The long awaited FCC vote on net neutrality finally came...and it passed.

Introduction

The market was relatively quiet in early trading as attention seemed to be focused on the FCC. The commission vote on the issue of net neutrality has finally come and they passed the measure 3 to 2 . Early trading was very calm up until the vote was announced and afterward remained calm. The markets hung just below the current highs all day, trading in a fairly narrow range and closing near the highs of the day. Overseas markets were less affected by the vote and were able to reach new highs with little trouble. Asian indices got an additional boost as traders returning from the lunar New Year holiday added to volumes, earnings and rising gold prices helped lift shares in Europe. There were some important headlines for earnings and economic data as well but neither source moved the market noticeably. I think that what really kept the market in check today was anticipation for the GDP revision due out tomorrow.

Market Statistics

Trading here at home was negative from the start of the early electronic sessions. After the opening bell trading remained weak, but stable just below the recently set highs. By 10AM the market had moved down to hit the morning low, about -0.10% lower, and then bounced back to break even levels. The NASDAQ for one was able to move into the green at that point, the indices continued to hover in a tight range at or just below break even until well after lunch. I thought that the FCC vote, when it was announced, might have spooked or sparked the market but it did not happen. Trading remained quietly in balance on the news. The market did move down to test the lows of the day in the late afternoon, but that was most likely driven by oil. Once the oil market closed the equities market bounced back to earlier highs and hold there until it closed.

Economic Calendar

The Economy

We got a blast of data right at 8:30AM. Included with the weekly jobless claims numbers was the latest read on CPI and Durable Goods. Much of the data was unexpected but on balance a positive for the market. Initial claims for unemployment jumped more than expected to 313,000. This is a gain of 31,000, from a down ward revision of -1,000, and 18,000 more than expected. The four week average also moved up, by 11,5000, but is still below 300,000. On a not adjusted basis claims rose by 0.8% versus the expected drop of -0.9%. While unexpected, this weeks gain is not a shock and still well within the recent range. Claims are still trending at long term low levels and consistent with a healthy labor market. It looks like there might be some volatility in claims but so long as they don't begin to rise things are OK. I've noticed over the past few weeks that the seasonal factors have been out of synch with the raw data which may be causing said volatility. It could also be caused by low oil prices and/or seasonal shifts in the calendar or weather related or combination.


Continuing claims fell by -21,000 to 2.401 million. Last week's figure was revised lower by -3,000 as well. The four week moving average rose however, reflecting last weeks jump in claims. Both the headline and the moving average are very close to 2.4 million and have been trending near that level for a few weeks. It is starting to look like continuing claims may be stabilizing around this number but more data is needed.

Total claims rose by 12,469 to 2.86 million. This is a mild gain from last week, below the high set last month, and the fourth week of relatively flat numbers. It looks like total claims may have stabilized as well, but again more data is needed. Regardless, even with total claims elevated from the low set last year it is still at long term low levels and consistent with a healthy labor market.


The Consumer Price Index fell by -0.7%, as expected. Ex food and energy it rose 0.2%, slightly ahead of expectations. On a trailing 12 month basis ex food and energy prices have risen 1.6%. Data within the report reveals the impact of gas prices on the consumer, the all energy index fell by -9.7%, led by a -18.7% drop in gasoline. Overall this is a great report in my view as it shows overall consumer level inflation is still tame, but also rising at a core level. Eventually energy prices will rebound and add additional upward pressure to inflation and then things may be different.

Durable good were much better than expected at 2.8%, 0.1% ex-transportation. The market predicted a decline of -1% on the headline and an increase of 0.3% ex-transportation. This is a resounding rebound from the decline in December and a good sign of GDP growth in the first quarter. Shipments fell by -1.1% but were offset by increases in inventory(+0.4%), transportation (+0.5%) and capital goods (9.5%). The jump in capital goods is a nice forward looking piece of data as it shows investment in business/manufacturing infrastructure.

