Trading was quiet as the market sits back to wait for more data.

Introduction

The market was rather quiet today. There was not much in the way of news to grab attention and not much in the way of market movement either, until the last ten minutes of the day. The major indices tread water within tight ranges for most of the day until then, then they sank to the day's low and below last weeks closing prices.

The international markets were just as mixed. Asian indices reached new 15 year highs in the wake of the Fed driven rally of last week. European indices fell as Greece once again meets with Germany over the state of its finances while a round of elections throughout the region have leftists, ultra-right-wingers and socialists back in the spotlight.

Market Statistics

Early indications had the indices opening mildly lower but futures trading gained some strength before the open. There were no economic releases or major earnings reports before the bell so the pre-market session had little to drive it. When the market opened the indices moved slightly higher until hitting the intraday high around 10:45. From that point forward the indices moved sideways ranging between break even and the early high until late afternoon. Then, just before the closing bell, a quick round of selling sent the indices to the lows of the day and into negative territory. The sell-off was a bit of a surprise as there was no obvious reason for it.

Economic Calendar

The Economy

Moody's Survey Of Business Confidence surged 2.3 points to hit a new all time high. This is following new highs set earlier this year and a little wavering in sentiment during the winter months. According to Mark Zandi, Moody's Chief Economist, there have been noticeable improvements around the globe contributing to this week's high level. In his summary he says...

“Business confidence has never been stronger in the history of the survey. Sentiment is strong in the U.S., but it has also improved in recent weeks across the rest of the globe. Businesses are especially upbeat about investment and hiring. Demand for office space is also robust. And pricing is strong, despite heightened deflation concerns in much of the developed world”


Existing home sales was released at 10AM with little impact on the market. Sales rose by 1.2% in February to an annualized rate of 4.88 million. This is a good sign and slightly above consensus which estimated a rate between 470-490 million. On a year over year basis sales are trending 4.7% higher than last year at this time and have been trending higher for the past 5 months. Low inventory levels are leading to a surge in prices that may hinder buying until more homes come on the market and/or new homes can be built. Lawrence Yun, NAR chief economist, says …

"although February sales showed modest improvement, there’s been some stagnation in the market in recent months...Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,”

Inventories of new homes rose by 1.6% in January but are a half percent below last years levels. According to last week's report from the NAHB we can assume increased builder activity over the next few months and into the end of the year. There are only 5 more releases due this week aside from the weekly jobless claims. These include New Home Sales, CPI, Michigan Sentiment, Durable Goods and the 3rd estimate for 4th quarter GDP. The GDP number is likely to get a lot of press time but I think it will not be as important as other data indicating the state of the current quarter. Next week is the first week of April, no fooling, which means another round of monthly auto sales, ISM, construction spending, jobs data and unemployment.

According to data from FactSet Q4 2014 earnings growth stands at 3.7%. Looking forward to the first quarter of 2015 there is still expected to be earnings decline, -4.8% at this time. This is down from the +4% projected at the beginning of the year. If this happens it will be the first quarter of decline since Q3 2012. The decline is being lead by the energy sector as expected. Out of the 500 S&P companies 83 have issued negative guidance for the quarter.

Looking at the sector breakdown it still looks like the market, ex-energy, is going to be OK. Current projections have the 9 sector blended rate at just over +1.0% and if history repeats itself we can expect that to go up by at least 2 or 3% before the season is finished. So far 10 companies have reported and of those 9 have beaten on earnings and 5 have beaten on sales so for now that assumption looks sound. The official start is still a few weeks away however, Alcoa is scheduled for April 8th.


The Oil Index

Oil prices held steady just above $46.50 in what may have been the least volatile day of energy trading in many many weeks. This was a little surprising in light of two new developments out of Saudi Arabia. First, in response to last weeks call from within for OPEC to support prices the Saudi oil minister said OPEC would not do such a thing. Second, the latest reports have Saudi oil production near record levels which should add further pressure to prices.

The Oil Index traded down today, losing over 1%. The index opened above the short term 30 day moving average but was not able to hold the level. Today's move resulted in a net loss and created a black candle but was able set a new two week high in the process. The indicators are now both bullish, MACD making the zero line crossover today, so it looks like it could keep drifting higher. However, there is resistance in the range between 1,350 and 1,400 and two previous areas of support/resistance. It looks like the index is bouncing higher in line with the long term trend, how high it gets is yet to be seen.


The Gold Index

Gold gained about a quarter percent today extending its Fed driven rally. Regardless of the reason, weakening dollar or long term outlook, this rally confirms support at $1150 and could take the metal up to $1200 or higher before meeting resistance. This move may be tied to the dollar so keeping an eye on the Dollar Index isn't a bad idea. If it(the Dollar Index) meets support and/or is able to bounce back then the gold rally could falter.

The gold miners ETF GDX moved higher as well, gaining nearly 2% in today's action. The miners are moving higher in-line with their underlying commodity and look like they are going higher. Today the ETF moved above the short term moving average and is accompanied by bullish indicators. The weak signal that had been shaping up over the past week has gotten stronger; MACD has made a zero line crossover to confirm the bullish crossover already seen on the stochastic. My current target is at or above my resistance line at $20.50 provided it can close the gap created at the beginning of the month.


