The market may have found a bottom.

Introduction

The market may have found a bottom but with so much data due it may also be too soon to know for sure. Tomorrow is the 3rd estimate of 4th quarter GDP and Michigan Sentiment, next week is the monthly bundle of jobs data and over a dozen other potentially market moving economic releases.

The pre-opening session was marked by a surprise drop in weekly jobless claims, positive earnings surprises and weakness in global equities markets. Asian and European indices were mostly in the red led by declines in the Nikkei and DAX indices. Headlines impacting global trading include yesterday's US equities sell-off, mounting conflict in Yemen, the ongoing possibility of Greece exiting the EU and the details of the Germanwing airplane crash.

Market Statistics

The morning started out pretty bad, futures were indicating an open about a half percent below yesterday's closing prices. Better than expected earnings and jobs data helped to lift the indices but not much. After the opening bell the indices fell pretty hard and looked as if they might match yesterday's declines. Today's bottom was reached around 10:15AM with an average loss near 0.75%. At that point the bulls stepped back onto the scene and began to bid the market back up. By 2PM the indices had reached break even and began to move into the green.

Economic Calendar

The Economy

Initial claims was reported as 282,000, a drop of 9,000 from last weeks unrevised figures. Analysts ha been expecting claims to hold steady around 290,000. The four week moving average also fell, dropping further below 300,000. On a not adjusted basis claims fell by -5% versus the -1.7% projected by seasonal factors. On a state by state basis the largest increases were in Tennessee (+2,976), California (+1,020), Michigan (+457), Mississippi (+355), and Arkansas (+315), while the largest decreases were in Pennsylvania (-2,265), New York (-2,201), Georgia (-1,969), Illinois (-1,961), and Texas (-1,773). Claims remains low after hitting a peak last month, in line with current trends and indicative of a healthy labor market.


Continuing Claims also fell, by -6,000 from an upward revision of 5,000. Continuing claims are now 2.416 million, little changed from last week and stable around the 2.4 million mark. Claims have been stable around 2.4 million for almost two months and also reflect a healthy if not strong labor market.

Total claims for unemployment also fell, by -74,194, to 2.784. This is an 11 week low but also relatively stable relative to the past 8 weeks. This figure, as well as the rest of the jobless claims data, suggest that the labor market is healthy and may have reached a point of equilibrium between job losses and jobs creation.


The Oil Index

Oil prices jumped more than 4% on the news of Saudi air strikes into Yemen and an impending land assault by a coalition including the Saudis and Egypt. This conflict, which includes the Iranians, could spark a larger war in the Middle East but as yet is not impacting production or supply. Elsewhere in the Middle East we've upped our involvement in Iraq by launching our air strikes in support of the Iraqi fight to clear Tikrit of ISIS. Fundamentally there is no sign of oversupply issues easing.

The Oil Index jumped in early trading and made a small gap at the open. From that point on the sector sold off resulting in a net loss for the day. The index only fell about -0.1% and was able to remain above the short term 30 day moving average. The index appears to be moving higher after bouncing from the long term trend line but the move is weak. The indicators are in line with this bounce but are also weak. Prices are currently trapped between the support of the moving average and resistance at a major Fibonacci Retracement level that has acted as support/resistance in the past. This index could go either way, most likely dependent on oil prices, but a break of support or resistance is needed with about a 50 point move expected either way before meeting the next potential target.


The Gold Index

Gold prices continue to climb and may go higher. Today gold gained more than 1% on an intraday basis and climbed above $1,200 for the first time since dropping beneath it at the start of this month. Gold is getting a boost from the weakened dollar, physical buyers and flight-to-safety stimulated by the Yemen crisis. Today's action created a potentially bearish shooting star type candle that could indicate resistance or a top. However, with prices closing above $1200, I reserve judgment on that until later.

The gold miners got a little boost from the rise in gold prices but were not able to hold the gains. The gold miners ETF GDX opened higher but like the Oil Index sold off during the day. The ETF lost over 2% and fell below the short term 30 day moving average but not below the rising support line drawn from the Nov/Dec bottoming action. The indicators are bullish but reflect near term weakness with declining momentum. Today's decline is a little surprising in light of the rise in gold prices but as yet not overly bearish. The ETF still appears to be moving higher from a bottom but could be range bound in the near term while earnings and outlook remain cloudy. Support is along the rising trend line near $18.50-$19 and below that at the long term low near $16.50. Resistance is near $21.


