The market sold off as market participants weigh past weakness, future outlook and another FOMC statement that doesn't really say anything new.

Introduction

Yesterday the Fed delivered more or less as expected, neither raising rates or indicating exactly when a hike would come. The statement was both negative and positive at the same time, noting past weakness and positive expectations in regards to the economy and the rate-hike-time-line. I think, regardless of how you look at it, a June hike is still a possibility and if today's jobless claims numbers are any indication that chance has increased.

Market Statistics

Our indices were indicated lower throughout the early pre-opening session. The trade moderated on the labor data but then retreated back to the early low going into the opening bell. At the bell the indices did indeed open lower and moved lower from there. The SPX found some early support almost precisely at 10AM, near the 2090 level, and began a consolidation that lasted for just over an hour. A little past 11AM the market began to move higher and regained more than half of today's losses before resuming its plunge to support. The selling never really let up, driving the market to its daily low in late afternoon.

Economic Calendar

The Economy

There was quite a bit of data today aside from the weekly jobless claims. On a whole it gave a mixed view of the economy in that it confirmed the weakness we already know occurred in the first quarter as well as positive expectations for rebound this quarter and later in the year.

Personal Income and spending were both in line with expectations. Income held steady with a 0% increase while spending rose by 0.4%. This follows a +0.4% increase in February income and a +0.2% increase in spending.

The employment cost index rose by 0.7% in the first quarter. This is a little hotter than expected and above the previous reading of 0.5%. The increase is attributed to a 0.7% increase in wages/salaries and a 0.6% increase in benefits. I take this as a good sign, in my view it looks like employers are paying up for good help and a sign of underlying economic strength.


On to the labor data. This week initial jobless claims fell by -34,000, about 30,000 more than expected, to a brand new 15 year low. Claims are now 262,000, the four week moving average of claims 283,750. The average did not make a new low this week but I am confident it will in the next week or two providing there is not a huge snap-back in claims. Regardless, the initial claims numbers continue to trend lower despite recent volatility. The volatility could be due to the shift of Easter week this year, it was earlier on the calendar than it was last year.


On a not adjusted basis claims fell by -10.4% versus the 1.2% gain expected by the seasonal factors. On a year over year basis not adjusted claims are -21% lower than this week last year although have been trending relatively flat in between. New York and Connecticut led with increases of +8,902 and +1,831 blamed on lay-offs in transportation, education (Corinthian College?) and warehousing. New Jersey and Pennsylvania led with decreases in claims of -5,997 and -5,566 due to hiring in transportation, education, warehousing, food service and construction.

Continuing claims, the less volatile and slightly more accurate view of labor market turnovers, also made a substantial decline. Continuing claims fell by -74,000 to 2.253 million, another new 15 year low. The four week moving average also fell, making another new 15 year low.

Total claims for unemployment made a slight gain this week, +6,021. This is just off the three month low and in line with the recent down trend in total claims. On a year over year basis total claims are down -13.5% from last this at this time and appear to be heading lower. This figure lags initial claims by 2 weeks so will likely show decline over the next two weeks if not longer.


The monthly macro-labor data is due out next week and I am as eager as ever to see it. Based on the claims data, Moody's weekly Survey of Business Confidence and other forward looking surveys of business I think they, as a bundle will be good if not really good. There could be significant revisions to last month's ADP and NFP as well, both were way below consensus last month and we have seen large revisions just about every month for the past year. I'll be looking to job gains, planned lay-offs, unemployment levels, participation rates, hourly earnings and hours worked. The Fed said they saw softening in the labor market, I just don't buy it. Of course, I'm only an observer of the market and not a maker of policy.

The final piece of today's economic puzzle was the Chicago PMI, released at 9:45AM. The headline number of 52.3 was better than expected, the highest level this year and the second month of advance since hitting the long term low in February. Consensus estimates called for a reading near 50, the previous month's figure was 46.3. Four of the five sub-components made gains this month, led by a double digit increase in new orders which should result in higher production levels in the near future. Also, the employment and production numbers both made substantial increases as well, employment to the highest level this year and production returned to expansion.

The Oil Index

Oil prices rose today, supported by weakening dollar and lower than expected inventory levels. We may have seen the peak in US inventory as declining rig counts begin to have an impact on US production. WTI gained more than 1% today to trade just shy of $60 for the first time since mid-December 2014. There are still no indications of demand pick-up but declining production and supply could support prices in the near to short term. There may also be some fear premium built into the price although it is not getting much coverage. Fighting continues in Yemen and Libya, ISIS is still out of control throughout parts of the middle east.

The Oil Index traded lower today despite the boost in oil prices and much better than expected earnings from Exxon-Mobil. The index was able to open with a small gain and move marginally higher to set a new 5 month intra-day high but was not able to hold the level. This move is indicative of resistance around the 1,430 level which is increasingly looking like a near term top.

The indicators continue to decline and add to this analysis. The MACD is very near to making its bearish crossover, the stochastic already has. This could lead the index to test support near 1,400 and the short term moving average. The long term trend in the index is still up and earnings projections for the sector are positive so any dips will likely be buying opportunities.


The Gold Index

Gold prices took a big hit today despite yesterdays drop in dollar value. The Fed's statement, combined with today's labor data, has led to speculation of future dollar strength and drove the price of gold down by more than -2.5%. Prices dipped into the $1175 region but, as expected, buyers stepped in and pushed prices back above $1180. Day to day gold prices are still being driven by dollar strength and weakness but I remain bullish and a prospective buyer at these levels. My thoughts; an indication the Fed is going to be raising rates is dollar strong and bad for gold, the Fed actually raising the rates will be a sign of strengthening inflation and gold strong.

