The bulls are trying to move the market higher while we wait on more economic data.

Introduction

The bulls were out today, if not in force. The markets moved higher with many of the indices trying to set new highs but volumes were muted, perhaps due to the economic storm scheduled for this week. This is the first full week of May so we are expecting a long list of macro-economic releases later this week including but not limited to the NFP report. Today there was only one major release, Factory Orders, and it was better than expected.

The early pre-opening session was dominated by news from Asia and Europe. A mixed set of PMI readings sent indices higher in both regions, if for different reasons. In China the final reading for HSBC's PMI fell to 48.9. This is down from the flash and official government readings which were both just above 50. This is the second month of weak readings for the country and spurred speculation of increased QE, sending stocks higher. In Germany PMI rose to 52, slightly ahead of expectations, aiding outlook and hopes of rebound, also sending stocks higher.

Market Statistics

Futures trading was positive in early electronic trading. The indices were indicated only marginally higher but this held throughout the morning. The indices moved higher when the opening bell sounded and the bulls took charge from there, driving them up by roughly a half percent. They hit resistance just after 10AM, the SPX at the all time high, and then drifted sideways until the close. Action was light today and could have been influenced by holiday's in Japan and England, another big week of earnings reports as well as the upcoming labor data due out later this week.

Economic Calendar

The Economy

Only one economic release today although there are about 2 dozen scheduled for the week. Today we received factory orders which rose by a slightly better than expected 2.1%. The bad news is that last month was revised down to -0.1% from 0.2%. Ex-auto's orders remained unchanged from last month, but there was a significant downward revision to last month as well. Depending on how you look at it the glass is either half-full or half-empty; there is weakness in the trailing numbers but the current number shows orders rebounding into the spring season.

According to Moody's Survey Of Business Confidence business sentiment slipped a bit this week but remains near the all-time high. The index fell by 0.9 to 44.6 from last weeks high of 45.5. According to Mark Zandi, Moody's chief economist,

“Confidence is especially strong in the U.S., where hiring and investment spending are robust. Credit is also freely flowing. Pricing is sturdy, despite heightened deflation concerns in much of the world, and sales are healthy”

I like the part where he says "hiring and investment spending are robust".


According to FactSet the blended rate for earnings growth in S&P 500 companies is now -0.4%. This is more than 4% better than the -4.8% predicted as the season was getting underway. So far 360 companies have reported earnings with 71% reporting better than expected earnings (average) and 46% reporting better than expected revenue (below average). At the current rate of pace the blended rate is very likely to be above 0% as early as next week, reversing expectations for overall earnings decline in the first quarter. Ex-energy, earnings growth is also much better than expected, 3.1%. This is 2% ahead of expectations at the beginning of the reporting season.

Analysts still expect to see earnings decline in the 2nd quarter but I think this view may change in the coming weeks due to economic trends and expanding margins. Full year growth is still sub 2% but expands to 12.5% in 2016.

Economic reports due out later this week include trade balance, ISM, wholesale inventories and a host of labor data. ADP is on Wednesday morning, Challenger and jobless claims on Thursday and then NFP and unemployment on Friday. Also on tap are unit labor costs, average workweek, participation rate and hourly earnings. There may be bad one-off numbers in individual reports but I expect to see signs of stable labor markets and maybe even a hint of wage/earnings inflation.

The Oil Index

Oil closed with a slight loss today after initially trading higher. WTI closed just below $59 after briefly surging to above $59.50 during the morning hours. The drop occurred shortly after news the Saudis were going to halt their air attacks of Yemen based rebels and alleviating, if only for a short time, some of the fear premium built into the market. There are also more signs that storage levels have stabilized at the Cushing facility but there is still no sign of demand picking up. Also, since Exxon reported increased production in the first quarter I don't really see the fracking slow-down having as much impact as some analysts say so supply could remain high even if storage levels top out.

The Oil index traded near the recent high but is still showing signs of falling from resistance. The index has been trying to move above 1,435 for almost 3 weeks and has failed every time. The indicators have peaked during that time and have now turned bearish. The index looks like it will move lower from here, with a first target near 1,400 and the short term moving average.


The Gold Index

Gold prices climbed nearly 1.25% in today's session as buyers once again step in around the $1180 support zone. Today's move was also supported by slightly weaker dollar value. The metal continues to be influenced in the near term by currency fluctuations and economic data with the longer term outlook based on the FOMC rate hike time line.

The gold miners ETF GDX gained today as well, adding about a half percent. The index is near $20.50 and still struggling with resistance. Today's price action created a small gap to the upside, opening the day's trade above resistance, but was not able to hold the high. The candle is a weak spinning top type so not a strong signal in terms of potential reversal. The index may test support along the short term moving average but I am still bullish longer term. Support, which looks strong at this time, is rising in line with the Nov/Dec 2014 and March 2105 troughs and appears to be pushing price up against resistance. A break above $20.50 would be very bullish in my opinion and could take the index to $22.50 or higher in the near to short term. The indicators are weak but bullish and consistent with a rising market.


