The bulls tried to hang on to last Friday's gains but were just not able to do it.

Introduction

There were no official economic reports and very little in the way of earnings to move the market today. There was some news on an international level but it did not appear to have a serious impact on today's trading. In Asia the People's Bank of China made a surprise move to lower its key interest rate by 25 basis points. In Europe the Greece debacle wears on; Greece appears to be avoiding default on its IMF payment but it is still far from being out of the woods.

Market Statistics

Futures trading indicated a mixed day of trading right from the start. There was some fluctuation in prices during the early pre-market session but for the most part the indices were trading flat. After the open the indices tried to make a move higher, led by the NASDAQ, but that move was short lived.

The first hour of trading after the open saw a lot of volatility, the indices moved up and down within a tight range until hitting the early high shortly after 10. After that they slowly declined until all four of the major indices were in the red. The slow, steady decline hit bottom around 2pm and despite a late afternoon attempt to move higher closed near the lows of the day.

Economic Calendar

The Economy

No official economic reports were released today but we always get a new Moody's Survey Of Business Confidence each week. This week the index declined by -1.1 points, the second week of decline, but remains near the all time high set two weeks ago. In his summary Moody's Chief Economist Mark Zandi says

“Business sentiment remains steadfastly near a record high. An astounding more than half of the responses to the survey are positive, while less than one-tenth are negative. 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. The only lackluster responses are with respect to assessments of present conditions, likely reflecting the recently soft global economy”


According to FactSet 447(89%) of the S&P 500 companies have reported earnings so far this season. Of those 71% have reported earnings above estimates while only 45% have beaten on revenues. As it currently stands, the blended rate for earnings growth is now positive, 0.1%. This is nearly 5% better than expected and well above the average improvement expected based on the 4 year averages. On an ex-energy basis earnings growth is 5.6%, also much better than first predicted. The reason for the improvement is a higher than average number of companies beating estimates, an those that are beating are beating by rates higher than average.

Eight sectors are now reporting better than expected, led by energy. So far, the energy sector has produced an aggregate earnings surprise of +28.7%. The next largest surprise is coming from the health care sector, about 10.5%. Looking forward analysts are predicting that revenue growth is going to remain weak into the end of the year but pick up starting in 2016. Also, margins are expected to rise by an average 0.1% on a quarter to quarter basis into the end of the year. There is some important data to watch out for this week. Tomorrow is the JOLTs report on job openings and labor turnover. Later in the week look out for retail sales, import/export prices, business inventories, jobless claims, PPI, TIC flows, Empire Manufacturing, industrial production, capacity utilization and Michigan Sentiment. As always, take the rear looking data with a grain of salt and focus on the more forward looking data points. JOLTS, business inventories and TIC flows are all for March/Q1, the rest is for April/May/Q2. Next week is the start of this month's round of housing data as well as the FOMC minutes.

The Oil Index

Oil traded choppy today and ended with a slight loss. The price of WTI fell -0.19%, the price of Brent -0.75%. Today's action was impacted by increasing reports that the shale producers may be ramping up production in response to higher prices. This is a bearish turn of events in my opinion and will only serve to increase supply/stockpiles if true. Additionally, OPEC output remains high and may even be on the rise.

On the flip-side, one of Libya's oil fields remains closed do to violence in that country and fighting is still raging in Yemen. Today the Yemen rebels took responsibility for shooting down a Moroccan jet fighter just days before the humanitarian cease-fire is set to begin. Yemen itself is a small country but when you consider that over 4 million Yemeni live and work in the Saudi oil fields the scope of the issue takes on a slightly more ominous tone.

The energy sector fell more than -2% in today's session despite the relatively high price of oil and better than expected earnings results. The Oil Index dropped back below the short term moving average and my support/resistance line 1,400. The indicators are bearish and gaining strength pointing to lower prices in the near to short term. Downside targets remains near 1,350 and then 1,300 where the long term trend line comes into play. The long term trend is up, and with earnings expectation for next year so strong, any near term sell-off will be a buying opportunity.


The Gold Index

Gold prices fell by about a half percent today on a stronger dollar. The dollar gained against the euro and the yen on the heels of last weeks NFP report. The NFP was only as-expected but as-expected is perfect for telling the market that the labor market and the economy is not dead and adding some strength to the dollar. Gold is now trading below $1190 and very near to $1180. This level has provided support over the past two months and could do so again.

The gold miners managed to hold last week's closing prices despite the drop in gold prices. Today's action created a small bodied candle on the GDX Gold Miners ETF and closed with a gain of 0.25%. The index is still winding up within its narrowing range and is currently moving up from my rising support line. The indicators are consistent with support along the rising support line with MACD momentum approaching equilibrium. I'm still bullish on the sector and waiting for a break out.


