Global markets were mixed following yesterday's FOMC inspired rally.

Introduction

The global markets were mixed following yesterday's FOMC inspired rally. The double-speak provided by the FOMC statement and Ms. Yellen's comments was enough to soothe near term fear but has left the door open for an interest rate hike as early as June.

Market Statistics

Asian indices, primarily those in China, were able to reach new highs with the noticeable exception of Japan. The Nikkei traded just below the long term high set yesterday. In Europe trading was impacted by ongoing Grecian issues and an EU summit which began today. Indices in this region were mostly flat with the largest decline seen by the German DAX, -0.20%.

Our markets were also mixed. Early futures indicated a mildly lower opening, except for the NASDAQ Composite. Economic data released before the bell had little effect on prices which held steady into the opening bell. After the opening bell the indices tread water just below yesterday's closing prices, again except for the NASDAQ, which was able to hold positive ground all day. The indices churned throughout the day, possibly affected by triple witching options expiration tomorrow.

Economic Calendar

The Economy

We received a couple of monthly economic reports today as well as the weekly jobless claims figures. This week initial claims rose by 1,000 from an upward revision of 1,000 to 291,000. This is basically in line with expectations which called for a gain of 3,000. The four week moving average moved up by 2,250 to 304,750 and is near the top of the 7 month range. Claims continue to trend around the 300K mark and remain consistent with labor market stability if not improvement. On a not adjusted basis claims fell by -6.6%, slightly less than the -6.9% predicted by the seasonal factors. There is a possibility that claims will remain volatile into the near future but bias remains to the downside and in-line with current labor market trends.


Continuing claims also fell, shedding -11,000 from an upward revision of 10,000 making this week a wash at 2.417 million. The four week moving average also fell and remains just above the 2.4 million line. Continuing claims continues to trend at 2.4 million and is has been very steady at this level for 2 months. The volatility seen in job turnover has not so far resulted in an increase in longer term claims and suggests that labor market conditions are healthy enough.

The total number of Americans filing for unemployment also fell in this week's data. Total claims fell by -32,496 and are 15% lower than this same week last year. Total claims remain elevated off of the low set last fall but, like the continuing claims, are also very stable at current levels. I would have to say that so far there is no indication of a serious negative impact on labor due to energy prices, as previously feared.


Leading Indicators and the Philly Fed Survey were both released at 10AM. The Index of Leading Indicators rose by 0.2%, in line with expectations and the previous month. The basket of indicators revealed widespread growth with some weakness in manufacturing. The reading is positive and indicates an expectation of short term growth. Conference Board economist Ataman Ozyildirim was quoted saying

“easing in the LEI’s six-month change suggests that we may be entering a period of more moderate expansion. With the February increase, the LEI remains in growth territory, but weakness in the industrial sector and business investment is holding economic growth back, despite improvements in labor markets and consumer confidence.”

This confirms what other data has already revealed; the first quarter saw some slowing of economic momentum but growth remains positive. The Coincident and Lagging Indexes both climbed this month as well. The Coincident Index gained 0.2% and the Lagging index 0.3%, both matching gains made in the previous month.

The Philadelphia Federal Reserve survey of business activity slipped by -0.2% to 5. This is still positive and holding steady from the previous month but well off of the high set last fall. The forward outlook indicator also fell but remains positive with expansion expected later this year. Declines in shipments and hours worked off-set improvements in labor and hiring.


The Oil Index

Oil prices slipped on fluctuating dollar values as well as comments from the Kuwaiti oil minister. According to him OPEC will have no choice but to curb production in order to support prices. This is not the first such call but is the most recent. WTI and Brent both fell by more than 3% in today's session; WTI is near $43, Brent is below $55.

The Oil Index lost more than 1% but remains above the long term trend line. Yesterday's Fed inspired rally helped to lift the sector and the index to bounce from the long trend line. The indicators are bullish and in line with this bounce; stochastic is indicating a weak buy, MACD is about to confirm. Support at this time is along the trend line near 1,250. A break above the short term moving average, near 1,330, could take the index up to test resistance. Resistance exists between 1,350 and 1,400 that could keep the index from moving higher while oil prices are moving lower.


The Gold Index

Gold prices rallied on the Fed statement. The back-handed message that rates aren't rising now, but will be rising soonish, helped to give the metal a double lift. First, plunging dollar values helped boost gold value. Second, long term buyers are stepping in along the $1,150 support line. Gold traded flat today near $1,170 following yesterdays +15% gain.

