The banking sector led the market higher on a raft of dividend increases and share repurchase programs.

Introduction

The market bounced back today, led by the banking sector. The results of the stress tests and approval of capital plans has revealed strength and liquidity in the sector, produced a wave of cash returned to shareholders and sparked a rally.

The news, which came after hours on Wednesday, helped to lift global markets. Asian indices powered higher, moving up by over 1% on average with a surprise rate cut from the Bank Of Korea helping to lift spirits. European markets were not quite so enthusiastic. The DAX and others held the new all time highs set yesterday but did not move higher. US futures were up from the start. Early indications had the SPX up by roughly 0.5% and that level held into the open.

Market Statistics

There was a fair amount of economic data released this morning. The news was a mix of good and bad, pointing to economic growth but growth so strong we should expect a rate hike too soon. The market took it all in stride with barely a ripple in prices. After the opening bell the indices quickly moved higher, led by the Dow Jones Industrial Average.

Today's move was broad, all 10 S&P sectors moved higher with some isolated weakness in the technology and energy sectors. The early highs were hit before noon and then, after an hour or two of quiet sideways action a late day rally took the market to new highs. By 2:30 the Dow was up by nearly 1.5%, trailed by the NASDAQ's 0.85%. Buying persisted throughout the afternoon, leaving the indices at or near their highs at the close of trading.

Economic Calendar

The Economy

Today's round of data starts with a surprise drop in initial claims. Claims fell -36,000 from an upward revision of 5,000 to 289,000. This is 7 times the expected drop of -5,000. The 4 week moving average also fell, by -3,750, and is now at 302,250. On a not adjusted basis claims fell by -12.2% versus the -1.2% predicted by the seasonal factors. The drop is a good sign after the recent rise in claims but it is obvious that volatility persists. Claims are now back below 300K and remain low relative to the long term trend. New York, California and Tennessee led with increases totaling over 30,000. New York stands out with an increase of over 21,000 new claims. Massachusetts and Michigan led the decliners with a net decline just over -5,000. There is no mention of oil by any of the states who commented in the statement.


Continuing claims also declined but only by -5,000. This is from an upward revision of 2,000, in line with expectations and puts the number of continuing claims just above 2.4 million. This number remains stable near 2.4 million and has not been affected by volatility in the initial claims figures. This suggests that although there is a lot of activity in job turnover, those who file for the first week are finding a job pretty quickly. The four week moving average gained 12,750 but is also trending steadily around 2.4 million.

The total number of claims climbed by over 84,000 to 2.891 million in the week ending February 21st. This is a modest rise from the previous weeks figure but stable relative to the past 6 weeks. This figure may begin to decline soon because lags initial claims by two weeks, which makes this weeks data the same time period that initial claims were spiking. Since then claims have fallen. All together this weeks jobs data is positive, including the JOLTs report and the KC Fed Index of Labor Market Conditions. The LMCI, released yesterday, reveals rising activity and strong momentum.


Retail sales provided a mixed bag of numbers. Retail sales declined by -0.6% in February versus an expected gain near 0.1%. This follows an not-revised -0.8% in January. Ex-auto the number doesn't get much better, rising only to -0.1%. The good news is that the decline does not reverse gains made on a year-over-year and trailing 3 month basis. Sales for February are up from last year by 1.7%, and the past three months are up 2.9% from the comparable period last year. Also, although total sales are down, on-line sales saw an increase, possibly boosted by winter weather.


Import/Export prices were also released at 8:30AM. Import prices were up 0.4% in February, -0.3% ex-energy. Export prices fell by -0.1%, but rose by 0.2% ex-agriculture.


Business inventories were released at 10AM. Inventories remained unchanged from January, in line with expectations. Sales declined by -2%.

The Oil Index

Oil prices fell again today, losing more than -1.25%. WTI is extending the decline below $50 and is approaching a one month low. Supplies are still on the rise with no sign of increased demand. A break below $47.00 could take WTI down to the three month low near $45.

The Oil Index started out with a gain today, climbing about a half percent, before falling towards the end of the day. The index looks set to test support along the long term trend line and may be setting up for a bigger move. The indicators are still bearish but have peaked, in line with an anticipated trend line bounce. There is no real signal yet but we may get one over the next few days or weeks. In the very near term support is along the long term trend line, near 1,250, with resistance just above near 1,300. If oil falls to its long term low the Oil index could make a strong test of support with a chance of breaking through.


The Gold Index

Gold prices held steady around $1150 today as the dollar retreated from its recent high. Today's move took gold as high as $1165 and was the first sign of buyers along this level. Gold prices will continue to be affected by dollar value over the next week, up to and until the FOMC meeting, and could drift along this level. Now that all of the currently expected central bank moves have come to pass there is a good chance that the dollar could peak out or enter a consolidation range. The only real chance of change to fundamentals that I see on the horizon is a very wee possibility the Fed will change the wording of their statement next week. In any event, $1150 was an active level for buyers and a possible target for a gold bottom before and it remains one now. If it does not hold gold could make a move down to $1130 or lower.

