Another mixed day of trading as earnings support the market and the FOMC provides resistance

Introduction

The bulls charged right out of the gates today as earnings trends help buoy stocks. The downside is that resistance was met and sent the bulls ducking for cover. The FOMC meeting starts tomorrow, the policy statement due out in less than two days, and may be the reason why the bulls were unable to sustain this mornings rally.

International indices were largely higher in today's session. In Asia/Pacific China and Australia hit new highs while Japan held steady just below last week's break-even point. In Europe indices closed more than 1% higher on earnings and a change in the Greek debt negotiations; the Greek prime minister has replaced the team handling the negotiations. The move is seen as a positive and possibly leading to rapid progress in the talks.

Market Statistics

Futures traded to the upside throughout the early pre-opening session. The S&P was indicated about 0.25% higher and showed some strengthening into the opening bell. There was little in the way of market moving news during the early morning, no economic reports and no significant earnings reports, to help or hinder trading.

The bulls started their charge as soon as the opening bell sounded. The indices set a new intra-day high, and today's daily high, within the first three minutes of trading. From that point the market trend sideways until just after lunch when the indices fell below break-even levels. Afternoon trading saw the indices move lower and reach today's low around 3:30PM. The indices bounced from there and into the close but did not regain today's losses.

Economic Calendar

The Economy

Moody's Survey of Business Confidence has surged to a new high. The index jumped 2.1 points from last week's figures continuing the trend set last year. The index has been making new highs steadily since the end of last year. In his summary Mr. Zandi, Moody's Chief Economist, reports that ...

“Global business sentiment remains unwavering, at close to record highs, especially in the U.S. Weaker U.S. economic growth in recent months is not evident in the survey results. Hiring has never been stronger, and sales and investment spending are robust. Credit is widely available, and pricing is sturdy, despite heightened deflation concerns in much of the developed world.”


There was no economic data released today but the rest of the week is going to be jam packed. Tomorrow is consumer confidence and the Case-Shiller 20 City Index. Wednesday is the first estimate for 1st quarter GDP as well as the FOMC meeting and Pending Home Sales. Thursday is weekly jobless claims, personal income/spending, Employment Cost Index and Chicago PMI. Friday wraps up the week with Auto Sales, ISM, Construction Spending and Michigan Sentiment.

I am leaning toward the FOMC meeting, PMI and Michigan Sentiment as being most important. The FOMC meeting will have a very large impact on forward outlook. The PMI and Sentiment numbers are for April, all other data is 1st quarter related and comes after the GDP announcement so I think will affect the revisions to GDP more than future outlook.

FactSet reports that 201 S&P 500 companies have reported earnings so far this season. According to them 73% of those reporting so far have beaten projections for average earnings growth while only 47% are beating expectations for revenue. The current blended rate for 1st quarter earnings growth is now -2.8%, 2% better than at its lowest level of -4.8%. On the downside the expected blended rate for revenue growth is worsening, but only marginally. Ex-energy, by my calculation, earnings growth is now 3.6% and could go as high as 6%, Factset is projecting 5.6%. I find it amusing that they are now providing data on earnings growth ex-energy, as I have been tracking for some time.


The Oil Index

Oil prices held near to flat in today's session despite choppy trading. WTI moved marginally higher to test current resistance while Brent fell just below Friday's settlement price. There are growing signs that production in the US could be nearing a peak but so far supply remains high and steady. Rig counts have fallen for the past 5 months, and there are isolated areas of disruption in global production such as in Libya, but still no real sign of declining supply. WTI is now trading about a dollar below the 6 month high with support in the range of $50-$52.50.

The Oil Index gained just over 0.25% to trade at resistance. The index is now making the 2nd of two attempts to move above the 5 month high with weakening indicators. Both the MACD and stochastic have peaked in the near term and suggestive of a possible top. Resistance is at 1,435 with support near 1,400, 1,350 and 1,300. This week is going to be important for the energy sector as many of the top integrated oil companies will be reporting earnings. Tomorrow we get BP, Thursday is Connoco-Phillips and Exxon-Mobil, Friday is Chevron.I think it may be expected these companies will do better than projected, if they do not deliver on this expectation we could see a retreat to the long term trend line near 1,300.


The Gold Index

Gold prices remain volatile as traders and investors weigh the upcoming FOMC meeting against economic trends, dollar strength and the longer term outlook for inflation. The metal retested support in the $1175-$1185 range last Friday and as expected support was found. Today the metal shot up by nearly 2.5% to regain the upper side of $1200. I am expecting more volatility this week, FOMC related to be sure, with near term direction dependent on their stance on interest rates. If they are dovish the dollar may weaken and gold may go up; if they are hawkish the dollar may strengthen and gold may retest support.

