Weak jobs creation in March did not derail the bull market.

Introduction

Weak jobs creation was the talk of the day and largely to blame for today's weak opening. While it was enough to send the bulls ducking for cover it was not sufficient to keep the bulls at bay. The news was shrugged off for any of a number of reasons including the possibility the FOMC would hold off on raising interest rates, the FOMC minutes due out this week and impending earning season. Whatever the reason the market blasted off the early lows.

Early morning trading was light due to holiday market closures in Europe. Asian indices were mixed but primarily in the green. Our markets were deep in the red and indicated to open more than a half percent below last week's close. When the opening bell sounded the market did indeed move sharply lower but the selling did not last. Within the first two minutes of trading support had been triggered and the bulls were charging higher.

Market Statistics

The market moved higher from that point onward with barely a pause until hitting the day's high near 1:45PM. From then on the indices tread water holding near the early high until about a half hour before the close of trading. At that time the markets began to pull back from the highs, shedding about a third of today's gains. Despite the late day decline the markets were able to move higher and close in the green.

Economic Calendar

The Economy

Only one economic release today, ISM services. This was released at 10AM and added additional relief to the market. The reported headline is 56.5, slightly below expectations of 56.9 and last month's unrevised figure. While mildly below projections the number is still well above the expansionary 50 level and data within the report suggests further expansion is on the way. The employment and new orders components rose, employment by 0.2%.

Moody's Survey of Business Confidence surged to yet another new high in this week's report. The headline figure is 44, up more than 3 points from last week. In the summary Moody's Economist Mark Zandi downplays the new high but reveals positives within the data. According to him...

"Businesses remain upbeat, particularly in the U.S. The recent slowing in U.S. growth is not evident in the survey results. Indeed, hiring intentions posted a record high last week. Businesses also remain optimistic about investment, and demand for office space is strong. Credit is widely available, and pricing is sturdy, despite heightened deflation concerns in much of the developed world"


The Moody's report and the ISM both support continued strength in the labor market, if not in actual job creation. The NFP of last week is a reminder that job creation is an important part of the labor market but not all of it. While jobs creation fell in March so did jobless claims and the level of lay-offs' at the same time wages increased modestly and unemployment remained unchanged, a combination that does not indicate underlying weakness in labor. Based on the aggregate of the data the March NFP is a one-off and not a trend but of course I will be keeping a close watch on this and all the rest of the labor data.

This week is very light on economic data of any kind. There are only a few reports due out including weekly jobless claims, JOLT's, Wholesale Inventories, Import/Export Prices and the FOMC Minutes. The minutes may be this weeks most important single piece of data but the JOLTs and labor picture will also remain in focus.

The Oil Index

The Saudis have been steadfast promoters of the idea OPEC would not support oil prices with production cuts but have seemingly bypassed that sentiment today. They announced a new move to increase the price of oil to its Asian customers by decreasing the discount offered to them. While not a significant change to the supply/demand picture this will no doubt help support oil prices, at least in the near term. The news caused WTI and Brent to surge nearly 6% each. WTI settled today above $52, Brent above $58 with the spread narrowing to near $6.

The Oil Index moved higher along with the underlying commodity. A rise in oil is no doubt a boon to the troubled oil sector which is expected to lead the market with declines in earnings this year. The index gained more than 2.25% in today's session and moved above resistance at 1,350. The indicators are bullish and confirm the move with a target near 1,400. This is the top of the 4 month range and the next area of resistance. The index could remain range bound for the next few weeks up to and until the major oil companies release earnings. Expect them to be bad and look to the guidance for indications of what to expect later in the year. BP and Exxon both report in the last week of this month.


The Gold Index

Gold prices got a big boost from the weak NFP report. The data led to drop in dollar values that have sent gold up above $1200 yet again. The move may be temporary however as dollar weakness is not something expected to last. For one thing, the FOMC is on the path leading to interest rate hikes while the ECB and BOJ are still actively pursuing QE policies. What is important to watch this week is economic data and the FOMC minutes. They will both fuel speculation over the rate hike; if the hike looks closer the dollar could rise back toward the recent high and pressure gold lower. In any event we are looking at $1200 as support and $1225 as potential resistant.

The gold miners got a lift from today's rise in gold prices. The miners ETF GDX gained more than 3.25% in today's action and moved back above the short term 30 day moving average. Today's candle is a spinning top, a sign of indecision, but when taken along with the indicators and longer term analysis of the charts looks more bullish than not.

In the near term both indicators are bullish and moving higher in confirmation of today's gains; stochastic is forming a strong bullish crossover and MACD is on the rise. In the short term today's move is the second bounce of a test of long term support, the first occurring last month. In the slightly longer term these two bounces are the second of two double bottoms in a greater long term double bottom the first occurring Nov/Dec last year.