The gold miners ETF GDX lost over 1.25% today as investor focus wavers between near term gold prices and long term outlook. With gold prices back near the long term low there is little hope for real earnings growth in the sector. However, rising production levels may offset the decline in sale price, assuming that the miners even choose to sell their product at these low levels.

The ETF is now near it's long term low with MACD momentum convergent with the current move. The index is likely to retest support along the long term low but stochastic suggests it will hold. The longer term weekly charts also suggest the index is approaching support and if confirmed could result in the second bottom of a long term double bottom reversal. Support is along my line near $16.50.


In The News, Story Stocks and Earnings

To say the banks were in the news today is an understatement. The approval of capital plans, the massive wave of dividend increases and the billions in stock buy backs was the focus for many of today's market participants. Just about every major bank rallied on the news with at least one notable name, Bank Of America, falling. Bank of America needs to refile their plan so is not yet able to return cash to shareholders and not as yet participating in the rally. The Banking Index moved higher today, gaining more than 3%. The index has reached a new 2 month closing high and has broken above resistance. The indicators are still bearish but could be rolling over into a bullish signal. Current target is near $75 with a chance for higher prices.


Lumber Liquidators is still in the news. The company held an investor conference today and the CEO is scheduled to speak tomorrow. He and the company stand by their claims the tests used by 60 Minutes don't match California code and that the story is not correct. The stock was able to move higher today, gaining nearly 12%, but is still well below the level it was trading before the story was made public.


Shake Shack, one of this years more eagerly anticipated IPO's, disapointed investors with poor earnings and weak guidance. The company posted a loss more than double the expectations and gave cautious forward outlook for growth. Shares of the stock fell hard in the after hours session yesterday and in the pre-market session today. It opened much lower today but was able to regain the loss and more. Buyers stepped in and drove prices up to set a new closing high on twice average volume.


Teen retailer Aeropostale reported earnings after the bell. The company reported a surprise profit of $0.01 versus the expected loss of -$0.03 but the stock sank on weak guidance. Current expectations call for a loss near -$0.30 in the current quarter but company execs guided a range near double that. The stock had been sitting on support all day but fell beneath it in after hours trading.


The Indices

The indices posted some impressive gains today and the move is a good sign for the bulls. The caveat is that the indices are also below significant resistances that could keep the rally from progressing much further. Today's move was led by the Dow Jones Industrial Average which gained 1.47% and closed near the highest level of the day. The blue chip index made a strong move higher and created a long bodied white candle. This could be the start of a move to test the all time highs but faces multiple lines of resistance. These include the short term moving average and my resistance line at 18,000. T indicators are mixed; they are bearish but also showing signs that yesterday's low, about 3.5% off the all-time high, could be the bottom of the correction. If so it may be retested before a further rally ensues.


The S&P 500 made the biggest move today climbing 1.25%. The broad market made a long white candle and broke above one line of resistance. This line is the top of the January range and leaves the index on positive ground for the year. This is a bullish sign but there is still more resistance, primarily in the form of the short term 30 day moving average and then above that between 2,100 and the all time high. The indicators are bearish, but like on the Dow, beginning to roll over and consistent with the early stages of a trend following signal. It could move higher to test resistance tomorrow, if not it could retest yesterday's low or lower.


The Dow Jones Transportation Average is third in today's line-up with a gain of 1.24%. The trasnports also made a long bodied white candle and was able to move above the 30 day moving average. Despite being range bound for the past 4 ½ months this index actually looks the most bullish of the lot. Today's action moved price above a near term resistance level, leaving only the top of the range, which is the current all time high, as resistance. At the same time the indicators are slightly more bullish as well, MACD is retreating from its bearish peak and stochastic is making a weak bullish crossover. Unless something unexpected happens overnight or over the weekend this one could hit the top of the range in the next 2-3 trading days.


The NASDAQ Composite brings up the rear with a gain of 0.84%. The tech heavy index only made an average size candle but like the transports, looks a lot more bullish than the blue chips or the broader market. This index has also moved above the short term moving average and appears to be making a trend following bounce from long term support. The indicators are still weak but in the early stages of rolling over into a bullish signal. Resistance is just above today's closing price, inside the gap formed on Tuesdays move lower, and then just above that at the all time high. The index may not move to a new high but it looks like it will test resistance at least.


The indices bounced today and look like they are moving higher. The only caveat is that there is resistance in place that may keep them from breaking out to new highs. It is no coincidence that once again the market is in this position ahead of an FOMC meeting so don't be surprised to find them testing resistance up to and until the statement is released. At that time who knows what will happen? There is no telling what the FOMC is going to say in their statement and every little nuance will be heavily debated for signs of a June rate hike, or a September rate hike, or some other plan that could move the market.

Until then, remember the trend!

Thomas Hughes