The market reached another milestone, the NASDAQ Composite crossed 5,000.

Introduction

The bulls rallied as soon as the opening bell sounded and carried the NASDAQ Composite across the 5,000 mark for the first time in 15 years. While not the all-time high, today is a new 15 year high for the index and one of only 8 days in which it has even traded above this level. The other indices also rallied and reached new highs of their own. Today's move was foreshadowed and aided by central bank activity in China. The Peoples Bank of China lowered their key interest rate in an effort to stimulate growth and stimulated equity buying as well.

Market Statistics

The indices were indicated up from the earliest part of the pre-market session. Futures trading remained positive but near flat up and into the opening bell. There was quite a bit of news, data and such before the open of equities trading but none of it was market moving on an individual basis.

The market moved higher as soon as the bell sounded. The early move carried the indices to a peak by 10:30AM, when the NASDAQ first crossed 5,000. Afterward the index, and the market, pulled back from the high to regroup, and then tested the high again about 2 hours later. This second attempt was also repelled but Late afternoon trading and a third attempt at a new all time high on the NASDAQ sent the entire market higher.

Economic Calendar

The Economy

Personal income and spending figures were released at 8:30AM. The headline increase of personal income of 0.3% was roughly in line with expectations and holding steady from the previous month's unrevised figure. This is a good sign for labor markets; wages are on the rise, if slowly, and not so quickly as to cause concern. On a down note spending declined by -0.2% but at the core level, ex gasoline, it rose by 0.1%. Looking back at 2014, incomes rose an average 4% for the year. ISM manufacturing data was released at 10AM. The ISM PMI came in at 52.9%, a decline of -0.6% from the previous month and in-line with expectations. This is the lowest level since January of last year and the fourth month of decline since hitting its historic high last fall. Within the report new orders, production and employment all declined but remain expansionary above 50. Inventories are also above 50 but on the rise. On a sector by sector basis 12 of the 18 tracked sectors are showing growth. The price index remains very low at 35, indicating continued decline of input prices in the sector.


Construction spending fell in January by -1.1%. This is counter to expectations of a gain of 0.3% and well below the 0.4% gain in December. The drop was led by a decline in residential building, compounded by declines in business and government building. Despite the decline spending is 1.8% higher than this same month last year.

Moody's Survey of Business Confidence remains near record highs. The index fell by a tenth this week to 40.0, the fourth week of readings at or above 40 and just below the 12 year high. The statement released by Moody's and Mark Zandi is also positive. He says that “U.S. businesses remain as optimistic as they have been in the more than 12 years of the business confidence survey. They are upbeat about sales, hiring and investment. . . An astounding more than half of the responses to the business survey are positive, while less than one-tenth are negative.”


This is a huge week for data. There are over 2 dozen reports this week including housing, manufacturing and labor. Tuesday is auto and truck sales. Wednesday is the Fed's Beige Book for March, ISM Services and ADP employment data, Thursday is jobless claims, Challenger Job Cuts, Unit Labor Costs and Factory Orders. Friday wraps it up with the all important Non Farms Payroll data. Keeping it all in perspective will be important. Some of the data is rear looking but not much, only the unit labor costs/productivity numbers are from the fourth quarter. The rest is for either January or February. I will be looking for improvements, or at least stability, from the January to February period and positive forward outlook.

The Oil Index

Oil prices were a little crazy today and may be indicating a disassociation from the fundamentals. WTI and Brent had both been up in early trading, during the Asian and early part of the European sessions, until news that Libyan production was coming back on-line. At that time both benchmarks plummeted with Brent falling more than 4.5%. WTI however, did not fall quite that much and even rebounded from its low to trade higher by 3.5%. However, by the end of the day price fell back to break even and settled near $49.50. Oil prices remain volatile but relatively stable trading around the $50 level.

The Oil Index was not so undecided in its direction today. The index fell over -1.75% and broke the short term 30 day moving average. It also pierced support and the lower boundary of the February trading range but did not close below it. The index is moving lower, from the top of a longer term trading range, with bearish indicators and could be headed lower. Near term support around 1,350 is likely to be tested with a break below looking very possible. If a break does occur the index may move down to test support at the bottom of the three month trading range near 1,250.


The Gold Index

Gold prices fell about $6 today, after trading up by a similar amount. The news from China spurred some buying in early trading but soon speculation over the Fed and interest rates curbed appetite. Price for the metal remains above $1,200 but looks as if it may retest support at that level at least. The data is going to have a big effect on gold prices this week so more volatility should be expected. Positive data should, I think, support gold prices as it will lead to the Fed raising rates sooner rather than later.

The GDX gold miner ETF fell as well, losing close to -3%. The ETF fell below the short term moving average but is still above my support line at $20.50. The indicators are bearish but in line with support at this level so I am expecting it to hold for now. This support level is coincident with $1,200 on the gold charts and may be tied to gold holding that level. A break below $20.50, $1200 for gold, could take the index down to the long term low near $17.50. With all the data on tap I think we may know by the end of the week if it will hold or not.


