The market teetered on the verge of selling off as near term factors cloud longer term views.

Introduction

A number of factors fought for attention today. First up were headlines from Europe that the EU, Germany and Greece have not come to an agreement. Germany flat out rejected the plea for additional lenience keeping this issue firmly on the front burner and not unexpected. European indices at first fell on the news but later shrugged it off, many of them returning to positive trading before their close. The Greece news of course had an impact on our markets as did another massive swing in oil and some mixed earnings reports. The price for WTI was down as much as 6% in early trading and is likely to remain volatile. Earnings were mixed but reports from Priceline and T-Mobile helped to support the market.

Market Statistics

Economic data was another focus this morning. Initial claims were better than expected and added some support to early futures trading. Later in the day Philly Fed and Leading Indicators added a little more. The SPX moved down to test the previous all-time high within the first 30 minutes and then bounced off of that level after the 10AM release of Philly Fed and Leading Indicators. The bulls were able to push the market higher from there and recaptured most if not all of the early losses. The markets drifted during the afternoon but maintained a tight range with most indices trading within a quarter point of yesterday's closing price.

Economic Calendar

The Economy

Lots of data today, especially since we're in the wake of the FOMC minutes. The minutes themselves were not too unexpected except I think they may be a little too dovish in their outlook. Initial claims fell more than expected to 283,000 from an unrevised 304,000 last month. The four week moving average also fell, for the fourth week in a row, and is now just above its 15 year low. On an not adjusted basis claims fell by 13.9%, almost double the expected 7.5% decline. On a state by state basis NY, TX, CA and PA led with a net increase near 11,000 new claims.

Texas made no comment on where the jobs were lost but Pennsylvania reported most were lost in construction and manufacturing. The two biggest states reporting declines in claims were Georgia and Tennessee with a combined total of only -2,063. This weeks drop in claims makes it look like job losses and turnover are beginning to decline again after holding semi-steady in the 4th quarter of last year.


Continuing claims rose by 58,000 to 2.425 million. This puts the number of continuing claims back above 2.4 million but is still relatively steady for the first part of this year. Claims are trending near the long term lows and at levels indicative of a strong labor market. The four week moving average of continuing claims fell however, for the fourth week, and is itself very close to crossing under 2.4 million.

Total claims fell, shedding -31,699 to come in at 2.854 million. This is down from last week and from the high set at the end of last year but still holding above the long term low. The recent pick up in total claims is a concern but possibly explained by the increase in participation rate and if so a net positive so long as job creation remains strong. Last year at this time there were over 3.5 million total claims and less participation so we've made some progress somewhere.


Leading indicators and Philly Fed Survey of Manufacturing were both released at 10AM. Leading indicators for January rose by 0.2%, slightly below consensus of 0.3% and below the 0.4% set the previous month. This is still positive but now the second month of decline. This decline indicates a slowing of growth, or more likely a lull in growth if the forward looking surveys are to be believed, but not an end. The Coincident and Lagging Indicators both rose as well, by 0.2% and 0.3% respectively, and indicate momentum is still present in the economy.

Philly Fed came in at 5.2 for February, down from 6.3 in January and a 12 month low. This reading is also below expectations for a slight rise to 7.0. While weaker than expected and well off the high set last November this number is still expansionary and internals reveal some positives for the future. For one, the employment component rose by 6 points and is in positive territory. Additional signs include a rise in inventory and significant increases to shipments and unfilled orders. Shipments rose by 15 points, unfilled orders rose 16 and both are now positive as well. The forward looking future activity index is where the most weakness was felt. It is still well above 0 but fell more than 21 points from 50.9 to 29.7. Despite the sharp drop future expectations remains positive and strong for the next 6 months.


There is no other data this week. Next week is moderately full with the bulk of data falling on Thursday and Friday. Early in the week are existing home sales and consumer confidence, later in the week look for CPI, Durable Goods, Chicago PMI, Michigan Sentiment, Pending Home Sales and the 2nd estimate for 4th quarter GDP.

The Oil Index

Oil prices fell hard today, dropping more than 6% at one point to trade below $49.50. Today's cause was rising inventories as reported by the EIA. WTI supplies rose by 7.7 million barrels, more than expected, and is a sign that production and consumption levels have not stabilized. Today's low was hit just after 9:30AM at which time prices began to rise. By the end of the day WTI had reached levels above $51 where it remained until settlement.

The oil sector was hit hard by the drop and led the broader market lower. The Oil Index gapped lower at the open and traded down from there until it was clear that oil prices had bottomed for the day. At that point the index found support, just above the short term 30 day moving average, and moved up to close the gap. Prices regained most of today's drop but remain below my resistance line at the 1395 level. This resistance is coincident with the top of the three month trading range, a range confirmed by the indicators. MACD is bullish but clearly making a Head&Shoulders pattern in tandem with prices braking above and then falling below resistance, stochastic making a bearish crossover and overbought. Based on this it looks like the Oil Index could remain range bound in the near term. Current support is near 1350 and the short term moving average with targets near 1300 and1250 should the moving average fail to hold.


The Gold Index

Gold prices rose today after hitting a 6 week low yesterday. The FOMC minutes have only added to confusion over when interest rates would rise, and along with news from the EU have combined to cause some volatility in the currency world that is affecting gold prices. The metal is now bouncing from possible support at the $1200 level but has not confirmed. Further testing of $1200 is possible in the least and if broken could take gold down to $1190 or lower very quickly.

