised and updated basis, in nearly 15 years. Last week's figure was revised up by 1,000, the 4 week moving average declined by over 6,000 and is back below 300K. I am now going to suggest that jobs creation in January may be strong-ish when released next week and that unemployment may have fallen again. On a state by state basis no state or territory reported an increase in claims more than 1,000. Several states, includin PA, NY and GA, reported drops in claims greater than 10,000.


Continuing claims and total claims both fell as well, adding some weight to the idea seasonally expected lay-off's and job losses are not a lingering problem. Continuing claims fell by 71,000 to 2.385 million from an upward revision of 13,000. This is not a new low but is back below the 2.4 million level and in line with the ongoing improvement in labor we have been monitoring.

Total claims fell by 87,774 to 2.961 million. This is still elevated but off of the high set last week. If initial and continuing claims remain low I expect to see this one continue to fall and return to recent lows. On a comparable basis, the total number of Americans is 17% lower than last year at this time.


Pending home sales was released at 10AM. Pending sales is a measure of contract signings and is a gauge of traffic as well as future sales. The index declined by 3.7%, to 100.7, versus an expected increase near a half percent. While bad on the headline, details within the report are a little better. The December number, while in decline, is still above the comparable period in the previous year and is the fourth month to be above last years rate. On a year over year basis pending sales are up more than 6% in 2014. The December drop was attributed to a rise in prices/low inventory and could lead to an increase in home building.

On tap tomorrow is the first estimate for 4th quarter GDP as well as Michigan Sentiment, Chicago PMI and the Employment Cost Index. GDP is expected to be in the range of 3.2%, this is down from 3.5% last week on weak durable goods orders reported earlier this week. While durables may be a drag on GDP, I am not betting on a weak number as other data in the quarter was positive. Chicago PMI and Michigan Sentiment are both expected to show a mild decline but remain firmly expansionary.

The Oil Index

Oil trading was …. volatile, again. The price of WTI fell more than 2% after yesterday's stockpile report showed that supplies are not diminishing. Then, mid day, prices found bottom and were marched back to break even and higher. WTI closed with a small gain today, .25%, with Brent achieving a gain of more than 1%. This is a possible sign of bottoming in oil prices but I don't think so, not yet. Prices have been in steady decline on high capacity, high storage and low demand growth with no sign of a change to any of these.

The Oil Index traded down on the news but was able to recover the loss. The index moved lower after an initial opening just above yesterday's close. Today's action tested support along the back side of the broken down-trend line near it's intersection along the rising up-trend line. This could become a significant juncture for the index and give indication of where it may trade over the next few months. Support is currently near 1,250. A bounce from here could take the index back to 1,350 or 1,400, a break could lead to further selling and a continuation of the short term down trend.


The Gold Index

Gold prices had their worst day in over a year. The FOMC statements, while supporting economic trends, were also a little dovish in terms of interest rate hikes and spooked gold bulls. The use of the word “patient” has the market speculating on the possibility of the hike coming in September, rather than in June was widely expected. In any event, gold prices fell by 2.5% in today's session as traders re-think their positions. This new twist pushes the first rate hike out a little bit it does not take it away so I am looking at today's decline as more of a lead-in to new bullish positions rather than a sign the bear market is coming back. Tomorrow's GDP could be change that but that is for tomorrows Wrap.

The gold miners ETF GDX fell in today's session as well. The ETF 2.25% right at the open and then traded around that point all day. Today's range was tight and created a small bodied candle just above support targets near $20.50. The indicators are in decline, consistent with a market in retreat, but also consistent with a retest of the recent highs over the short term. It looks like the sector is pulling back on the drop in gold prices and is heading for a test of support. Support is near $20.50, the top of the Nov/Dec bottoming pattern and the short term 30 day moving average with an initial upside target near $23 should support hold. A drop below this level could take the ETF down to $17.50.


In The News, Story Stocks and Earnings

Earnings are flooding the market. This week and today being one of the busiest of the season. Ford reported before the bell and provided mixed results for investors to ponder. Revenues were a little light but EPS was in line and 2015 guidance is positive.The auto maker reported that sales were down from the previous quarter but remain strong. Shares of the stock gained nearly 2.75% today after testing support at $14.50.


