The market is hanging just below the all-time highs.

Introduction

The market pulled back slightly from yesterday's one month high. The morning headlines were mixed but nothing stands out as a reason for the market to pause; China data is not as strong as expected raising hopes for stimulus, Earnings are a little mixed but generally better than expected, economic data is steady and Greece remains in the spotlight.

Asian markets closed largely higher in today's session. The weak round of data put out this week has raised hopes of increased stimulus, driving the mainland index to a new 7 year high and lifting indices elsewhere in the region. European indices began the day near recent highs but quickly fell as the Greek issue takes on a new dimension. Credit rating Standard & Poors reduced Greece's rating to CCC with a negative outlook from the previous B-, compounding a recent stalemate between the country and the rest of the EU. S&P's call; without relief or reform there is no sustainability in Greek finances (they have a big payment due in May). The DAX fell the hardest, losing close to -2% by the end of the day.

Market Statistics

Early futures trading indicated an open about a quarter point below yesterday's close and that level held throughout the pre-opening session. There was quite a bit of information released during this time but it did little to move the market. Once the opening bell sounded the indices moved lower but quickly met support.

The market churned within a very narrow early range, just below break even, until shortly after the 10AM release of Philly Fed Survey. At that time the indices moved off of the low end of their and moved up to flirt with break even levels. The indices held near this level through lunch and into the early afternoon.

Late afternoon trading was much like the morning, only in reverse. The indices poked their heads into positive territory just after 2PM and the proceeded to traded in a very tight range just above break even. Late in the day the indices backed off of the highs, retreated to break even level and below where they remained into the close of trading.

Economic Calendar

The Economy

There was quite a bit of economic data, a bit mixed but relatively stable within current trends and expectations. First up is Housing Starts, Building Permits and Completions for March. Housing starts came in just over 925,000, a 2% increase over the previous month but a little weaker than expected. On a year over year basis starts are -2.5% below last March, but this comes with a +/-11.5% margin of error.

Permits fell, counter to expectations for a slight rise, by -5.7% but are up by 2.9% year over year. There is a 2% margin of error in this figure. Completions also fell, by -3.9%, but this figure lags the others by a month so is for February. On a year over year basis completions are down -5.8% but like with the starts comes with a whopping margin of error, +/-10%. All in all these figures are all a little light and below expectations but not excessively so in light of the margins for error.

Initial claims rose more than expected but remain very low. Claims gained 12,000 versus the expected rise of 2,000 to reach 294,000. This is from an upward revision of 1,000 for a net gain of 15,000 from last week. The four week moving average also rose, by 250, and remains just off the low set in the past few weeks. Even with the unexpected rise claims remain below 300,000 with the moving average trending lower.

On a not adjusted basis claims rose by 21.3% versus the 16% projected by seasonal factors. Pennsylvania and New Jersey led with increases of 3,478 and 2,572, primarily located in transportation, education, accommodations, food service and warehousing. California and New York led with decreases of -3,647 and -1,004.


Both longer term guages of unemployment claims fell this week. Continuing claims fell by 40,000 to 2.268 million, a new 15 year low. The four week moving average of continuing claims also fell to a new 15 year low. The total number of claims for unemployment fell by 90,744 to 2.527 million, a four month low and levels not seen since the early part of December 2014.

Both figures are in line with the long term decline in unemployment and based on them people are either quitting the work force or they are getting jobs. Based on other labor trends it looks like they are getting jobs; this months labor data could be very revealing.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey was released at 10Am and helped the market to rise off of the day's lows. The headline number of 7.5 is a half point better than expected and 2.5 points above last months reading. This is the second month of increase since last falls peak to 40.2, positive and expanding. Within the report new orders remained flat with a small 0.7% increase while both the employment and hours worked components experienced more robust increases. The employment component gained 8 points rising from 3.5 to 11.5. The forward looking future activity index also saw a rise, +3 to 35, indicating increased expectations for expansion over the next 6 months.


This weeks data flow is not over. There are 3 releases tomorrow including CPI, Michigan Sentiment and the Leading Indicators. Next week the flow is cut to a trickle, there are only 5 releases all week aside from jobless claims.

One other event happened this morning that could be loosely called an economic release. Federal Reserve Bank President Fischer said in a televised interview that he sees an economic rebound about to unfold in the US, and that outside factors were influencing the FOMC's rate hike decision, whatever that means.

The Oil Index

Oil prices pulled back today as well. The price for WTI and Brent both fell in the range of 1.5% after hitting the 2 month high yesterday. Yesterday's high in crude may also have been the top of a range so I remain skeptical of the rally.... As I was writing my notes on oil a head line popped up in mail email. A Yemeni tribal group, part of the ongoing conflict in the region, has taken control of an important oil port. The news reversed oil's early losses sending WTI and Brent both up by more than 1%. WTI is being supported by signs of supply/demand re-balancing linked to US rig counts and geo-political risk but there is little indication rising demand or declining supply.

The Oil Index had already been extending its break above resistance and was then spurred higher by the news out of Yemen. The index gained nearly another full percent in today's session, pushing through another potential line of resistance but not breaking it. The indicators are both bullish, at high levels and on the rise.

With oil prices on the rise now, and earnings growth outlook for the next 12-18 months positive, it is hard to see an end to the rally but it is on shaky ground in the near term. Today's rally is due at least in part to rising oil prices, oil prices are rising, at least today, on geopolitical risk, a that combination leaves both oil prices and the index subject to a potentially rapid decline in fear premium.