The Gold Index fell today despite the 1% gain in gold. The index was hit by earnings that have revealed the impact of low realized prices. Many of the producers have reported an increase of production, but revenues and earnings that are in line or below those from previous comparable quarters. Today the index lost close to 2.5% in a fall from the short term moving average. This is just one day after the index bounced from support, support consistent with the top of the trading range broken in the first weeks of this year. The indicators are bearish so I expect to see this level testd again. If it is broken the next target is near the bottom of the aforementioned range near $17.50.


In The News, Story Stocks and Earnings

Wal-Mart made big news today when it released earnings. The company reported a nice beat on EPS, with revenues slightly lower than expected. Company EPS was $1.61 versus an expected $1.53 with the largest rise in US comp store sales seen in years. The strength led the company to raise the dividend by a penny and to enact some radical, for this company at least, new cap-ex. New spending will go to new wages and affect at least 40% of employees. This might have been OK if not for the weak forward guidance. The news, primarily the low guidance, sent shares lower by -1.60% in the pre-market and extended that to -2.6% after the opening bell. Since Wal-Mart's plan is to raise wages to $10 per hour I wonder how many of these dollars are going to make it back to the company in the form of sales and services? Wal-Mart employees are consumers too and they work in a centralized location of consumer goods and services. It only makes sense to think a significant portion of any raises will go directly back to the store in the form of revenue.


GoldCorp released earnings this morning, alongside a number of other miners. The company reported earnings that at first glance are weak, and they are weak, but also reveal the chance for significant gains in the future. The company reported EPS of $0.07, a few pennies shy of consensus, on revenue that was also a little light of expectations, both number below last year's comparable quarter. What I see as the positive is that production rose nearly 16%. This may not seem positive since what it really does is reveal the impact of the decline in gold prices. However, since production is also expected to rise by 20% in the next year, and there is a reasonable expectation for prices to remain firm at or near current prices I see a significant chance for earnings increases in coming quarters. The stock fell more than 6% on the news, dropping below the short term moving average and a Fibonacci Retracement at $22.50. The indicators are bearish and gaining strength so could take it down to $20 or lower.


Priceline reported before the opening bell and is one that delivered on all levels. The company reported a top and bottom line beat with expected growth into the current year. First quarter guidance is a little below expectations but the $3 billion stock buyback helped to relieve the sting. Shares of the stock jumped more than 8.5% in the pre-market session and are now trading above $1200 for the first time in nearly 4 months.


T-Mobile also reported some surprisingly good numbers. The mobile phone company reported a record year of growth which includes 2.1 million new users in the 4th quarter. The company also reported that revenues grew by 19.4% for the quarter and that they captured 80% of all new post-paid sign-ups. The stock surged in the pre-market, gapped up at the open and then traded lower from there. Today's move leaves the stock 3% higher than yesterday's close but created a large bearish candle.


The Indices

The market seemed indecisive today. Most of the indices were weighed down by worries but the NASDAQ Composite was immune. The tech heavy index was able to make another gain and come a few points closer to 5,000. The index moved 0.37% higher in today's session and created a small bodied green candle. This is the 8th day of positive trading and upward movement since bouncing from the short term moving average early last week. The indicators are in line with this move but not looking strong. MACD has made a peak and stochastic is high in it's range with near term %K moving down. Neither are indication of imminent reversal but are signs of caution. Price action is bullish and moving in line with long term trends so I'm bullish but see this as a time to raise stops on current positions rather than enter new ones.


The transports made the next best run at new highs today but was not able to close in the green. The Dow Jones Transportation Index fell by -0.04% after spending most of the day trading in positive territory. Today's action created an alarming candle as it is a doji and beneath resistance. The indicators are bullish but in positions that are hinting at resistance and the top of a range. MACD momentum is bullish and steady, but very weak, and could easily reverse from here. Stochastic is moving higher in the near term and could be on the verge of showing strength by crossing over the upper signal line but could also easily reverse from here and confirm resistance. Resistance is the current all-time high and top of the four month trading range near 9,250. Now that I've said all that I want to point out that this index is also in mid-bounce, in line with the underlying trend, with bullish indicators so I am bullish, but very very cautious.


The SPX is next up with a loss of -0.10%. The broad market created a spinning top, the third of three, above the previous all time high. Today the index was able to move into the green and set a new all-time-intra-day high but was not able to hold it. The indicators are bullish but like with the other indices give reason for caution. Other reasons for caution are that the index is sitting just off the all time high, at the highs of the year and at a 3 week high, all ahead of options expiration, which is tomorrow. If the previous all-time high does not hold as support next target is 2063 and the top of the January range. If the market manages to consolidate at this level and follow through with another rally it could carry us another 100 points higher.


The Dow Jones Industrial Average brings up the rear today. The blue chips lost nearly a quarter percent, -0.24, and may be leading the market in a decline the other charts are only hinting at. This index has now declined two days in a row and is testing support just below the current all time high. The indicators are bullish but like the rest are suggestive of resistance, if not possible reversal, and could lead to a further test of support or even a pull-back. Either event would likely be another entry opportunity but until then caution is due. If today's pullback becomes more than just a consolidation it could take the index down to the short term moving average near 17,750 or lower.


Today's action was tepid at best. The market shrank back from all time highs on weak oil, international news and a mish mash of earnings. Weak oil is bad in the near term but good in the long term, Greek news is more like a soap opera than anything else, not to make too light of the situation, and earnings are like always, some are doing well and some are not. What still concerns me is the growing expectation for earnings decline in the 1st and 2nd quarters of this year. Declining earnings are never good but this expectation is based on the drop in oil and the oil sector, not unexpected, so I think so long as earnings X-oil are OK the market will be OK. In the meantime the indices are poised in a way that makes me think they could rally, but also that gives me reason to be worried. I'm bullish, but cautious and waiting for a stronger signal because I don't think we got it today.

Until then, remember the trend!

Thomas Hughes