In The News, Story Stocks and Earnings

Earnings continue to roll in. The sector to watch this week will be the retailers. There are at least a dozen scheduled to report over the course of the week including Nordstrom's, Kohls, JC Penny and Macy's. Today the retail sector Spyder XRT lost -0.03% in a move that created a doji candle right at the short term 30 day moving average. This is the second day in a row that the ETF has traded at the moving average and created a doji. It looks like it is trying to move higher but has not quite been able to overcome resistance. The indicators are still bearish but momentum is on the verge of shifting to the upside, stochastic is consistent with a supported market and may be rolling over. Resistance is at $100 with support near $97-$97.50. If earnings for the sector are decent then this one could easily move above resistance with a target near $102.50 in the near term.


Dean Foods reported a top and bottom line beat this morning. The dairy processor and specialty foods maker also provided upbeat guidance for the next quarter. Consensus estimates were in the $0.19 per share range, the company guidance is in the range of $0.20-$30. The stock surged on the news, gaining more than 10% to hit resistance near $18.00.


Rackspace reported after the bell today. The cloud based web hosting company reported earnings in-line with estimates on lower than expected revenue. The company also provided guidance that was below analysts estimates and sent shares falling in the after hours session. Company guidance is a full 10% below consensus driven by declining margins. Currency conversions also had a negative impact on earnings and guidance. The stock lost more than 10% after the report was released, falling to a three month low.


Dish Network reported before the bell. The pay-TV provider reported earnings and revenue basically in-line with expectations driven on an increase in subscriber fees. The company reported revenue of $3.7 billion, up 3% from last year at this time, but also reported lower than expected new subscribers for both TV and internet services and a net decline in users. Shares of the stock lost -0.75%, extending the recent downtrend and setting a new 6 month low. The indicators are bearish and stochastic has just made a bearish crossover indicating potentially lower prices.


The Indices

The indices tried to move higher but failed, then they tried to hang near last week's closing prices and also failed. By the end of the day the majors were all in the red led by the S&P 500. The broad market lost just over a half percent, -0.51%, in a move down from resistance, halted by support. The index is still winding up within it rapidly narrowing range, squeezed between the long term trend line and the resistance of the all-time high. The indicators are mixed but still consistent with support along the rising trend line and possibly rolling into a potential trend following entry. MACD is very near to zero, following a bearish peak, and may shift to the upside.

The caveat is that even with a shift, momentum has been weak, in both directions, over the past few months and is likely not enough to break the market to new highs by itself. Stochastic is forming an early, weak, trend following signal, the caveat being that resistance is just above the current level. It looks like the index could move higher but without additional catalyst resistance will likely continue to keep prices from breaking to new all-time highs.


The Dow Jones Industrial Average made the next largest move today and in fact led the losses for most of the session. The blue chips lost -0.47% after trading as low as -0.5% and lower during the session. Today's action is a retreat from resistance that halted above support levels with indicators that suggest a retest of the highs could be developing. MACD momentum has just turned positive and stochastic is making a weak trend following signal. As with the SPX, the Dow has been halted at resistance several times over the past month or two so without additional catalyst could easily be halted again.


The NASDAQ Composite closed with a loss of -0.20% after spending most of the day trading in the green. The tech heavy index created a very small bodied candle, just above the short term moving average. Today's action was centered on the 5,000 level which did not hold. The indicators are bearish in the near term but still show support in-line with the trend over the short to long term. Bearish momentum is in decline and stochastic is showing a weak trend following bullish crossover so for now at least it looks like the index will move up to test resistance at the all time high. Near term support is along the moving average, with longer term support about 5% lower along the long term up trend line.


The Dow Jones Transportation Average made the smallest decline today, only -0.14%. Today's action created a doji candle at the moving average, with a close below the average, which makes it look like the index could retreat back to support along the bottom of the 6 almost 7 month trading range. The indicators are weakly bullish, MACD has just turned positive and stochastic is making a weak bullish crossover which makes it look as if it could move higher within the range. Support target is down along the bottom of the range near 8,600, possible upside target is 8,900.


The market is still waiting. Waiting for the signal to move up, or to move down. In the near term the indices continue to wind up within recent trading ranges with little strength. In the short to long term the indices are still trending higher. The economic trends are positive, as are the earnings trends despite this quarters low rate of growth, so I remain bullish as well.

The trends are supporting the market while it is fear of economic slow down, earnings declines, geopolitical risk and FOMC interest rate hikes that are providing resistance. If the trends break down so too may the market. The NFP provided one clue to the state of the economic trends and this weeks data will provide more.

In terms of earnings trends this season was weak, but much much better than expected. Not to mention the fact that the season is not yet over and will likely continue to improve. The next season may show more weakness but looking beyond that, to the end of the year and next year, expectations are quite good. There may be correction, consolidation or pull-back between now and then but the secular bull market is not over, not yet.

Until then, remember the trend!

Thomas Hughes