After hours action was full today. Several top names reported, including Google, Amazon and Visa. Google reported a big miss on the top and bottom lines. EPS came in at $6.88, versus $7.11 expected by analysts. The EPS miss was due in part to spending over the quarter and sent the stock tanking in the after hours market. Shares of Google fell more than 2% on the news.


Amazon reported that revenue was light but earnings were much better than expected. The compnay reported EPS of $0.45, versus the expected $0.17, and proves that Amazon can make some money, a little. Shares of the stock surged more than 6.5% in the after hours session despite weak first quarter guidance.


Visa was another company to shine in the after hours session. The credit card and payment processor reported a top and bottom line beat and 4-for-1 stock split that sent shares surging 4%. The results are an 11% improvement over the comparable period and a sign of strength in the consumer.


The Indices

The market moved higher today, after an early head fake that made it appear as if a more pronounced sell-off may ensue. Heavy selling did not ensue and the bulls were able to regain the upper hand, at least for today. The Dow Jones Industrial Average was today's leader. The blue chip index gained 1.31% in a move that tested long term support in the early hours and approached potential resistance in the later ones. The index created a white bodied candle that moved up from support near 17,150 and is now approaching the potential resistance of the short term moving average. The index bounced from the bottom of a three month range with indicators consistent with support at that level. In the near term it looks like the index could continue to test support, especially if the GDP is not to the markets liking, but that the long term trend is still intact.


The NASDAQ Composite is runner up in today's action. The tech heavy index gained 0.98%, driven largely by Apple which gained 3.25%. This index also tested support, consistent with the September all time high and the long term up trend line. Today's action created a long white bodied candle with a short lower wick and appears to be bouncing from the trend line. Today's action also brought the index up to just below the short term moving average which may provide resistance. A break above it will lead to a target near the current long term high, about 120 points above today's closing price.The indicators are weak in the near term and suggest that further testing of support may come but over the short to long term are consistent with support. This yet another bounce along the trend line and set up for a potential trend following market swing.


The S&P 500 is next up in today's lineup with a gain of 0.95%. The broad market created a white bodied candle moving up from the long term trend line with a long lower shadow. The lower shadow helps to highlight support along the trend line which is supported by the indicators and support lines drawn to the August/September highs. The index appears to be bouncing from the trend line, as it has done in the past, but is faced with technical resistance at the short term moving average and a potential fundamental resistance in the form of tomorrow's GDP announcement. Support is in the range between 1990 and 2010, a zone consistent with the highs of July, August and September and three previous tests of support in December and January. A fall below this level could lead to a more significant correction a possible market reversal.


The Dow Jones Transportation Average brings up the rear today. The transports gained only 0.6%, less then half of its blue chip counterpart. Today's action created a white bodied candle with a lower shadow and indication of ongoing support at or near 8,750. The index has been trending sideways over the past three months and now is trading near the bottom of that range. The indicators are consistent with support along this level but also suggest that it could continue to be tested if no catalyst spurs the market higher.


I thought the FOMC meeting would be a bigger, or different, catalyst for the market but there is still the GDP release to watch for. The market is continuing to test support along the long term trend/suppot and may continue to do so until a firmer view of the future emerges. For now, the economic trends are still up despite a slowing of activity in December. The positive is that the early January data is pointing to a pick up of activity with the start of the year and December was still a growth month, just a slightly slower one. The thing to remember is that all of the forward looking surveys of business and the consumer, that I have seen anyway, are at high levels and pointing to a continuation of growth this year. The GDP figures could go a long way toward helping the market realize that, or not. If not there is always next week to look to and the next round of monthly ADP, NFP and Unemployment data.

There will also be a lot of activity centered around earnings. Earnings reports are still mixed, if leaning toward the positive side, and there were quite a few big names making big moves in the after hours market. There will also be about 45 reports tomorrow including MasterCard and Chevron.

Until then, remember the trend!

Thomas Hughes