The Oil Index

Oil is still trading back and forth across the $50 level in wild swings. Today's move was greater than 4.5%, to the downside, and left WTI trading near $48.40. While volatile, oil has held relatively stable around $50 for nearly a month and is now at the low of the range. There are still a lot questions about the actual state of supply/demand issues but until the balance is clearly in favor of one side or the other oil could keep trading in the range between $48.50 and $53.

The Oil Index fell today as well, losing about -1%. It looks like the index is falling back from the top of the 3 month trading range but has yet to break below the short term moving average. The average is currently supporting prices and pressuring them against resistance at the same time resistance is pushing down. One or the other will break, and soon. The indicators are bearish in the near term and consistent with a pull back from resistance. Over the short term, based on the bounce from the long term trend line in December and January, it looks like the index could be setting up to break above resistance. The indicators confirm support along the trend line and while bearish in the near term, are very weak and in a position to confirm the upward trend. I think it will come down to oil prices, if they go up, the index will go up, if they go down support could be broken. Resistance is 1,400 with support just below along the short term moving average near 1,375.


The Gold Index

Gold prices jumped today, adding over 1% to trade above $1210. The Fed's stance is one reason for the jump, physical buying in Asia another. Janet Yellens testimony builds on previous statements by giving firmer guidance of when rate hikes will come and yet remains vague, which has led to a renewed round of speculation. Just a few months ago the prospect of higher interest rates was one of the reasons gold bottomed, now the market thinks the hike may be later than previously expected and gold is climbing again. The exact date of the first hike is still an unknown but we can speculate based on what Yellen said in testimony over the past two days.

What I heard her say during the portions I watched was that the Fed was still patient, that there would be a change in the statement before the rate was raised, that the change in statement would signal the increase would come within a meeting or two, and that the change in statement itself could come over the next couple of meetings. Consensus now puts the hike in September but I think there is a chance it could come in June, if the statement is changed within the next two meetings that would leave two meetings until the change in rates. If the economy continues to pick up over the spring the scale could tilt in favor of a June rate hike. Today's Durable Goods is one indication that expectations for growth may not be misplaced.


The Gold Index gained over 1% in today's action and moved above the 30 day moving average. The index is bouncing off of potentially strong support and could be getting ready to move higher. Support is right around $20.50, consistent with the top of the range set by the Nov/Dec reversal. The move down to test support from the recent high near $23 is coincident with gold's pop to $1,300 and test of support at $1,200. Support looks strong at this time but may be tested again. The indicators are mixed but, assuming that the Nov/Dec bottom was a reversal, in line with an early trend following signal. MACD is still bearish but declining toward the zero line while stochastic is firing a weak trend following signal. A bounce could take the index up to $22.50 while a break of support could take it down to $17.50.


In The News, Story Stocks and Earnings

IBM hit the news early with an announced $4 billion in capital expenditures. The company is now planning to spend money to enhance its position in cloud computing, social media, internet security and mobile. The plan is to boost revenue from those sources from a current 27% to 40% of gross by the end of 2018. This is an aggressive target but needed in light of expected slowdown of other core businesses. Shares of the stock sank -1.25% on the news and are now sitting on long term support just above $160. The indicators are bullish but weakening so support is likely to be tested again, at least. A break below the short term moving average could take it lower.


Netflix releases House Of Cards tomorrow and is likely going to get a surge of renewals and sign ups. If you haven't watched it I can recommend it. The company is also likely to be affected by net neutrality laws when and if they are enforced. Shares of the stock surged more than1% to test the all time high.


Transocean reported today. The oil rig operator beat the street and will no doubt have an upward affect on overall S&P earnings growth for the quarter. EPS of $0.95 was well above consensus estimates near $0.80, 18% better than expected. The beat was driven by higher day rates for rigs as well as a reduction in costs. Guidance for the current year is roughly in line with estimates and helped support an early rally. Shares of the stock opened higher but fell under selling prices to move below yesterday's close. The stock is now trading just above the long term low and support at $15.


