The FOMC signaled they need just a little more time, and more data, and the market moved higher.

Introduction

Today, global markets marched to the beat of their own drums. Now that the June Fed meeting has come and passed traders are focused on local issues which led to mixed markets around the world.

In Asia indices fell hard as the reality of margin controls comes face to face with boiling IPO scene. Shang Hai led the fall, shedding more than 3%, as mainland investors rotate out of current holdings in order to prepare for a new round of IPO's scheduled for Friday. European indices fell, but only marginally, as the Greece debt negotiations and possible default continue to weigh on sentiment. Our markets were indicated to open with a gain despite all the global woe and that trade only strengthened going into the opening bell.

Market Statistics

The Fed statement and Janet Yellen's comments left rate-hike outlook in basically the same shape it was before... the economy is getting better, a rate hike is coming most likely this year and the decision is going to be data dependent. What is different is now there is no longer fear of an immediate rate hike, based on consensus we have at least until September although July is on the table.

The early morning economic data and earnings reports were in the Goldilocks zone. Data shows the recovery is still ongoing and not too hot, not too cold and just right for the FOMC to wait a little longer before raising interest rates. The earnings are mixed with a positive spin but in some cases you have to read beyond the headlines to see it.

The bulls were out in force today, driving the market higher from the start of early electronic trading. Futures trading indicated a higher opening throughout the morning and that held true into the opening bell. The indices gained a half percent as soon as the bell rang and then slowly ratcheted higher throughout the morning. By 11AM the SPX was up by 1%, led by the Dow, the NASDAQ and the Transports. The indices hovered at these levels the rest of the day with the NASDAQ setting a new all-time high in mid-afternoon.

Economic Calendar

The Economy

Consumer prices rose by 0.4% on a seasonally adjusted basis, 0.5% not adjusted. This is slightly below the consensus 0.5% expected and flat on a year-over-year basis. Ex-food&energy CPI rose by only 0.1%, reflecting the 10.4% gain seen in the gasoline index. Other energy indices remained flat. The food index also remained flat as prices paid for food-out offset those for food-in. This data is near perfect in terms of yes, inflation is here and no, the FOMC doesn't need to act immediately.


Initial claims fell by -12,000 to 267,000, the four week moving average also fell, to 267,750. The leading number of initial claims is now back below the moving average and falling, in line with the overall trend. Claims remain near long term lows and at levels consistent with a healthy/improving labor market. On a not adjusted basis claims fell by -6.3%, ahead of the -2.1% expected by seasonal factors. Not adjusted claims are -14.3% below last year at this time. California, Pennsylvania and Texas led with gains of +10917, +4130 and +3489. I was at first concerned I might see a large number of losses due to energy but the primary sectors listed for jobless claims are services, transportation, manufacturing and F&B. Of course it is possible these losses are associated to cut backs in the oil fields but overall not alarming.


Continuing claims fell by -50,000 to 2.22 million. This brings the number of 2nd week claims back below the moving average, which rose slightly, and to levels just above the long term low. Continuing claims may have been trending sideways for over a month but remain in long term downtrend and at levels consistent with ongoing labor market improvements.

Total claims bucked it trend and rose by +79,821. This is not too surprising, I've been expecting total claims to rise based on the early May uptick in initial and continuing claims. This gain may sustain for a week or two but remains near the long term low and at levels consistent with labor market trends. Initial and continuing claims have both fallen since hitting near term highs in mid-March so total claims should also fall back to recent lows in the next month (total claims lags initial by 2 weeks). On a year-over-year basis total claims are -13% from last year at this time.


Philly Fed and Leading Indicators were both released at 10AM, were both better than expected and both helped send the indices to new intra-day highs. The Philly Fed diffusion index more than doubled, gaining 8.5 to hit 15.2, the highest level since December of last year. New orders jumped 11 points and shipments jumped 13 points, the highest readings since November. Employment remained positive but shows slowing while hours worked saw a small rise. Hours worked rose from -5.6 to 4.7. Prices paid increased by 31 points to its highest level in 8 years. Future outlook remains positive with increases to expectations in hiring, production and shipments.