In The News, Story Stocks and Earnings

The Dollar Index continued to slide from the peak hit last weak just ahead of the FOMC meeting. The index lost -0.90% and moved down to rest on the 30 day moving average. The indicators are bearish and gaining strength which is pointing to lower prices but until the moving average is broken it is support. Looking at two of the biggest components of the index, the Euro and the Yen, it appears as if they are both strengthening within their respective ranges and have some room left to run. If so the Dollar Index could easily break support and move down to test my next target for support just below $95.


The retail sector was hot again today, the Reatail Spyder XRT making a new high. Within the sector names like Target, TJ Maxx and Kohls were making new highs as well. Today's price action is confirmed by the indicators which are both bullish and on the rise. Neither are very high in their ranges so it looks as if it could continue to move higher into the near term.


Lululemon is scheduled to report earnings later this week. The athletic fashion company is expected to earn $0.73 per share, nearly double the previous quarter. Today the apparel maker announced a huge sale with the tweet “wemadetoomuch” and caused a flurry of concern the company is floundering. Analysts are now speculating the company is going to report weak first quarter results, which for them will include the 2014 Christmas holiday season, and weak 2015 guidance. Shares of the stock fell more than 5% on the news but regained much of the loss before the close of trading.


ConAgra Foods is another name scheduled to report later in the week. The national supplier of meat and value added products is expected to earn $0.53 per share, slightly below the $0.61 earned in the previous quarter. Today the stock gained just over a half percent in a move that lifted share price above the short term moving average only to have it halted by a long term resistance level.


The Indices

The indices didn't do very much today, even with the late day sell-off. They tread water just above break even for most of the day and even at the close were only mildly in negative territory, except for one. Today's move was led by the Dow Jones Transportation Index which carried the extra burden of profit warnings from the rail sector. Kansas City Southern warned that first quarter and full year earnings were going to be impacted by weak revenues related to energy. What I read said that overall earnings growth would slow, not end, due to these problems. The announcement sent Kansas City Southern down by roughly -8% and the rest of rail carriers, and the DJT, came down with it.


Today's drop cost the transports nearly -2% and left it sitting at the low of the day. The move has taken the index back below the short term moving average and to the mid-point of the 5 month trading range. The indicators are mixed with bias to the upside; MACD is making a small bullish peak but is receding from the peak, stochastic %K is moving lower while %D is moving higher. This could be indicating a short pause or setting us up for a bullish signal in line with the underlying trend but until that move develops this index looks range bound.


The next biggest decliner today was the NASDAQ Composite with a loss of -0.31%. The tech heavy index lost just over 15 points but is still sitting above the 5,000 mark. This level may prove to be support now that it has moved above it again but that is not certain. The indicators continue to move higher despite today's drop and suggest that the index will move higher as well; MACD has now crossed the zero line and is in confirmation of stochastic and higher prices. There could be some weakness over the next few days but the trend remains up so any shown would be potential entry points in my opinion. The only resistance is the current high and then the all time high at 5,048.


The S&P 500 made the third largest decline of the day, -0.17%. The broad market fell just over 3.5 points after moving to within as many points of the all time high. Today's action created a small bodied candle that looks like one more in a series of small candles that have preceded the past four up-days. The indicators are also bullish and in support of this analysis however, the tiny size of the MACD peak, %K flattening in the upper signal zone and resistance just above the current level are reason to be cautious of any bullish moves until the index can break to new highs. The trend is up, the movement is up and the indicators are pointing higher so I think a test of resistance is very likely in the least.


The Dow Jones Industrial Average made the smallest decline today, only -0.06%, after reaching the highest peak, near +0.6%. The blue chips came within 90 points of the all-time high but fell under the pressure of late afternoon selling. Today's move and that of the last two weeks has been very similar to the S&P 500; both have been ratcheting higher with strong up days followed by short down days. The Dow, however, looks more like an index that could be running out of steam, at least in the near term, as the rallies have been noticeably shorter each time. This may be nothing but with resistance just above the current level caution is warranted. The indicators are bullish so a test of the high looks likely but they aren't very strong so beyond that is yet to be seen. A pull back from this level, if it were to come, would find support along the 18,000 level and the short term moving average only a few points below that.


The indices are trending higher but the move is not definitive. The indicators are weak, technical resistance is just above current levels and there is some important data on the horizon which could keep the rally in check simply because it is prudent to wait and see. This week's data might be a market mover but I don't think so, not with the jobs bundle and other monthly reports due out next week so I don't think we'll see a break out until then, if at all.

Adding to the haze clouding my crystal ball is earnings season. Yes I know we just wrapped one up but the next one starts “officially” in less than 3 weeks. I remain bullish. So long as the data shows improvements, 1st quarter earnings aren't any worse than expected and outlook for the rest of the year remains upbeat I think the market will stay that way too. Sell-offs, pull-backs and corrections remain buying opportunities.

Until then, remember the trend!

Thomas Hughes