If this is the actual bottom of the gold sector could lead to significant gains in the coming years. Current target is the top of the 6 month range near $20.50 with $22.50 a possibility if resistance can be broken. The miners begin reporting in 2 weeks with the bulk of reporting due the last week of this month.


In The News, Story Stocks and Earnings

Earnings! Earnings begin again this week with Alcoa on Wednesday. The expectations are not good but the market may be looking past this quarter and into the 2nd quarter and 2nd half already. According to Factset the expected blended growth rate for the S&P 500 is -4.6%, steady from last week.So far 19 S&P companies have reported for the first quarter of 2015; 16 have reported EPS growth above the expected blended rate, 12 have beaten on sales. Five more are expected to report this week, including Alcoa.

Ex-energy the blended rate has crept up marginally from last week to 1.26%. I may be grasping at straws with this look at earnings but I think it relevant when one sector is expected to decline by -64%, and the next biggest loser is expected to decline by only -10%.

Looking out to the next quarter, the full year and next year things are also looking a lot better than the headline expectations for first quarter 2015. We are expected to see some decline next quarter but less than half of what we are expecting this quarter. We are expecting overall earnings growth of 2.4% for the 2015 calendar year and a whopping 12.4% for calendar year 2016. The three biggest drivers for these gains are expanding margins, the consumer and housing.

Alcoa, reports on Wednesday after the bell. The company is expected to report earnings near $0.25, flat from the previous quarter due to a decline in aluminum prices. Sales and outlook are expected to be good. Today the stock gained more than 1.5% in a move up from recently set lows. The indicators are bullish with a target near the short term moving average about 2.5% above today's close.


Herbalife received notice it was under investigation. Company execs received notices from federal agencies requesting information into their practices. The news caused the embattled stock to fall sharply in the pre-market session but it was able to regain the loss and close with a gain of more than 1%.


Tesla Motors reported record first quarter deliveries of its electric cars. The new sent the stock shooting up by more than 6% to a new one month high. This is in advance of an expected announcement/product release due out later this week.


Duke Energy announced a huge new stock buy back program. The program, valued at $1.5 billion, is expected to close by the end of the third quarter. The news sent shares of Duke, which yields over 4%, up by more than a full percent in the pre-market session. This move was extended after the open and carried the stock above the short term moving average and to new 30 day high.


The Indices

Today's move was led by the broad market S&P 500 which gained 0.66%. The index made this gain after a move down to test support in the first minutes of open trading. Support was found between 2,050 and 2,060 and the resulting rally carried the index 30 points from bottom to top. Today's move confirmed support but was capped by resistance near 2,090 and the December all-time high. The market appears to be settling into a range between these levels and could remain there until the earnings picture for the first quarter becomes clearer. The indicators are weak but appear to be winding up in anticipation of larger market movement that is probably earnings related; stochastic is trending in the middle portion of its range while MACD momentum is approaching equilibrium. The market could go either way from here but the trends are up and expectations for the future are positive so I remain bullish.


The Dow Jones Industrial Average matched the S&P 500 with a gain of 0.66%. The blue chip index moved in a large range today, testing support and meeting resistance, in similar fashion as well. The index appears to be forming a base of support near 17,750 but this level could easily break down in the face of weaker than expected earnings and/or outlook. The indicators are consistent with support at this level and still set up for a potential trend following entry but a break above resistance at 18,000 is needed to help confirm. If the market begins to move lower, support at 17,750 is important in the short term and could take the index down to 17,250 if broken.


The NASDAQ Composite made the next biggest gain, 0.62%. The tech heavy index appears to be confirming long term support above 4,800 with today's move and regained the short term moving average. The indicators are still weak but like the broad market and the blue chips are consistent with support within a longer term uptrend. They are also set up for a potential trend following entry. If one develops it could take the index to new highs, the caveat being that technical resistance just above 5,000 will need to be broken.


Moving on to the Dow Jones Transportation Average today's market action wasn't all ice-cream and rainbows; the transports did not participate in today's rally and closed with a loss of -0.45%. Today's action created a doji candle and left it sitting at the bottom of the 6 month trading range and a 6 month low. The indicators are weak and pointing lower but at this time still consistent with support. It is looking like support for the transports is being tested and may be tested further but I will need to see a definitive break below 8566, with confirming market conditions, before getting bearish. A break below support would find the long term trend line within 50 points where next support is likely to be found.


The markets are winding up for a move but what move exactly will come down to earnings and expectations. Earnings are going to be bad, we know this, it's been coming for a while and could lead to a correction. We also know that the expectations for the rest of the year are still OK if not good, which would make any correction that happens now a buying opportunity. What we don't know is just how bad earnings for the first quarter are going to actually be, and we don't know how good the rest of the year is going to be, which leaves a lot of room for speculation and the possibility for a very volatile earnings season. The best thing I can say now is sit back and wait until the picture gets clearer, which may happen on Wednesday with the FOMC Minutes or with Alcoa's report after the bell.

Until then, remember the trend!

Thomas Hughes