Greece and the bail-out dramas once again impede the market.

Introduction

Greece has done it again. The country and its hard-won bail out plan has sent the market lower. The good news is that this time around the market did not react too violently. Last week it seemed as if the new government was back-pedaling on its anit-austerity pledge and coming in line with creditor demands but new comments put that idea to rest. Over the weekend prime Minister Tsipras said that the pledge of anit-austerity was “irrevocable”, a statement at odds with finance minister Varoufakis who still says that Greece will accept “majority” of reforms. EU markets, the German DAX most prominently, fell more than 1% on the news.

Market Statistics

There was no economic data today, and few earnings reports before the bell that grabbed the markets attention. The news and European sell-off had their affect on us but only marginally. The indices were indicated to open lower all morning, and did, but only by a few points. Trading was light after the opening bell sounded, the indices treading water just below last week's closing prices, and remained light all day. The indices began to firm around lunch time sending the SPX and NASDAQ Composite into the green but the break into positive territory did not last long. Early afternoon the indices drifted back to test the early lows and then move lower. The market hit bottom late afternoon and bounced back to recover about half of today's loss before the close of the day.

Economic Calendar

The Economy

As mentioned there was no data released today. There is some due out this week but the list is light. Tuesday is Wholesale Inventories and JOLT's job openings. Wholesale inventory is expected to rise, but not as strongly as the previous month. JOLT's should remain steady but the number to watch will be the quits rate, a gain in quits is bullish for labor and a sign of confidence among participants. Wednesday the KC Fed releases the Index of Labor Market Conditions and the EIA oil inventory. The LMCI has been on the rise for the past three years with momentum at all time highs. Based on last weeks remarkable NFP release I do not expect that to change. I've been commenting for a while on the idea of underlying momentum present in the labor market and I think that the revisions to October and November NFP, as well as the December headline, underscore the idea.

Thursday is the usual jobless claims numbers with the addition of retail sales and business inventories. Friday rounds out the week with Michigan Sentiment and Import/Export Prices. Both sets of inventory data and the JOLTs numbers are for December, the rest of the data is for January except Michigan Sentiment which is the preliminary for February. Rear looking December data is less important to me, the January and February data more important being in the current quarter.

According Moody's Survey of Business Confidence outlook and expectations remain near all time highs. The diffusion index dropped -0.01 to 41.5, one tenth below last week's all time high and are indicative of an optimistic business environment. In the summary report Mark Zandi reports that “Business sentiment remains sky-high, especially in the U.S., where it is consistent with an economy that is expanding above its potential. Hiring intentions are especially strong, and absorption of office space has surged to a record high. Pricing is holding up well despite heightened deflation concerns in much of the developed world. Credit availability has also notably improved, perhaps reflecting recent aggressive actions by the Bank of Japan and European Central Bank.” The bit about “absorption of office space” is a good sign I think. It could mean growth of new businesses as well as more jobs.


The Oil Index

Oil traded up again today as OPEC spun the market again. The cartel announced that it sees “overflowing supply” with no change in sight, but also raised its 2015 forecast for demand. OPEC is now saying that US production is slowing quicker than forecast and will boost demand for other products, namely OPEC oil. WTI and Brent both gained on the news, WTI rising more than 3% to trade above $53.50. Brent only gained 1%.

The oil sector got another boost from oil. The Oil Index traded up by about 1% in today's session. The index created another small candle, just below resistance, making it a week that it as been stuck between 1,350 and 1,400. It was bouncing higher on rebounding oil prices and is now consolidating in what appears to be a potential bullish flag. A break above 1,400 would confirm this pattern and put a target near 1,500. The caveat is that the bullish indicators have made a peak so it is also possible the index will remain range bound. The next clue to direction for this index may come Wednesday with the inventory numbers if some other headline does not come first.


The Gold Index

Today gold traded higher by about a half percent to settle above $1240. This is only a small rebound from last weeks drop and below my previous support target of $1250, which I now have my eye on as possible resistance. Gold prices may continue to trade below $1250 in the near term but my long term view is bullish and getting more so as the data suggests that the FOMC will raise interest rates sooner than expected.

The GDX gold miners ETF moved higher on today's gain in gold, and expected earnings reports due out this week and next. The ETF crept up from the short term moving average in today's action, after testing it last week, and could be setting up for another move higher. Earnings for the past quarter aren't likely to be that great but forward outlook should be better. Early reports are mixed, but only a few have reported so far. At this time the sector is sitting on support, with gold prices under pressure, and indicators moving lower. There could be additional tests of support, particularly if gold prices sink, but so far it has held. Support is near $21.50 with $20 next target should it break.


In The News, Story Stocks and Earnings

African based Randgold Resources reported earnings today. The gold miner reported earnings that were well below expectations but upped the dividend on reported higher production and impressive cash/gold reserves. Randgold reported that production was up 26% in 2014 and indications within the report suggest that it may increase again in 2015. The company also reported it was able to reduce costs by 2% and is debt free. Cash and gold reserves on hand total over $100 million. The stock gained more than 1% today, moving up off of potential support at the $80 line. The indicators are bearish so there could be further testing of this support, with the short term 30 day moving average adding additional support just below it. Longer term, the stock is trading near the top of a 2 year range so resistance to higher prices could be strong, however, bullish momentum is also strong and convergent with a retest of $85.