The gold miners ETF GDX fell a little over -2.25% today but was halted at the short term moving average. Today's drop is in response to the decline in gold prices as well as weaker than expected earnings from GoldCorp and a few of the junior miners. The index is now trading just above $20 and is still being squeezed between rising support and my resistance line at $20.50. Although earnings among the miners have been weaker than expected so far, as a group, they have been indicating an expectation of rising production levels into the end of the year.

The indicators are bullish and still consistent with support although they lack strength. The index still looks like it wants to break higher but I remain cautious while it remains within its narrowing range. I've got a close on eye on resistance as well as support which, for now, is along the short term moving average in the range between $19.50 and $20. Gold prices will of course be the deciding factor, if gold prices move lower future profits among the miners will remain flat at best.


In The News, Story Stocks and Earnings

GoldCorp reported increases in production and cash flow from the comparable period last year but lower earnings due to low realized prices for gold. This is up from $281 million reported last year. Earnings per share came in at $0.01 on an adjusted basis versus the $0.10 predicted by analysts. The company reported sales of 827,500 ounces of gold with cash flow totaling $366 million. All in sustained costs totaled $885 per ounce of gold and are expected to remain in a range between that number and $950 for the full year.

Positives within the report include lower cost and increasing production that is expected to deliver expected full year results. The company reiterated its full year production guidance and announced that several of their ongoing projects have reached commercial production status. The stock lost over -6% in today's session in a move that took it below the short term moving average. The stock is near the long term with indicators consistent with support. Near term support is around $18.50 with longer term support near my line just below $17.50.


Exxon-Mobil reported earnings much better than expected. The world's largest integrated oil company reported earnings of $1.17 versus the expected $0.80. This is still a 46% decline in earnings, not good, but when put in perspective of FactSet's expected decline for the sector (-65%), looks real good. Production for the quarter was up by 2.3% showing the positive addition of upstream projects and the potential for future profits. Shares of the stock responded positively after the news, rising nearly 1% before the market opened to gap open inside a resistance range between $88 and $89. The stock sold off from those levels during the day and closed with a loss near a half percent. The indicators are bullish but weak and losing strength so it looks like this could be a near term peak with possible downside target near $85.


Cardinal Health reported a top and bottom line beat in its earnings statement. The results were so good that company execs reaffirmed guidance in the upper half of the previously given range but the stock sold off anyway. The stock lost a little more than -5% in today's session and looks like it is going lower. The indicators are weak and support a further test of support with a possible target near $80 should the current level not hold.


Visa reported after the bell and beat on the top and bottom lines. The credit and payment processor produced earnings one penny above consensus. The beat was driven by a 7.8% increase in processing fees as card holders made more transactions. The news was not enough to support share prices however, sending the stock down by over 2% in after hours trading.


The Indices

The indices sold off today on a variety of reasons including the Fed, the economy and earnings. The FOMC meeting for one gave us little information beyond what we already knew leaving the market to ponder earnings, the economy and what they mean for the future. On top of that is end of month portfolio reshuffling and the question, “is it time to sell in May and go away”.

Today's move was led by the NASDAQ Composite index and a loss of -1.64%. The tech heavy index moved below the short term moving average and created a candle with wicks on both end suggestive of an active market. The indicators are rolling over and have now confirmed a near term peak. MACD momentum and stochastic are both forming bearish crossovers with today's action, indicative of weakness and possible further weakness, but also possibly leading to another trend following entry. The index may find support tomorrow but if not I now have a downside target near the long term trend line.


The next largest decline in today's session was in the Dow Jones Transportation Average. The Transports fell exactly -1.25% and are now testing support at the bottom of the 6 month range. The indicators are rolling over in indication of that weakness and could lead to a further test. A break below support, along my line near 8,600, would find additional support just below that level along the long term trend line near 8,500. Taking a step back from today's action and looking over the past 6 months it is becoming more and more clear that the index has been in a long term consolidation and return to trend. The trend is still up so I am still bullish but looking for confirmation.


The Dow Jones Industrial Average made the third largest decline today, -1.08%. Today's action took the blue chip index below the 18,000 mark and the short term moving average to tentatively find support near 17,750. The index is accompanied by weakening indicators suggestive of further testing of support. 17,750 may be prove to be support but it looks like stronger support is closer to 17,500 and then near 17,250. This index is still about 4% above its long term trend line which is down around 17,100-17,250 so has plenty of room to run without breaking trend.


The S&P 500 made the smallest decline, only -1.01%. Today's move broke the short term moving average and pierced the long term trend line. The indicators are rolling over and confirm near term weakness in the index. The index is likely to continue testing support along the trend line, which may be broken in the near term. Additional support is just below near 2,050 and a more critical level in terms of potential reversal. The long term trend is still up so until further developments I will be watching for entry points.


We may have begun the next correction but just how deep it may go is questionable. Some of the indices are well above their trend lines while others are already trading near or are testing them. This combination could mean today was the brunt of the move, or it is the precursor to another 3-5% decline. The trends are up so any decline that does occur is a potential buying opportunity.

Today's decline may be more of an unwinding of pre-FOMC positioning than the beginnings of a correction. It also may be due to sector rotations as traders move out of this quarters winners in anticipation of earnings growth in other sectors later this year. At the same time it is the end of the month which can add volatility for a number of reasons including aforementioned portfolio reshuffling and positioning ahead of the macro-economic data due out next week.

I'm still bullish, as hopeless as it may seem, because of labor trends and earnings expectations. Labor trends are good; they're building slowly but I think reaching a critical mass. Earnings expectations are also good, at least positive, for the broad market into the end of the year and will probably increase as we move into the summer. This combination makes it easy for me to think that the bull market is not over despite whatever correction may occur now.

Until then, remember the trend!

Thomas Hughes