The ECB/Greek standoff was brushed off in favor of economic data and earnings reports.

Introduction

The market bounced back from yesterday's ECB inspired sell-off. The ECB/Greek stand off is still an issue, and will likely be in the market eye into the near future, but was shrugged off today in favor of economic data and earnings reports. There was a flood of earnings today, both before the open and after the close of trading, but it was the names on the after-the-close list that garnered the attention. Early action, before the opening bell, was largely influenced by the economic data. There was both rear looking December data and some fresher January data, both more or less as expected with some signs of strength in the labor market.

Market Statistics

Futures were positive from the earliest reports I saw. The markets were indicated to open higher, but only just, until after the bulk of the economic reports were released at 8:30AM. The December and Q4 data was largely weak, and a little weaker than expected; The January data a little mixed but in line with trends. In total, the data reveals that labor trends are still strong, jobs are still being added, wages are rising and more hours are being worked. The only real negative I found is that declining oil prices are having an affect on labor in the oil producing regions, and that this affect could spill over into other sectors with close contact with the aforementioned areas.

The market opened positive, and moved higher right from the start. The indices gained roughly 0.75% by 11AM and traded sideways from there until after lunch. The early high was tested several times during the afternoon until finally falling to bullish pressure just before 3:30. At that time the market experienced a little pop that carried it higher and into the close.

Economic Calendar

The Economy

Challenger, Gray&Christmas released their tally of lay-offs for January. The number spiked by 63% from last month, driven primarily by the sharp decline in oil. At least 40% of the spike in lay-offs is attributed to oil prices by the report. This is alarming but not too unexpected as the fall-out and effect on labor from plunging oil has been speculated on for some time. In the report Challenger says that there may be continued job losses related to oil and that there is now some systemic risk present. Other jobs in industries supporting the oil industry and the communities built on the oil boom may be at risk.

The report balanced this view by saying that there are also positive effects to low oil that may overshadow the losses due to oil and result in a net positive for the country. John Challenger, CEO of Challenger Gray&Christmas, had this to say … “Despite the recent surge in job cuts, the net result of falling oil prices could ultimately prove to be positive for the economy, as a whole. Not only will many industries see cost savings, but consumers will have more money for discretionary spending on things like dining out, travel, and entertainment”

Challenger,Gray & Christmas

Initial claims for unemployment remain at long term lows. The number of claims for the first week of benefits rose by 11,000, less than expected, to 278,000. Last week's number was revised higher, but only by 2,000, leaving it standing as a low mark dating back more than 10 years. The four week moving average fell, shedding 6,500 come in at 292,750. On a not adjusted basis claims rose by 8.5%, more than double the 4% expected by the seasonal factors. The part of the report that is confusing is that no state reported a gain in claims, only declines, so I'm not sure how it is the headline number rose. Regardless, claims are very low and despite the spike early in the month appear to be pointing to net job growth despite the surge in lay-offs.


Continuing claims gained as well, 6,000 from an upward revision of 9,000 for net increase of 15,000 from last weeks reported number. Continuing claims are near long term lows and holding steady around 2.4 million. While slightly elevated from last years low these claims are still trending at levels indicative of a healthy labor market and overall decline in unemployment. To that end, the total claims number fell this week by over 131,000 to 2.839 million. The total number of jobless claims is also elevated but appears to be coming down from its peak at the end of last year.


All in all the jobless claims data suggests to me that while there was a spike in lay-offs the labor market is still strong and that jobs creation is steady in the least. The ADP figure yesterday helps to prove that point, It was mildly below estimates but still above 200,000 and according to Mark Zandi the gains in jobs reported by ADP was “broad” and that any number “above 200,000 is good”. I'm going to go out on a limb here and say that I believe the NFP could remain steady to strong in the 250,000 range. Oh, and there could be added volatility due to the revisions to previous months, and to the entire 2014, scheduled for this release.

Other data released today included rear looking Trade Balance for December and Productivity/Labor Cost for the 4th quarter. The December trade balance is a deficit of -$46.6 billion, up from the -$39.8 billion reported in November. This is due to a decline in exports and an increase in imports from the previous month. Analysts had been expecting a deficit of -$43 billion.

Headline unit labor costs and productivity were not great. Productivity fell by -1.8% in the fourth quarter and labor costs rose by 2.7%, both more than expected. Productivity was estimated at -0.5%, labor costs +1% but both more or less in line with the rest of Decembers data. The parts that I think make this report better than it appears is that total output for the quarter increased by 3.2% and that much of the increas in labor cost were due to hourly compensation, +.9%, and hours worked, +5.1%. Also, the manufacturing sector saw notable improvement as well. Output in the sector increased by 1.3% with a rise in hourly earnings of 1.5% and only a 0.2% increase in unit costs.


The Oil Index

The oil pits were bubbling hot again today. The price of WTI surged yet again, by more than 5% intraday, to trade above $50. Prices are caught in a whirlwind of trading activity that may cause volatility into the foreseeable future. Not only do supplies continue rise, there are signs production is/will be coming down in 2015 and some geo-political risk in the air including a new scramble by western leaders to try and calm the ongoing fighting in the Ukraine. As far as outlook goes there has been little talk of demand increase, and no sign of falling inventory, but there has been a little, a very little, improvement in some of the European and Asian data that could lead eventually to rising demand.