Gap Stores reported after the bell. The teen retailer beat on the bottom line by a penny with revenues in line with expectations. The company guidance for the coming year is in line with expectations but diminished by overshadowing issues related to the west coast port shut down and currency conversions in overseas markets. The results were good enough for the board to increase the dividend and initiate a share buy back program of $1 billion. Shares of the stock traded higher in the after hours market.


The Indices

The indices tread water just below the current highs, except for the NASDAQ Composite, which set a new high. Volume was light which may have had something to do with today's action. Another reason may be the tidal wave of economic data that is due out tomorrow and next week. There are a half dozen reports tomorrow, including the 2nd estimate for 4th quarter GDP, and another 2 dozen next week. It's the end of the month again which means another round of important macro-data including the NFP and unemployment figures.

The NASDAQ Composite gained 0.42% today, leading the market and coming within 13 points of 5,000. The tech heavy index is drifting higher on a wave of momentum that may be losing its force. The indicators are bullish but MACD continues to decline and stochastic is overbought. The index could continue to move higher into the near term. A brush against 5,000 may bring out the bears, at least for a test of the market if nothing else. The long term trend is up and I remain bullish but this index is extended and ripe for correction/pullback so I also remain cautious.


The Dow Jones Industrial Average is runner up but did not make a gain today. The blue chip index was able to poke its head into the green for a brief time but did not hold that level to the close. The index appears to be peaking and could pull back to support or continue to consolidate at the current highs. First support is the previous all time high just above 18,000 with the short term moving average next target and just below. The indicators are bullish, but MACD is weak and slowly edging lower while stochastic is high in the range and overbought in both the near and short terms. The index could keep drifting higher, in line with the trend, but there is enough evidence to warrant a little protection.


The S&P 500 closed with a loss -0.15% after falling as much as -0.25% in today's session. The broad market's dip took it down to just above 2,100, a possible target for support should a more pronounced pull back ensue. The index is pulling back from a new all time high with weak indicators so I suspect support will be tested even if the up trend continues. The indicators are similar to the other indices in that MACD is weak and edging lower toward the zero line and stochastic is overbought. These put the index in position to pull back but do not necessarily mean that it is happening tomorrow or at all. A break below 2,100 may find additional support near 2,090 and the below that near 2,075 and the 30 day moving average.


The Dow Jones Transportation Average brings up the rear. The transports are now moving down from the top of the three month trading range with indicators in support of that range. Bullish MACD has peaked and stochastic is making a bearish crossover while high in the upper signal zone, both supportive of a range. However, the long term trend is up and the index is also still supported by the short term moving average. The average could provide a spring board to higher prices and possibly break the index out of the range, if catalyst emerge. The catalyst could be economic data scheduled for tomorrow and next week. A break below the moving average could take the index down to the bottom of the range, near 8,550.


The major indices have all broken out to new highs this week, or are approaching them, and are now pulling back from those highs. The is being driven on the expectations of economic growth and profits in 2015. Those expectations are led by the data and we are on the cusp of one of the heaviest weeks of economic data in months. There are a lot of chances for news, headlines and near term emotions to move the market over the next week, lots of possible catalysts. This may explain why the market looks weak but it's not weak, it's waiting for the data, and the waiting is present in the charts. The charts are poised for a trend following signal, but also poised to pull back from a peak, depending on what the data tells us and that is what they are showing.

I expect to see a lot of volatility and reaction to data over the next week but I think it all needs to be kept in perspective. Some of the data, like tomorrow's GDP revision, is rear looking and some is more forward looking. Some of the data is still from the 4th quarter of last year and some of it is from this quarter and this year. We know that the 4th quarter was weak, a bad number will be a bummer but not as bad as if weakness is revealed in the current quarter. I'm still a bull, cautiously waiting for the data and what the market will do with it.

Until then, remember the trend!

Thomas Hughes