The gold miners are getting a boost from what I will call relatively stable gold prices. There is volatility in price but it has been hanging near $1200 and above the long term low for over a month. Today the Gold Miners ETF GDX gained over 4% intra-day in a move confirming support along the short term moving average and the rising support line connecting the Nov/Dec and March bottoms. Today's action also confirms resistance at the $20 level.

The ETF is winding up within a narrowing range with bullish indicators and looks likely to retest resistance in the near term. This move may be sparked or hindered by earnings which are due out this week from a number of top producers including GoldCorp and Randgold, both scheduled for Thursday. Barrick Gold reported after the closing bell today and while earnings were a bit weak forward guidance is positive.


In The News, Story Stocks and Earnings

Barrick Gold traded more than 5% higher in today's session, driven on the spike in gold prices as well as positive earnings expectations, but closed with a gain of only 2.5%. Earnings were reported after the closing bell and did not meet expectations. The company was expected to post earnings of $0.10 per share and fell short by a nickel. Despite the miss execs say production levels and all-in-sustained-costs are within targets in a reaffirmation of full year guidance. The company is expecting cost to decline and production to increase in the second of half of the year.


Apple also reported after the closing bell. The world's largest company by market cap was expected to earn $2.19 per share and blew away the estimates on sales of iPhones. Earnings and revenue were both better than expected; EPS was $0.17 ahead of estimates with revenue more than $1 billion ahead of estimates. The company had only been expected to report about 55 million iPhone units shipped; actual shipments were closer to 63 million. The company also increased its capital return program, by $200 billion, and is increasing the dividend by 11%. Shares of the stock traded higher throughout the day, testing the current all-time high, and then moved higher in the after-hours session.


Overstock.com reported weaker than expected earnings. The company was expected to report $0.20 per share but fell well short despite notable increases in revenue, gross profit and margins. Revenue increased 17%, gross profits increased 18% and margins increased by 18 basis points. The stock had been trading down all day and moved lower after the report. This one is looking weak with support targets near $22.50 and $22.00.


Rent-A-Center is another name making headlines in after-hours trading. The company reported a bottom line beat that helped to send the stock higher. EPS beat by a penny on revenues which increased by 5.9% but fell short of estimates. The company reported that initiatives to increase profitability are in progress with no changes to forward guidance. Shares of the stock gained 1.88% in today's session and shot higher in after hours trading.


The Indices

The indices tried to move higher today, the SPX and NASDAQ Composite at least setting new intraday highs, before resistance took over and sent testing support. The transports have been the laggard of late and today was no different. Today's losses were led by the Dow Jones Transportation Average with a -0.86% decline. The index fell just below the short term 30 day moving average and may experience some more near term weakness. The indicators are both bullish yet consistent with a peak that may indicate a return to support or a consolidation. The index is sitting on near term support, near 8,800, with longer term support at the bottom of the 6 month trading range near 8,600.


The NASDAQ Composite was the next biggest decliner in today's session. The tech heavy index lost -0.63% and is now sitting just above potential support at the recently broken all time high. The indicators are bullish but also consistent with a peak that could lead to a further test of support or consolidation. I am leaning toward consolidation at this time due to strength in the stochastic oscillator and today's report from Apple. There may be near term weakness with support targets near 5,055, 5,000 and just below that near the short term moving average but I remain bullish and looking to buy on the dip.


The S&P 500 dropped only -0.41% today in a move that highlights resistance at the current all-time high. The index moved up to set a new intra-day high but was pushed back down to support. The indicators are still bullish so it may be a near term event. However, stochastic has started to roll over at the upper signal line which is a concern. If this continues it would be a confirmation of resistance at the all-time high and may lead to further downside. Current support target is the long term trend line confirmed by the short term moving average.


The Dow Jones Industrial Average brings up the rear in today's decline. The blue chip index lost -0.23% in a move that leaves it at support. The index is sitting just above the the 18,000 level, the December all-time high and the short term moving average so support looks strong. The indicators are bullish but weak right now so upside movement is questionable. If it is able to move up off of support next resistance is near 18,250.


The indices are still in a holding pattern. They are trying to break out to new highs but there are headwinds, namely the FOMC, rate hike speculation and a mild first quarter. The thing to remember is that trends are up, both in the market and in the economy, with positive earnings expectations into the end of the year and next year. Because of this I remain bullish; because of the FOMC I remain wary and cautious.

The market can be crazy and irrational, the FOMC holds a lot of power over that craziness, so with the meeting starting tomorrow, and with all the speculating about interest rate increases, Wednesday could turn into a wild day of trading. On one extreme is them backing off from their intention to raise rates this year, on the other is a firm indication rates will rise in June. In between lie many possibilities all with the power to move the market. . . in one direction or the other.

Until then, remember the trend!

Thomas Hughes