McDonald's made the news today when it announced comp store sales results for January. Global comps fell by -1.8%, but ex-Asia really weren't bad at all. US sales rose by 0.4%, above estimates, and EU sales were up 0.5% despite weakness in France and Russia. Asia-Pacific, which has been battling image issues and the fall-out from the meat recall in China, fell -12.6% and will be a drag on earnings. The stock fell -1.25% on the news and is now sitting on the short term 30 day moving average and just below the 93.80 resistance line. Indicators are bullish but consistent with resistance at this level.


Diamond Offshore, one of the largest providers of off-shore drilling services, announced earnings before the bell. The report was mixed and came with a little bad news for shareholders but ultimately sent the stock over 2% higher. The company reported a top line miss, a bottom line beat and suspended a special dividend. The regular dividend is still in place, savings from the special one will be saved to help pay for new opportunities as they arise. The stock sank in the pre-market session, opened just above long term support and then rose the rest of the day to close near the daily high and above the 30 day moving average.


Hasbro reported earnings that beat estimates and that revenues grew in all markets, but less than expected. The results were good enough for the board to approve a $500 million dollar share repurchase program and raising the dividend. The combination of news was well received and sent shares higher in the pre-market. The stock gained 4% before the opening bell and then doubled that gain once trading was officially underway. Shares of Hasbro are now trading at a new all time high with strong bullish momentum.


The Indices

There wasn't much direction to trading today. The market got off on a slow, sluggish blah start and then drifted the rest of the day. There was no doubt a bias to the downside but each major index is supported by its short term moving average, except for the Dow Jones Transportation Average, which led today's decline. The Transports shed just over -1% today and broke below the 30 day EMA. The index is basically in the middle of a three month trading range with incredibly neutral indicators. Momentum has slowly equalized around the current level, between the upper and lower ends of the range, and is near equilibrium now. Stochastic is similarly in the the middle of its range after winding up over the last three months and is giving me one of those weird feelings like something is about to happen only I don't know what it is. The long term trends are up, the economic trends are up and last weeks labor data was as strong as ever, if not stronger, so I am still bullish. Current range limits are my support line at 8,550 and resistance line at 9,250.


The rest of the indices were closely matched in terms of % decline but the Dow Jones Industrial Average edged the others out for runner up. The blue chips fell -0.53 in today's session and is approaching the middle of what in hindsight is a trading range comparable to that of the transports. This index is on the high side of the mid point of the range and still above the short term moving average but could easily reach those levels tomorrow. The indicators are less neutral looking on this chart, MACD is weak but steady and stochastic is moving higher in both the short and long terms although it is not very strong. Without some kind of catalyst to move it this index could be stuck in a range with the bottom near 17,250 and the top near 18,000.


The S&P 500 is not far behind the Dow Jones with its loss of -0.42% and is almost dead center of its range. The broad market has been in a sideways consolidation move for the past three months, similar to the other indices, but its trading range is a little tighter than that. This index has been winding up since the first of the year between 1,990 and 2,060 and now that range is getting even tighter. The long term trend line is back in play and is pushing the index up from beneath, even as it is falling back to the moving average. The indicators are mildly bullish, but weak and indecisive so it is possible the index could fall back to the EMA or further, with the trend line as next possible target. If the index were to move higher and break above the top of the 30 day range the all time high near 2,090 is just above and will provide resistance as well.


The NASDAQ Composite brings up the rear in today's action, not a bad thing considering the market lost value. The tech heavy index lost -0.39% and is now trading just above the short term moving average with a tiny doji-like spinning top. This index is also moving lower, near the middle of a three month range, with neutral indicators and no catalyst that I can foresee this week. There is some bullish bias to the indicators but not much and nothing I would call strong. The long term trend line is in play on this chart as well and could begin to pressure the index in the next week if it continues to move lower. The bottom of the range is 4,600, the top is 4,800.


The market seemed to be a little sluggish in its movement today. Perhaps the winter storm that is raging in the north east kept some traders away, perhaps it was worry over Greece, maybe it was something else. I would have guessed that the strong NFP data and revisions would help to stave off any market blahs and spurs the bulls to rally but they didn't. It looks like the indices are range bound and I can't fathom what the next catalyst may be.

The FOMC, minutes and Beige Book are out, We weathered the round of weak December data, we are seeing rebounding in January and earnings are OK. After that the only thing is geopolitics and outlook. Geopolitics may be a factor but the issues at hand, Ukraine and Greece, have been simmering for quite a long timer. That leaves outlook and outlook may be slipping. According the Factset report earnings growth outlook for Q1 and Q2 may turn negative, due to oil, and that is a scary thought for this bull. If this continues to progress, and the indices move lower breaking trend and support, there could be reversal in the market until outlook returns to growth. I don't think we're there yet. I'm still a bull, but more cautious than ever.

Until then, remember the trend!

Thomas Hughes