The market surged on a triple shot of good news, but will it last?
The market surged to new 2015 highs on a triple shot of good news that couldn't have come at a better time. Two shots involve Greece and Russia. When the market closed yesterday afternoon there was fighting in the Ukraine and a chance that Greece would exit the EU. The situation changed overnight as first a tentative deal was announced for Greece and then later a cease fire in the Ukraine received the Putin seal of approval. The third shot of good news was a round of strong earnings from a number of big name companies, primarily in the tech sector, that sent the NASDAQ to new highs. The question is, will the news stay good or will it come back to spook the market again?
Futures trading was up in the early hours, as were indices in Asia and Europe. The news was well received around the world and helped indices in both regions close in the green. Our indices were indicated to open higher by about 0.25%-0.5% over yesterday's close and held that level for most of the morning. Economic data in the form of jobless claims, retail sales and business inventories was not quite as expected and caused a little movement in early trading but were generally discounted in the face of earnings, long term trends and the positive vibe inspired by geopolitical events.
The bulls took charge as soon as the opening bell sounded. The markets moved up and hit an early high within the first 45 minutes of trading. There was a brief pull back mid morning that did not last long. Once the bulls regrouped they were able to then march higher into the close of trading. Today's move was led by the tech sector but all the indices participated with most setting a new 2015 high.
Initial claims for unemployment rose more than expected. Claims jumped by 25,000 to climb back above 300,000 for the first time in over a month with a revision of 1,000 to the previous week. The four week moving average continues to decline however as the impact of the January dip is still being felt. On an not adjusted basis claims rose by 5.6% versus an expected decline of -3.0%. California reported the largest increase in claims, +18,000, followed by Pennsylvania's increase of 1,507. New Jersey is the only state to report a decline in claims greater than 1,000 with a drip of -1,608. Claims have jumped, but from a 15+ year low and are still trending below 300,000. The volatility in claims over the past few weeks could be due to the oil sector and may continue into the near future. So far the oil sector has contributed volatility but has not served to reverse the trend.
Continuing claims fell by -51,000 to 2.354 million, with a revision of 5,000 to last week. Continuing claims are now back below 2.4 million and approaching the long term lows set last fall. Claims for the second week of benefits have been trending sideways for the last couple of months but are at levels in line with a stable and strong labor market. The total number of claims for unemployment rose by 44,284 to 2.884 million. This is a modest gain from last week, and still elevated off of the long term low, but also 17.5% below claims at this time last year. If initial, continuing and total claims remain at or near these levels, and jobs creation remains strong then overall unemployment should be able to continue trending lower as it is expected to do.
Retail sales fell more than expected in January. Headline sales fell by -0.8% versus an expected decline of only -0.2%. The decline was led by gas which is down by -23.5% from the previous month. Looking back, sales are up 3.3% from January last year and up 3.8% over the past three months versus the comparable period last year. The decline has raised further speculation of whether low gas prices are helping the consumer or not... and if they are helping then where is the money going? Another thought about retail sales I have had is centered on the shipping port stand-still out west. Could it be having an impact on sales because items are making it to the shelves?
December business inventories rose, but not as much as expected. Inventories rose by 0.1% versus the expected 0.2% and may negatively impact 4th quarter GDP. On a year over year basis inventories are up 3.9% with the inventory-to-sales ratio rising to 1.33.
The Oil Index
Today's weak data helped to weaken the dollar as well and that helped send oil back above $50. This is in the face of the latest report from Cushing showing a rise in oil stockpiles. Although reserves are still on the rise growing signs of production reductions may be inspiring traders to get long, or at least to not be short. The trend in prices is still down, but $50 is emerging as a potential support level so should be watched closely. A move below could drive the price down to $40.
The Oil Index gained 1.6% in today's session and is now back at resistance. The index has been testing resistance near 1,390 for the last two weeks and has yet to break through. The indicators are still bullish but are not strong and may be indicating the top of a range. Near term support is just below the current level at 1,350. The index may range between these two levels while oil prices consolidate around $50. If oil moves one way or the other look for this index to move as well and break out of the two week range. The long term trend is up so any pull back to the up trend-line could be a buying opportunity.
The Gold Index
Gold prices tried to rebound today and gained over 1% on an intraday basis. Gold prices have been in decline of late but are still well above long term lows and potential support levels in the $1200-$1215 range. Near term events could continue to pressure gold lower but I will be looking to those as possible entries for long term positions with the expectation the FOMC is going to raise rates this year, and maybe in June or earlier.
