The market is riding high on earnings and outlook.

Introduction

The NASDAQ Composite reached a brand new high today despite weaker than expected data from both China and Europe. Early reads on PMI from both regions was much weaker than expected, China's falling below the expansionary 50 level. Europe remains expansionary at 53.5 but the drop from last month's reading indicates activity is declining. Asian indices closed largely higher despite the drop as trader there are betting on increased QE from the PBOC. European traders were not so optimistic, indices in that region fell, led by the German DAX -1.2% decline.

Market Statistics

Our markets were indicated lower in the early pre-opening session. A slew of better than expected earnings and steady labor data failing to provide lift, perhaps due to the weakness in the Europe. Trading remained throughout the early session and into the opening bell. The indices fell when the opening bell sounded but found support almost immediately.

After that the indices bobbed along within a tight range for most of the morning, poking into positive territory once or twice before making a decided move higher just before noon. At that time the indices shot up by a half percent, hitting the daily high mid-afternoon.

Afternoon trading carried the indices up the highs of the day. The NASDAQ and S&P 500 both touching new highs at one point in the day. All the indices finished positive but they all also pulled back from their highs before the close of trading. The after-hours session was pretty active today, much more so than usual. At least four top names released earnings producing an average move near 4%. If this carries into tomorrow's session we could the NASDAQ and SPX reach new highs again.

Economic Calendar

The Economy

Only one economic release before the opening bell today, jobless claims. Initial claims rose by 1,000 from last week's not-adjusted figure to reach 295,000. The four week moving average gained 1,750 but remains just off the 15 year low. Claims were expected to fall by 10,000, regardless this week's figure remains very low and in line with labor trends. On a not-adjusted basis claims fell by -9.1%, slightly less than the -9.6% predicted by the seasonal factors. California and New York led with increases of 10,575 and 8,356 respectively. Illinois and Oregon led with a combined decline less than -2,000.


Continuing claims also rose, by 50,000, from a revision of +7,000. Continuing claims are now 2.35 million and at a three week high. Despite the rise this figure is also very near the long term low and in line with improving/healthy labor markets. The four week moving average of continuing claims is still in decline and another new 15 year low.

The total number of jobless claims for the week ending April 4th fell by -93,051 to hit 2.434 and the lowest level since early December of last year. Total claims are steadily declining since hitting their peak at the first of the year. Based on the steady/low levels of initial and continuing claims and the downward trend in total claims I would have to say that this month's NFP and unemployment figures should be pretty good. We'll get those numbers in two weeks.


Only one economic release tomorrow; durable goods. Expectations are for a decline of -0.5%. This is going to be important because these are March numbers and will tie into GDP and FOMC expectations. GDP first estimate is due out next Wednesday morning; The FOMC statement is scheduled to be released later that afternoon.

New home sales was released at 10AM. The -11% drop in sales was met with positive reaction. Details within the release point to a severe lack of inventory that is expected to lead to increased building. This, coupled with the strength in existing home sales helped put positive spin to the numbers. According to the Census Bureau sales fell to a seasonally adjusted rate of 481,000. This is less than half the sales rate economists would like to see but still nearly 20% higher than this same time last year.

The Oil Index

Oil prices got another dose of fear premium in today's session. The price of WTI and Brent both surged more than 2.5% on escalating violence in Yemen. Today the Saudi's led another strike at Iranian allied militants that could lead to a wider spread conflict in the region. On the fundamental side storage levels for crude and nat gas remain strong with little to no sign of demand increase.

The Oil Index gained about 0.7% in today's session, halted by resistance at 1435. The index moved higher on the surge in oil prices but I remain skeptical about the move. The index doesn't look overly strong at this time, the indicators are bullish, but also showing sharp divergence from prices. The index could move higher but a break above resistance is required. Earnings or another rise in oil prices could provide the catalyst. If the index breaks above resistance on a fear driven spike in oil prices I will be very wary of whipsaw, especially until earnings are released. Earnings for the major integrated oil companies are due out next week.


The Gold Index

Today gold prices regained most of yesterday's decline. Weak data, specifically housing sales, flip-flopped FOMC rate hike expectations to the far end of the spectrum, weakening the dollar and putting a floor in gold. Gold continues to test support in the $1180-$1190 region, and continues to find it there. We could see more of this action over the next 3 trading days and then it will be the FOMC meeting itself. At that time I think we may see a major move in both the dollar and gold. We're on track for a hike, they (the Fed) have said it time and again, and I don't see any reason why it won't happen, only the timing remains to be set.

The gold miners continue to hover in a holding pattern while the market waits on earnings reports. Today the GDX Gold Miners ETF gained 2.5% and confirmed support but remains within a rapidly narrowing range. The ETF has been winding up within this range for about 2 months now and could be gearing up for a more pronounced movement. The indicators are bullish but not strong, steady is a better description. They are consistent with support along the rising trend line connecting the November, December and March troughs and have plenty of room to run should the market make a break in either direction. Resistance is at $20.50 with support along the rising trend line. I am bullish but waiting for earnings which are due to start rolling in next week.