The gold miners ETF GDX is also benefiting from the Fed statement. The miners lost a half percent today but remain above resistance broken by yesterday's move. The ETF is now bouncing higher and confirming support levels formed in November and December of last year. This could be the second bottom of a long term bottoming formation and will need to be watched closely. The indicators are consistent with this bottom and suggesting a shift in momentum, back to the upside, is possible. Near term upside targets are near $20-$21 with longer term outlook heavily dependent on gold prices.


In The News, Story Stocks and Earnings

Today the Dollar Index regained much of yesterday's loss but not all, moving about 0.75% higher after an initially weak open. Today's action is a snap back rally and not one to be trusted just yet. The Fed's statements have changed the fundamental outlook and lowered the expected rate of interest rate hikes while at the same time firming up a window in which to expect the first hike. This move confirms expected dollar strength, but confirms it with weaker outlook than before. The indicators are strong and suggest a retest of the recent high is possible but also consistent with a peak; the MACD is retreating from a 12 month extreme convergent with the trend, stochastic is forming a bearish crossover high in the upper signal zone. Resistance is the current high near $99.58.


While the market was selling off today there was one sector making new highs, the retail sector. The retail Spyder XRT made a gain of 0.6% even as a flurry of mixed earnings reports hit the market. A number of well known retailers have reported over the past couple of days including Guess, Cato, Michaels and New York & Company. Fourth quarter results were mixed, some beat some did not, but for the most part guidance is weak. Based on strength in labor it is possible that guidance is weak and being set to low. If so the sector could be setting up for a round of better than expected earnings. In any event, the ETF moved higher today, set a new high, and is accompanied by rising indicators.


Apple enjoyed its first day as a Dow stock by declining -0.80%. Today's action was mild and held above the short term moving average. The indicators are mixed, MACD is bearish but in decline while stochastic is moving higher following a bullish crossover, and suggest a consolidation could be happening. This makes sense considering all the events in Apple's life recently; earnings, iPhone release, Pay service gaining traction, the watch and more. Support is along the short term moving average with resistance at the all time high.


Nike reported after the closing bell. The international shoe giant beat expectations with EPS of $.89, a 19% increase from this same time last year. The company said it is seeing strong demand across of all of its brands as well as expanding margins and a double digit increase in future orders. The stock traded higher in today's session and moved higher again in the after hours session.


The Indices

The market was mixed and choppy today. The indices traded within relatively small ranges but up and down throughout the day. Most of the indices closed with a loss but not the NASDAQ Composite. The tech heavy index managed to hold a gain of +0.19% and closed near the top of its range. The index is now trading just below 5,000 and has less than 8 points to go in order to move back across that level. The indicators are about to roll into a trend following signal, but haven't yet and may not if the index can not move above resistance. Resistance is the current long term high just above 5,000.


The Dow Jones Transportation Average made the smallest decline today, shedding only -0.09%. Today's move created a small spinning top halfway between the support of the short term moving average and the top of the 5 month trading range, which is also the all time high. The indicators are bullish and consistent with the index moving to the top of the range but as yet not very strong. The index is currently drifting higher with the top of the range as a target but any rally beyond that will require a break above resistance.


The next smallest loss was on the S&P 500. The broad market lost -0.49% and is testing support near 2,090. The indicators are mixed and do not give clear insight into direction; stochastic is signaling a trend following entry, MACD is bearish but about to confirm stochastic with a zero line crossover so it looks like a rally could come, but only if resistance is broken. It looks to me like the index is creeping higher with a chance of momentum shifting back to the upside, if so the index could retest the current all time high near 2,120.


The Dow Jones Industrial Average brings up the rear today. The blue chips lost -0.65% in today's session and puts the index back below 18,000. The index is now sitting on the short term 30 day moving average with indicators that could be rolling over into a bullish trend following signal. The problem is that they haven't yet and with resistance just above the current levels its not looking like a great time for new positions. The index could just as easily retest support as it could move up to test resistance. Until it does one or the other I think a little patience, pun intended, may be in order.


Now that the Fed meeting has passed we can rest assured that a rate hike most likely won't come at the next meeting. This means the market can focus on the day to day data, at least until the next FOMC meeting draws near. Until then we have to balance the near term and the long term outlook against each other, track the data and make a judgement.

In the near term we have an economy that is growing but has slowed its growth. In the longer term we have an economy that is expected to begin expanding again. Near term fears may continue to impact the market, and may even result in another move down to test long term support, but I think the longer term outlook will dampen any decline and turn it into a buying opportunity.

As for tomorrow, expect volatility. It is triple witching so regardless of the FOMC, trends or outlook the market is likely to make some big moves.

Until then, remember the trend!

Thomas Hughes