A round of mixed economic data lifted the market in another Goldilocks rally.

Introduction

Mixed economic data in the form of PPI and jobless claims helped to lift the market today. The PPI numbers were much weaker than expected, pushing out FOMC rate hike expectations, while strong jobless claims numbers support labor market health and expectations for economic uptick. The data also helped to weaken the dollar which in turn has sparked moves in gold, foreign exchange and raised speculation that 2nd quarter earnings will not be as bad as first feared. What was as bad as first feared, maybe worse, is earnings from the retail sector. The reports across the sector have been mixed to negative all week and today was no exception.

Market Statistics

International indices were also mixed. In Asia, Chinese indices were mostly higher while Japan lost about -1% on weak earnings and a stronger yen. In Europe indices began in the red and slowly moved higher throughout the day. Futures trading here in the early pre-opening session saw a lift as well, aided by today's economic data. ,

The indices opened strong with an average gain over 0.5%. From that point forward it was steady buying until 1:30PM when the broad market approached its all time. By 3PM the SPX had moved into all-time high territory and was able to hold that level into the end of the day. I wouldn't call it a break out just yet but one may be about to happen. All of the major indices made significant gains today, led by the techs.

Economic Calendar

The Economy

Today's economic calendar include PPI as well as the weekly jobless claims numbers. The Producer Price Index fell by -0.4% on the headline and -0.2% at the core level. The drop is well below expectations which predicted for it to hold steady at 0.2%. The number is low but good enough to stave off fear of a super imminent FOMC interest rate hike. Low or declining inflation takes more pressure off the Fed's decision making process; this data won't drive them to a rate hike. Micro data within the report show that biggest decline was in finished goods (-0.7%) and gasoline (-4.7%). The report also mentioned noteworthy declines in the prices for jet fuel, diesel and pork.

Initial claims fell 1,000 from last week's upward revision of 1,000. Claims this week were reported as 264,000, just off the long term 15 year low. The four week moving average of claims also fell, to 271,750, and set a new 15 year low. The long term down trend in first time claims has resumed after the volatility we saw during the late winter and early part of the spring.

There may be more volatility but so long as the moving average trends flat to lower I think we're OK here. On a not adjusted basis claims rose by 2.6%, a half percent below the expected 3.1% predicted by the seasonal factors. New York led states with increases with a gain of +810, Massachusetts led those with declines posting a drop of -4,191.


Continuing claims remained unchanged from an upward revision of 1,000, a tiny gain from last week's report but not really. Continuing claims remain at the long term low while the moving average has declined, setting a new 15 year low. This is a continuation of it's long term downtrend and sign that those who lose a job find a job.

The declines in first time and second week claims has contributed to a decline in longer term unemployment. The total number of people on unemployment dropped nearly 80,000 to set a new 5 month low as it approaches it's long term 15 year low. Based on today's labor data the labor market is strong. There may not be a lot of jobs being created but other elements of the market are healthy if not robust. In terms of jobless claims labor market turnover is low, people who are out of work one week find jobs are finding jobs within a week or two and that longer term unemployment levels are in decline. If this is true then its only a matter of time before we get additional signs of economic momentum.


The Oil Index

Oil prices fell today. Prices for WTI lost more than -1.5% while Brent lost only about -0.35%. Today's move takes WTI back below $60. Still no sign of demand pick-up, lots of signs supply is still high. There is also ongoing fighting in Yemen, and the Iran nuclear deal is still simmering on the back burner.

The Oil Index traded slightly higher today, gaining about a half percent. The index traded in a very tight range just below the short term 30 day moving average and resistance near 1,400. It is indicated lower at this time although momentum is in decline. Stochastic is not yet oversold so it appears as if the index has room to move lower, maybe to 1,350 in the near term. The long term trend is still up but the trend line is about 7.5% below today's closing price so it has room to move down from here. Earnings outlook may weigh it down unless or until the oil sector starts to show signs of the expected earnings rebound. This could begin as early as the 3rd quarter, 2nd quarter earnings are still expected to decline but those estimates are likely to change in the coming weeks and could help support the index.


The Gold Index

The PPI gave gold a boost today via the dollar. The numbers, along with the labor data, combined to create a Goldilocks situation for gold bulls and bulls in general. Basically the economy is still gaining strength with little to no inflation, a situation in which there is little expectation for a rate hike. This in caused the dollar to sink and send gold above $1220 to set a new 3 month high. Now that rate hikes are on the back burner dollar values could remain low and send gold prices higher with a target near $1250 in the near to short term.

The gold miners tried to extend the gains they made yesterday. The Gold Miners ETF closed with barely a gain after opening with a small gap and moving higher on an intraday basis. The ETF has begun to move up as previously indicated and today met with some resistance just above $21. This resistance equal to the March peak and a 2 ½ month high for the sector. Rising gold prices are lifting the sector. This could drive the miners higher on improved earnings expectations, even if gold prices only stay at or near $1220.