In The News, Story Stocks and Earnings

Sandisk warned on revenue and profits this morning. The chip maker says "it expects its revenue for the first fiscal quarter, which will end on March 29, 2015, to be approximately $1.3 billion, depending on final sell-through results, compared to the previously forecast revenue range of $1.40 billion to $1.45 billion. The change in first quarter revenue estimate is primarily due to certain product qualification delays, lower than expected sales of enterprise products and lower pricing in some areas of the business. The Company expects continued impact to its 2015 financial results from these factors as well as the previously identified supply challenges, and now forecasts 2015 revenue to be lower than the previous guidance. ” The news caused the stock to fall more than 15% and for shareholders to initiate an investigation into executive actions, specifically the announcement and its resulting affect on shareholder value. Sandisk is now trading at a 12 month low.


The Sandisk news caused the entire semiconductor sector to fall but the bulls quickly stepped in. Upon deeper understanding of the news it is apparently not an industry wide phenomenon. The Semiconductor Index fell in the premarket session, as did many of the top chip makers, but quickly regained much of the losses. At the end of the day the index was down about -1.25% but most of the index components were able to make small gains. The index is still above long term support with mixed indicators.


Lululemon was one of today's earnings surprises reporting top and bottom line numbers that beat estimates. The downside is that weak outlook tempered the news but did not stop buyers sending the stock higher. Shares of LULU gained more than 10% on an intraday basis and closed above the short term moving average with a gain of more than 5% . Today's action created a wicked looking upper shadow, indicating bearish activity, but may have help to clear the way for the stock to move higher. It is very possible that, based on the strength in labor markets, LULU will beat earnings later in the year.


ConAgra also posted an earnings surprise but failed to impress investors. The company beat earnings estimates on an adjusted basis and raised guidance but posted an actual loss due to non-cash impairment charges. Shares of the stock tried to moved higher in the pre-opening session but were not able to hold the gains. The stock opened at a recently broken level of support now turned resistance and fell hard from there. Shares of CAG lost about a half percent from yesterday's close but over -4% from the open to the low of the day.


The Indices

Trading was volatile today but volatile in a good way. Today's action took the indices lower but they bounced back and closed with only small losses. The biggest loser was the Dow Jones Industrial Average with a loss of -0.54%. The transports had the additional weight of downgrades aimed at the rail carriers which may have been the cause. Today's action took the index down to the bottom of the 5 month trading range where it bounced. Today's candle has a long lower wick, relative to its body, indicating buyers are present but is not overly strong. The indicators are rolling over but are not strong either and consistent with a range bound index.


The other indices were basically even at the close but exactly. The NASDAQ edged the others out of 2nd place by only a few basis points with a loss of-0.27%. The tech heavy index opened with a loss today, just above support, and after a brief move lower spent the rest of the day moving higher and testing break even levels. The index is now back at support and nearing the long term trend line with indicators setting up for a potential trend following signal. They are indicating near term weakness which could result in further testing of support but unless it and the long term trend line are broken I remain bullish longer term.


The S&P 500 is next up with a loss of only -0.24%. The broad market is now sitting on support at 2,050 but just below the top of the January trading range. This top may prove to be resistance but for now appears to be part of a potential support range. Today's action created both upper and lower shadows with a small body, indicating active buying and selling with a near balance between the too. The indicators are mixed but indicating near term weakness. Momentum is still very weak and the set up is consistent with a possible upcoming trend following entry so any tests of support are likely to be entry points.


The Dow Jones Industrial Average made the smallest loss today, -0.22%. The blue chips also created a candle with long lower shadow and tested support. Today's action brought it down to the 17,600 level before it bounced and set a new one month intra-day low. The indicators are mixed but weak, indicating a possible further testing of support, but also consistent with a trading range. The bottom could be near 17,600 but if this does not hold next target is near 17,250.


The markets have sold off on end of month and end of quarter portfolio shuffling, earnings fears and geopolitics. At least two of these reasons are fleeting and likely not to reverse the market; end of quarter portfolio shuffling and geopolitics. The third, earnings fears, may be unfounded, particularly if earnings trends can be believed, and may be setting us up for another season or two of positive surprises.

There is no doubt that the energy companies are going to see earnings declines but others may not see the weakness they are expecting. According to the data more and more Americans are working all the time. They may not be getting rich or working in the field in which they earned a degree but they are earning money and that's what counts. This is expected to help lead the market back to earnings growth later in the year and why I am still bullish. I'm still keeping a sharp eye on the labor data more than anything else and eagerly awaiting next weeks reports.

Until then, remember the trend!

Thomas Hughes