The gold miners gained in today's session. The GDX gold miners ETF gained 1.25% and traded in a tight range around the short term moving average. The ETF is also just above support with bearish indicators. Support at $20.50 is the top of the December-January range and the base line of a double bottom reversal pattern from the same period. Support is likely to be tested and a break through could take the ETF down $17.50.
In The News, Story Stocks and Earnings
Lots of business news today and not just earnings. Perhaps the biggest deal to hit the wires today was Expedia's planned purchase of Orbitz. The deal is worth over $1.6 billion and delivers $12 in cash to current shareholders. The move further consolidates the on line travel space and is subject to regulatory approval. Expedia CEO does not think there will be a problem with approval. Shares of both companies saw significant gains in today's session. Orbitz is trading $0.30 shy of the deal price, a gain of more than 25%, while shares of Expedia gained nearly 15%.
American Express announced that it was ending its exclusive partnership with Costco. The two companies were not able to reach an agreement in order to extend the deal which ends March 31st, 2016. The loss is a big one for AXP and will have a material affect on earnings and profits as early as next year. Shares of the stock fell on the news losing 6.5% and are now sitting on long term support.
Zynga reported after the bell and disappointed on many levels. The game company reported earnings, revenue, monthly users and next quarter guidance. The report is starkly different from competitor King Digital, maker of Candy Crush, who announced a massive beat on the top and bottom line that and a special dividend of $0.94 per share. Shares of Zynga fell in after hours trading, shares of King Digital soared.
Groupon also reported after the bell and believe it or not was able to not only create a profit, but to beat estimates. Actual results of $0.06 per shares are double consensus but the forward guidance was not strong. The news caused some volatile trading in the stock which at one time was both up and down 8% in after hours trading.
The market heard what it wanted to hear today; Greece isn't going to be a problem, Russia is backing down a little, earnings are not as bad as feared and economic data is in line with trends. The combination of positive factors and removal of fear resulted in a slow and steady march higher for all the indices. Today's move was led by the NASDAQ Composite which received a nice boost from Cisco. Cisco reported earnings after the bell yesterday and gained nearly 10% today.
The tech heavy index was moving even before the opening bell and created a small at the open. The index also moved above resistance and is now trading at a new high, very close to its all time high levels. The indicators are bullish and on the rise so this move could continue tomorrow. Momentum is not strong at this time and stochastic is overbought in the near term but both indicators have room to run before extreme levels are reached.
The S&P 500 gained just shy of 1% today. The broad market did not set a new all time high, but did set a new 2015 high and is now trading just below the current all time high. The index created a long white candle and completed what looks like a three day continuation signal centered around the 30 day moving average. The indicators are bullish and moving higher so I expect to see resistance tested in the least. Possible upside target is near 2,200 but a break above resistance is required.
The Dow Jones Transportation Average made the third largest gain today, adding 0.78% to yesterday's close. Although the index made a nice gain today it did not make a new 2015 high or any other kind. The index is still near the middle of its 3 month range with indicators pointing higher. The index is in a long term up trend and bouncing upward off the short term 30 day moving average so I am confident it will move up to the top of the range at the current all time high but anything after that is in question.
The Dow Jones Industrial Average brings up the rear in today's action. The blue chip index gained only 0.62% but unlike its cousin the transports did make a new 2015 high. The index is moving up from the short term moving average and is now trading just under resistance at the current all time high. Indicators are bullish but not yet showing strength so while I can say it looks set to give resistance a real test a break above is far from certain. There are some economic releases due out over the next week that could keep this and the other indices contained, one such being the FOMC minutes scheduled for release on Tuesday.
The market is moving higher and if the NASDAQ is any indication is on the verge of breaking to new highs. The caveat is that today's move is based in part at least on relief over Greece and Russia. This relief could easily sour and leave the bulls high and dry if Putin reneges of his new pledge, or if Greece decides it doesn't want to play ball with the EU. Even if we are able to move past these events there will always be the chance they flare up again in the future. Assuming that there is no change to geopolitical events tomorrow's session will be influenced by earnings, rebounding oil and economic data. The trend is up and the market is moving in line with the trend so I am bullish, if cautious.
Until then, remember the trend!