In The News, Story Stocks and Earnings

Most of the S&P 500 has already reported but that does not mean there are no reports left, S&P or otherwise. There are still 15 S&P companies left to report this round, and close to 500 reports from small and mid-cap names scheduled for this week. According to Factset 76% of the S&P 500 companies have reported earnings above the mean average and 59% have reported revenue above the mean estimate. This is above the 1.7% estimated at the beginning of the quarter and 0.2% above last weeks blended average. The average earnings are rising due to earnings beats in multiple sectors, primarily in energy. Despite the energy sector beating on earnings it remains the leader in terms of overall earnings declines. Looking forward projections for earnings decline in the first and second quarter of 2015 are beginning to level off. The forward P/E has flattened over the last 2-3 weeks and could begin to move higher.


Lots of business news in the headlines as well today, and a noticeable lack of geopolitics. Mergers & acquisitions was one topic of note. Hewlett-Packard is buying Aruba Neworks in a move that would make them a leader in mobile enterprise solutions. The deal is worth nearly $3 billion and did little to move either stock. In other merger news NXP Semi and Freescale Semi announced a union that would create a company worth over $30 billion. NXP will be paying about $36.50 per share for shares of Freescale, roughly equal to last weeks closing price. Shares of NXP Semi (NXPI) jumped more than 17% on the news.


Costco announced a deal with Visa to provide card services to its customers. The deal is long term in nature and set to begin in April of next year. Costco did not move on the news but shares of Visa jumped 2.5% to hit a new high. Mastercard also announced a new deal, that it was going to be accepted in Cuba. Shares of its stock also climbed, gaining a little over 2%.


Today's biggest loser was Lumber Liquidators. Apparently, although I didn't see it, there was a scathing report on 60 Minutes showing how the company was using hazardous chemicals in its flooring material, counter to California laws and labeling on the packages. Shares of the stock fell more than 25% to a new 12 month low this morning. The company of course says it had no idea and that it was challenging the results of the tests performed on the show.


The Indices

Despite the numerous data points scheduled for this week and the prospect of earnings decline in the S&P 500 the market rallied. The bulls stepped right out of the gate and moved steadily higher throughout the day. Today's action was led of course by the NASDAQ, which crossed and closed above 5,000 with a move of 0.9%. The tech heavy index, but no longer tech dominant, crossed 5,000 and set a new high as well. The index is moving higher in line with the long term trend with bullish indicators but there are reasons to be cautious. For one, the indicators continue to show weakness as the index moves higher. Momentum is not picking up, it is winding down, and stochastic is still showing the bearish crossover. Another reason to be cautious is the wave of data scheduled to be released this week.


The next biggest gainer of the day was the Dow Jones Transportation Average. The transports gained 0.87% in today's session and is the only one of the major indices to not make a new high. The index moved up from the short term moving average, confirming near term support, but is still short of the current all time high. The indicators are bullish but very, very weak and leading me to think that the February rally could be coming to an end. Stochastic is about to fall out of the upper signal zone and MACD is about to make a zero line cross over, hints of reversal but not confirmed signs. Resistance is the current all time high near 9,250 and is likely to be tested but a break out is yet to be determined.


The Dow Jones Industrial Average is third in today's line-up with a gain of 0.86%. The blue chips made a nice white candle that extended the February rally and set a new all time high. The move is in-line with the underlying trend and supported by the indicators but is at risk of correction. The indicators are bullish but persist in showing weakness. The MACD is winding down toward zero and stochastic is still showing the bearish crossover that formed with last weeks test of support. The index could continue to drift higher but without a stronger showing of the indicators I remain cautious.


The S&P 500 set a new high as well, barely. The broad market moved up to set a new intra-day high but could not reach to a new all time high. The indicators are bullish, in line with the trend and the move to new highs, but remain weak. However, unlike the other indices, MACD and stochastic are both showing early signs of rolling over and could lead to a new wave of buying. If this move continues and the indicators do roll over into a stronger signal then a more pronounced rally cold follow with targets near 2,200.


The bulls are eager for new highs and couldn't quite wait for the data to be released in order to reach them. This may be a good sign, or it may be setting the market up for a fall. If the data is good, or good enough to support trends and lift expectations for future earnings then moving to new highs is OK. If the data spooks the market or give it reason to think earnings are going to suffer then the move may be bad. The trouble for us today is making a decision to trade or not based on that move. The long term trends are up and so far there has been little sign of it ending. There is some sign of a winter slump but nothing like last years January slow down so I am not expecting anything overly shocking. I remain bullish and eagerly awaiting the data and whatever indication of direction the market will give.

Until then, remember the trend!

Thomas Hughes