In The News, Story Stocks and Earnings

Sysco, not Cisco, reported earnings slightly below estimates. The nations would-be largest food distributor reported adjusted earnings of $0.40, one cent below consensus. According to the release sales were up by 4.2% but profits only rose by 3.1% due to increased “food inflation”. Food costs for the company increased 3.7%, mainly in the meat and poultry category. My first though after reading that was to wonder if this is the first signs of the impact of bird flu in the mid-west. In any event the stock lost over -1% in the pre-opening session, traded back up to resistance during the day and then sold off to set a new low. Today's price action occurred below and tested the resistance level set two years ago when the proposed purchase of US Foods was announced; that deal was nixed by regulators but being fought by Sysco.


The bird-flu problem, mostly in the egg laying population of hens, brings to mind Cal-Maine. Cal-Maine is one of if not the single largest producer/shipper of shell eggs in the country. The company reported a near 18% in quarterly profits just a few days ago and doesn't appear to be hurting from the epidemic just yet. The company's CEO says that they are seeing strong demand across all segments of their business despite record high levels of hens in the national flock. The stock gained 12.5% on the news to reach a 7 month high but fell today, losing nearly 3%. Price appears to have hit resistance and may retreat back to the short term moving average.


Texas Roadhouse reported after the bell and satisfied its buyers. The company reported a 23% increase in EPS on the back of an 8.9% increase in comp store sales that blew away the analysts estimates. The company also reported the opening of 3 new stores which will positively affect earnings moving forward. The one negative was a decline in net margin, due to rising commodity (beef) costs, but this was offset by the increase in traffic. The stock, which had been trading lower during the open session, gained more than 5% in the after hours session.


Anadarko Petroleum reported after the bell and did not beat expectations. The exploration and production company reported a net loss much wider than expected on revenues well below forecast. The results are a big disappointment in light of the company reaching record sales volume for the quarter. One positive is that the company was able to lower costs which will help it return to profitability later in the year. The company also raised production guidance for the full year, another plus in terms of potential profitability. The stock had been trading lower in the open session and fell further in after-hours trading. The stock appears to be making a near term double top confirmed by bearish crossovers in both indicators. First down side target is the short term 30 day moving average with additional targets near $85 and $80 if the EMA doesn't hold. Resistance is just above today's closing price near $95.


The Indices

The bulls were out today. They weren't strong but they were steady and held their ground. The indices moved higher from the start and were able to hold positive ground all day. The indices all held fairly tight ranges and closed within hundredths of a percent of each other. The biggest move was the SPX which rose 0.29%. The broad market moved up to test resistance at the all-time high but was not able to move higher. The move began above the top of my triangle/pennant pattern which may provide support into the coming days. The indicators are weak and mixed but still consistent with support along the long term trend line so I would look for buying opportunities with any declines.


The next largest move was in the Dow Jones Industrial Average. The blue chips made a gain of 0.26% and are also testing resistance although on this index resistance is slightly below the current all time high. The indicators are weak and have turned bearish but at this time are consistent with support. Support is just below the current level, near 18,000 and confirmed by the short term moving average.


The NASDAQ Composite gained 0.23% in today's session to create a very tiny doji candle caught between rising support and the resistance of the previous all-time high. It is not surprising that the previous all-time high is affecting price action but I think by now any resistance there is purely psychological. The index has been trending higher, confirmed by the moving average, and is setting up for a possible trend following signal. The indicators have recently turned bearish but are, at this time, consistent with a near term bearish swing during a longer term up trend and not suggestive of imminent reversal.


The Dow Jones Transportation Average brings up the rear. The transports rose only 0.16% and created a possible shooting star doji with upper shadow crossing the short term moving average. This signal looks bearish but may only be near term in nature based on other factors. The index is trading along the bottom of a long term trading range with indicators confirming support along that level, 8,500. The index has been consolidating within this range long enough to return to trend with the long term trend line adding support just below the bottom of the trading range. The indicators are showing some near term weakness but confirm support so appear to be in a bearish swing rather than full reversal. The index could continue to move sideways within this range, 8500-9250, and/or test support again until a clear direction in earnings growth is established.


The market has digested the FOMC meeting without a hiccup, has gotten over its fear of earnings decline and is now re-focusing on the data. So far data trends are positive and leading the market higher. There are a lot of possible market moving releases scheduled for the week but the NFP remains top on the list. Regardless of what that number is it will be the bigger picture that matters. So long as labor remains steady and the consumer continues to heal I think the bull market will continue.

Until the data is released the market could continue to trend sideways, either testing resistance or bumping along support. Of course, there is still earnings to consider. Most of the important names have reported already but there are still quite a few left and this is a big week for reports. There are 88 S&P 500 companies reporting this week so there is a chance for positive surprises to lift the market to a new high even before the data is released.

Until then, remember the trend!

Thomas Hughes