In The News, Story Stocks and Earnings

There was a lot of earnings news today. Today was the busiest day of earnings season with enough names releasing before and after the trading day to fill 4 day's of market wrap. A few names reporting before the open include Pepsi, GM, Dow Chemical and Catepillar. Names reporting after the bell include Amazon, Google and Starbucks. Reports are mixed but on a whole are better than expected.

Pepsico reported a top and bottom line beat with a 1.5% improvement in margins. Organic growth increased by 4% and the stock lost -1.59%.

GM missed but reported an increase in margins. The stock fell -3.34% during today's session.

Dow Chemical beat on the bottom line but missed revenue expectations. The stock gained nearly 2% by the end of today's session, creating a large long legged doji.


After hours action was dominated by tech stocks and will likely have a large positive impact on tomorrows session. All for of the big names expecting to report this evening provided positive reports spurring moves greater than 3%. Google was the first to hit the wires. The search giant report earnings and revenues that were slightly below expectations, $6.57 EPS versus a projected $6.60, but nonetheless produced a surge in stock prices. Shares of Google gained more than 4% after climbing a similar amount in the open session.


Amazon reported a loss of -$0.12 per share, in line with estimates. The company reported that sales were up more than 15% in the first quarter and was able to guide full year results in a range around the consensus. Other positives in the report include a 47% increase in operating cash flow a more than 100% increase in free cash flow. Shares of the stock gained 5% in the after hours session.


Microsoft reported that sales from the same period last year but beat expectations on the top and bottom line. Revenue from devices and consumer grew by 8% while commercial grew 5%. There was an impact from restructuring and the integration of the Nokia unit of -$0.01 to EPS. The news was well received in light of the expectations and helped to send the stock up by 3% in after hours trading.


Starbucks reported earnings in-line with expectations. They also reported 18% growth over the same quarter last year. The results enabled execs to raise full year guidance and send the stock up more than 3.5%.


The Indices

I'll be honest, the way futures were trading before the opening bell I thought we were in for another day of trading within recent ranges and a move lower from resistance. When I hinted earlier this week that earnings might push the market to new highs even before the FOMC meeting little did I know it would happen today. After a brief retreat to support the bulls were able to drag the market higher in today's session, breaking past resistance and setting new all time highs for several of the indices.

The NASDAQ Composite did not make the largest move today but I will start with it anyway. The tech heavy index broke through resistance and marched to a brand new all-time-closing high for the first time since the peak of tech bubble. The index gained 0.41% in today's session and is accompanied by bullish indicators. Both MACD and stochastic are bullish and confirming the break to new highs. The MACD is on the rise, stochastic is crossing the upper signal line. It looks like it will continue to move higher and with the addition of today's after-hours action could do so tomorrow.


Today's action was led by the Dow Jones Transportation Average. The transports gained 0.47% in what appears to be a volatile session. A first glance at today's candle might make you think today's action was more volatile than it was; there are significant shadows on both ends of the candle, the lower one touching support at the short term moving average. The truth is that the index hit support within 2 minutes of the open, moved higher throughout the day and pulled back just before the close. Today's action may have been driven, no pun intended, by some rotation. There are signs that while the rail carriers are struggling with low oil prices the truckers are benefiting from them.


The S&P 500 made the third largest gain today, 0.24%. The broad market broke above the top of the pennant I described on Monday and set a new all-time intraday high only to be halted by resistance and sent back down to support. Today's action has a bit of a Shooting Star look to it but since it is accompanied by bullish indications and closed above the top of the pennant appears to be short term in nature. Both MACD and stochastic are on the rise and stochastic is on the cusp of forming a strong trend following signal; %K is about to make a bullish crossover while %D is making a bullish cross of the upper signal line. A break above resistance has a target near 2,150 in the near term and 2,200-2,300 in the short.


The Dow Jones Industrial Average made the smallest gains today, only 0.11%. The blue chips formed a small bodied, doji like candle just above support. The index is sitting on support with indicators consistent with support, just not showing strength. It looks like it could move up to test resistance at the all-time high, about 200 points above today's close, but more than that may center on the FOMC next week.


Earnings season continues to be better than expected. I'm not saying it's great, but it is better than expected and outlook for the remainder of the year remains positive, enough to keep the bears at bay at least for now. The euphoria, or maybe mass relief is a better way of saying it, has helped to bring support back to market and even provide a little lift. Tomorrow could be another up day but I still have my eye on the FOMC meeting next week. Not all the indices have broken to new highs and the meeting is a fantastic opportunity for resistance to come into the market.

Until then, remember the trend!

Thomas Hughes