The Gold Index

Gold prices continue to hover around the $1200 level today. Today's mixed economic data lead to another round of speculation of when the FOMC will raise interest rates; the range is still June/September. Today's speculation pushed consensus to the far end of the range and weakened the dollar within its trading range and driving today's ripple in gold prices. It appears that gold and the dollar are settling, or have settled, into a near term range while the market assesses data and could them hold unless the market begins to build up some new expectations. Gold is trading around $1200, the Dollar Index between $97 and $100. The next FOMC meeting is only two week away and is the last before we enter the The Rate Hike Zone, my next target for any major shift in dollar or gold values.

The gold miners fell in today's session. The gold miners ETF GDX lost about a half percent after initially testing resistance just above $20. The ETF if drifting higher in the near term with bullish indicators and approaching my resistance line near $20.50. This is near the mid-point of the 6 month range and an important level for me in light of the double bottom reversal I have been watching over the past 6 months. A break above this line would add confirmation to my theories and take the index as high as $22.50 in the near to short term; earnings might be enough. Most of the miners report in two weeks.


In The News, Story Stocks and Earnings

I just saw the trailer for the new Star Wars and I was pretty excited by it. Star Wars was the first movie I ever saw in a theater that I can remember and remains a top favorite. The trailer looked true to the legacy of George Lucas and will no doubt lead to a lot of profits for Walt Disney. I can't wait to see it and will probably have to buy some merchandise too. Today shares of Walt Disney gained more than 1% and are now approaching the all-time high set last month.


Earnings Earnings Earnings, according to Blackrock CEO his company is an earnings machine. The company reported a profits of $4.89 per share, well ahead of expectations, as were revenues. The company was also able to raise the dividend and announce that it is raising another private equity fund. Shares of the stock opened higher but sold off sharply on high volume. Support was found along the short term moving average but was not enough to recover all of today's gains.


Goldman Sachs and Citigroup both beat expectations as well. Citigroup did not beat on the top line but lower costs and restructuring fees helped to drive earnings. Goldman beat on both the top and bottom line and raised it's dividend by a nickel to $0.65. Together these two banks along with BlackRock and the rest of the financial sector have produced earnings growth above expectations with positive forward outlook. In terms of stock performance the two performed not exactly as expected. Goldman opened higher, closed lower and may indicating the top of a range; Citigroup gapped up and moved higher.

The financial sector was one of today's leaders. The XLF Financial Spyder gained about 0.4% after testing support along the short term moving average. The ETF is drifting higher with bullish indicators but faces resistance at $24.75 and $25. The ETF could get additional boost tomorrow from American Express which reported after the bell. The credit company beat expectations for profits and gave decent outlook in light of the loss of exclusivity with Costco.


UnitedHealth Group reported a beat on both the top and bottom lines, and raised guidance. The health management company increased guidance to a range a nickel above the previous and above consensus. The company reported that it added more than 1.6 million more people to its network and that revenues were driven by accelerating growth and strong operating performance. Shares of the stock gained 3.4% in today's session and is approaching a new high.


The Indices

After a day of churning within a very tight range the indices ended the day nearly flat. Not one closed with more than a 0.1% move in either direction, led by a +0.04% gain made by the Dow Jones Transportation Average. The transports created a small doji candle/spinning top just above support and below resistance near the bottom end of its 6 month range. The index trading range is confirmed by the indicators which are consistent with support along 8,575 in both the short and long term. It looks like the index may stay within this range until it meets up with the long term trend line. Based on my charts this could happen sometime in the next 4 – 6 weeks, basically coincident with the remainder of earnings season.

By that time there will have been another 2 months of macro-data to support a trend line bounce or bust. The indicators are pointing up at this time consistent with an index moving up within it range. Current target is the short term moving average, which is just above today's close. A break above the moving average could take it as high as the top of the range near 9,250.


The Dow Jones Industrial Average made a decline of -0.04% and also created a small doji/spinning top candle. Today's action tested the one month high and near term support before closing near to the opening price and yesterday's close. The indicators are bullish and both on the rise so I am expecting at least a test of resistance near the 18,250 level. The index is now sitting on a fairly strong level of support, the December all time high with the short term moving average just beneath it.


The NASDAQ Composite lost -0.06% in today's session. The tech heavy index did not create a doji but the candle is sufficiently small enough to be a spinning top. The index is sitting just above the short term moving average and drifting higher with the only resistance the current long term high. A break above this level could take it up to test the all time high near 5,050. The indicators are bullish and consistent with a trend line bounce with a target at the long term high at least.


The S&P 500 made the largest decline, a whopping -0.08%. The broad market lost just over 1 point in today's session and did create a doji candle. The index is drifting higher, supported by the short term moving average and the long term trend line, with only the current all-time high standing in the way. The indicators are bullish and on the rise so a test of the high looks likely. A break above resistance would be very bullish and could take the index as high as 2,200 in the near to short term.


The indices are on the verge of setting new highs, except for the Transports, and look very ready to break out. The only thing standing in the way are the current highs, earnings season and what the Fed has to say over the next two weeks. Since earnings season is unfolding in a positive way I don't see the highs standing much of a chance in that respect. However, with the next FOMC meeting so close and the market yet to actually break out a little caution may be due. There is absolutely no telling what they will say or do at this time. The data has been weak but trends and outlook support a rate hike. Between then and now is a fair amount of important earnings and a little economic data to sway sentiment and drive the day to day trade.

Until then, remember the trend!

Thomas Hughes