In The News, Story Stocks and Earnings

The dollar fell this morning when the PPI was released. The Dollar Index lost more then a half percent in early trading but recovered a lot of the loss before the end of the day. Today's move took the index down to test support near $93.25. This support line marks a 3 month low and is anchored to significant price action which occurred in early February, just after the January FOMC meeting and during the time in which the ECB revealed their QE plans. The indicators are bearish and pointing lower but divergence in MACD suggest this level may hold. Stochastic is weak but also deeply oversold following the recent uptrend. If support is broken it could go down as low as $90 which would really boost gold value, as well as earnings outlook for companies doing business in overseas markets.


Kohl's reported a miss on the revenue side that sent shares tumbling. The company managed to beat earnings expectations with a gain of 2 cents over the same period a year ago. Company CEO said that sales were only “modestly” below expectations, mostly due to a weak February, but had been on the rise in the last two months. The company also reported opening two new stores. Shares fell more than -13% to hit potential support at the top of gap opened following the previous earning release.


The retail sector as a whole did not fare much better. The XRT Retail Spyder fell a little over a half percent in a day of volatile trading. Today's action took the index up to test resistance at the 30 day moving average where it was repelled. Later, after dropping more than -1%, it found support and was able to bounce and then close above the daily low. Today's candle shows indecision in the market while it trades above support at $97 and below resistance near $91. The indicators are consistent with support but mixed in terms of near term direction. Momentum is weak, but currently bearish, stochastic is rising in the short term but falling in the near term. Support could be tested, but for now it looks like it will hold. If it breaks the ETF could fall to $95. Resistance is the moving average until broken.


Avon had a wild day today. Reports emerged early that the company was going to be purchased by an investment group. Later it turned out that the investment group was a hoax. A very long paper trail of false documentation was found but as yet no suspects. In between those events volatility sent the stock shooting higher, then lower, with enough force to trigger safety stops to halt trading at least 3 times. Even with the stops the action didn't really stop until the end of the day. Today's range sent it up by 16%, before falling back to close with a gain of only 6%, with about 8 times 30 day average volume.


The Indices

The markets are reaching new highs but you wouldn't be able to tell by looking at the Dow Jones Transportation Index. The index was able to move higher today, about 0.45% compared to 1% moves for the other major indices, but is doing so from the bottom of a long term trading range and well below the all time highs.

The index is also trading just above the long term trend line, support with which it made contact yesterday and today. The indicators are both pointing lower so support and/or the long term trend line could be tested again. however, over the longer term the indicators are consistent with support so for now the trend line looks strong. If the markets are moving higher the heavily downtrodden transportation sector may be the place to be.


Today's gains were led by the NASDAQ Composite. The tech gained 1.39% and moved above the previous all-time but not the current all-time high. Today's action also tested support at the short term moving average. After testing support it moved higher, crossing above 5050 for the first time since setting its new all time high last month. This move is in line with the trend and accompanied by bullish stochastic so could continue higher MACD is at the zero line so will be in confirmation is it crosses. If the index continues higher potential resistance remains until a break above the current all-time high so caution is still warranted. The index has support just below today's candlestick along the moving average and near 5,000.


The S&P 500 made the second largest gain today, 1.08%. The broad market was today's real leader because it set an actual all-time closing high, but not an all time high. Today's action created a long white candle that moved up from the long term trend line, at the very point of the triangle formation I have been following for the past two months. Stochastic fired a week signal earlier this week and is creating a stronger bullish signal now that both %K and %D are moving higher. This signal is about to be confirmed by MACD; MACD is now exactly at the zero line and will confirm a strong trend following signal if the index continues to move higher.

The question now is if it will move higher or if this is just another whipsaw? Today's action is a very positive sign but I think the true test will be when it tries to cross the all time high, just a few points above. If this is broken the index could move as high as 2,150 in the near term.


The Dow Jones Industrial Average gained a little over 1%, 1.06%. The blue chips created a long white candle and looks even more bullish than the SPX, although it too has resistance at its all time high. Today's action broke potential resistance with indicators that are both bullish and rising. Both MACD and stochastic have been bullish for a couple of days and are both gaining strength, if also both still a little weak. It looks like this index will move up to test the all time high at the least. If a breakout occurs the index could move as much as 500 points in the near to short term. Support remains near 18,000.


The market got a double shot of what it wanted today, positive reinforcement the labor market is improving and signs the FOMC won't raise rates real soon. The down side is that this may be bad for the market down the road. Too much of a good thing, in this case labor market expansion without inflation, could lead to a bad thing. A bad thing might be a sudden burst of economic activity or rise in inflation that leads to a rapid pace of FOMC policy tightening and a shock to the market.

Things are looking OK now, and outlook is positive, so I remain bullish. I also remain very cautious. As much as I want to say the market is about to break out we still need to see a little more commitment, a little more decisiveness in the move, before getting really bullish on the summer. I don't think the Fed will raise rates in June but we shouldn't be surprised if they remain on track for a hike in Septmeber. It is very possible the market could remain range bound with all-time highs as the upper end until those signs begin to emerge.

There is a bit of data due out tomorrow and next week that could help the market extend today's gains. Tomorrow is Empire Manufacturing, Michigan Sentiment, Industrial Production and Capacity Utilization. Next week is the housing data; housing starts, building permits and existing home sales. Next week is also the FOMC minutes, Leading Indicators and Philly Fed.

Until then, remember the trend!

Thomas Hughes