The Oil Index is benefiting from the rise in oil prices. The index traded up today, gaining 0.6% in today's session, but may be at a peak. Today's action is above the 38.6% Fibonacci Retracement but below resistance at the top of the two month range. Of the two, the resistance line would be more significant in my view. The Fibonacci is important, but as a place in which a signal may occur, but not as a signal itself. Adding to the idea the index could be at a near term top is the indicators, which are bullish but peaking, consistent with range bound trading. Oil prices, and oil price outlook, will be a fundamental driver of this trade. Should prices continue to rise, or even to remain at or near $50 this index could continue to rise. Resistance is currently at 1,400 with possible support at 1,350, and below that near 1,250.


The Gold Index

Gold prices continue to languish around $1265 and appear to be stabilizing just above $1250. Gold traders may be waiting for some sign of when to expect inflation will hit, or when the FOMC will actually raise interest rates, but the general consensus is that rates are going to rise, if not this year then next. News impacting that outlook may affect prices but any downside is likely to be short term in nature and possible entries for long term positions. I have read several articles this week talking about fund managers and others buying gold so expect to see dips result in buying opportunities.

The gold miners ETF GDX traded up today, gaining close to 1.25%. The ETF is moving higher, bouncing up from the short term moving average and support. The sector has been rallying as the underlying commodity rallied and stabilized and this may continue. There is resistance at the current level but earnings, and earnings outlook, may help it to break through. Resistance is between $22.50 and $23 ad earnings for the bulk of the companies in the ETF come out over the next two weeks. The indicators are bearish in the near term but convergent with a retest of the current high in the short term.


In The News, Story Stocks and Earnings

There was a literal flood of earnings reports today, primarily after the bell. There were quite a few surprises, most of them positive. Starting with GoPro, the company reported $0.99 per share, smashing expectations for $0.65. Revenue was also way above estimates and come on sales of 2.4 million cameras. The stock has been trading near a 5 month low after hitting it high last fall and shot higher following the report.


Twitter also smashed its expectations. The social media service that I have yet get on board with reported revenue and earnings above the consensus estimate. Revenue was $479 with EPS of $0.12. EPS is double expectations but forward guidance and active users are light so the stock sank in after hours trading, and then soared. At first check it was down by over 5%, a little later on it was up 5%.


Linkedin is yet another social media provider, and yet another earnings beat. The company reported revenue of $643 million, versus the expected $617 million, and EPS of $0.61 versus an expected $0.53. Guidance was mixed, the first quarter is light but the full year meets expectations. This stock also saw active buying in the after hours session.


Pandora internet radio reported earnings in line with expectations. EPS of $0.18 was just a penny shy of the consensus but it was the bigger miss on revenue that hurt the stock, and weak guidance. Shares of Pandora tanked, shedding more than 20% after the news came out.


The Indices

The indices were able to power higher today with an average gain over 1%. The Greek debt talks merely provided an additional entry point for bullish traders. Today's action, in many cases, has brought the indices up to their respective resistance levels and put them on the brink of reaching new highs. Today's action was led by the Dow Jones Industrial Average. The blue chips gained close to 1.2% in today's session and have now erased all of this years losses. The index is still below the resistance of the current all time but looks likely to test that level in the least. The indicators are bullish and confirming each other, along with the bullish movement, with only a break to new highs needed to get really bullish. Resistance is at or near 18,000 with support between 17,000 and 17,500.


The NASDAQ Composite is runner up today with a gain of 1.03%, a mere 0.01% higher than the S&P 500. The tech heavy index is moving up from the short term moving average and is just shy of potential resistance. Resistance is the current long term highs near 4,800. The indicators are bullish and on the rise so I expect a test of the highes in the least. This move has the hall marks of a trend following bounce but has yet to break to new highs so caution is still due. Support on a pull back is along the short term moving average near 4,700 and the long the term up-trend line near 4,600.


The S&P 500 finished third today with a gain just over 1%. The broad market created a white bodied candle that closed at the high of the day, right at the top of the 30 day trading range. The indicators are bullish and in confirmation of the move but a break above resistance is still required. Once above 2,063 there is additional resistance at the current all time high near 2,090. If the index pulls back from resistance strong support exists along the long term trend line in the range of 1,990- 2,020.


The Dow Jones Transportation Average brings up the rear today. The transports gained only 0.9% in today's session. Today's action created a white bodied candle, moving up from the short term moving average with bullish indicators. The index is moving higher, with rising indicators, but has yet to show strength and has yet to meet resistance. Resistance is the current all time high and top of the three month trading range near 9,250. The index is currently trading in the middle of this range with near term support along the moving average and long term support at the bottom of the range.


The indices rallied once again. And once again are approaching resistance at the top of current trading ranges and near long term/all time highs. It looks like they could break through, but the chance remains that they will not. Tomorrow's data is likely to be a catalyst for the market, whether it moves it up or down we'll see in the morning. I am still a bull, the long term trends are up, expectation for the rest of the year is good and I don't see any reason to think that the NFP or unemployment data will change that. It is possible we get a negative surprise, but as always one month does not make a trend, and any sell off sparked by such a dip is usually viewed as a buying opportunity. NFP is expected in a range around 235,000, unemployment is expected to hold steady at 5.6%, average earnings are expected to rise by 0.2% and the average workweek is expected to remain flat.

Until then, remember the trend!

Thomas Hughes