The Leading Indicators rose by 0.7%. This is flat from last month's 0.7% gain and above consensus estimates of 0.4%. This is the second of the largest increase in LDI since July last year when it was 1%. The Coincident Indicators rose by 0.1%, the Lagging Indicators by 0.2%. Together this month's reading point to continued expansion into the second half and possible upward revisions to 2nd quarter estimates.

The Oil Index

Oil prices got a slight boost from weaker dollar but only slightly. WTI jumped about a half percent in early trading but pared that back by the end of the day. Dollar value may help support oil in the near term but supply/demand is still heavy on the supply side and the so called dovish Fed statement isn't helping to increase demand outlook. Oil is still stuck in its tug-of-war near the $60 level without clear direction.

The Oil Index held steady near yesterday's closing prices and traded in a very tight range. The index gained about 0.25% in today's action and is looking more and more like a bounce from the long term trend line is in the works. The recent pullback has halted, just above the trend line, with double bottom and is now moving higher off of that bottom. This move is confirmed by a strong stochastic signal and a bullish MACD crossover that could result in a move up to 1,350 in the least and as high as 1,400 and 1,430 on a break above the short term moving average. Current resistance is the short term moving average, near 1,350, with support near 1,325. The caveat is oil prices, if they fall it may have an adverse impact and result in a test of support at the trend line. The silver lining is that many analysts projections are based on $50 oil so the impact may be muted.


The Gold Index

Gold got a nice boost from the FOMC. Their lack of commitment to nailing down a date for the first rate hike was seen as dovish and weakened the dollar which helped to send gold shooting up by over 2%. Gold is now back above $1200 and moving higher with $1225 as a target. Gold is still inside the Fed/dollar driven range and may stay there until the actual first rate hike. Until then data and dollar fluctuation will be key movers.

The gold miners got a boost today as well. The +$25 spike in gold helped lift stocks across the sector resulting in a 1.25% rise in the miners ETF GDX. Today's move follows the formation of a large white candle rising from the support line I drew just Monday and confirms a shallower trend line than the one I have been following until now. The signal is bullish but I won't call it trend following just yet. I still see a long term bottom forming in the chart but at this time the miners are range bound with bullish bias at best.


In The News, Story Stocks and Earnings

Rite Aid reported before the bell and painted a mixed picture. Earnings were in line with expectations on increased revenue but comp store sales were down and full year guidance is weak. The reason is the recent purchase of EnvisionRX which is having a near negative impact on earnings. The long term expectations is for a positive impact to earnings which may explain today's price action. Shares of the stock fell nearly -5% in the pre-opening session, gapped lower at the opening bell and opened at the short term moving average. Price action from that point forward created a large doji with high volume, centered on the moving average in indication of the conflict between near term and long term outlook. Current support is the moving average consistent with a previous long term high.


Kroger also reported before the bell but it's report was more obviously positive. The grocery operator reported a beat on revenue, earnings, comp store sales and increased full year guidance. Current quarter earnings are $1.25, $0.03 ahead of expectations and more than 25% better than last year at this time. The stock jumped more than 2% in the pre-opening session and gapped up at the open only to fall from resistance during the day. The early gain was nearly wiped out but bulls stepped in and drove them back up for a close near 1.25% above yesterday.


RedHat reported after the bell. RedHat is Oracles open-source competitor and reported earnings and revenues above estimates. Guidance for the current quarter was a little weak and helped to put pressure on after hours trading. Shares of the stock lost over -2% on the news after trading higher throughout the day.


Smith&Wesson also reported after the bell and also saw share prices sink. Revenues and earnings were both better than expected, with growth expected in 2016, but current quarter guidance was weak. Shares fell more than 4% in after hours trading after setting new high during the day.


The Indices

The indices made a strong move higher in today's action, all finishing with gains near 1% or greater. Today's star was the NASDAQ Composite which set a new high although it did not make the largest move. The tech heavy index broke the 5132 level with a strong white candle and mixed indicators closing with a gain of 1.34%. MACD has only just reached the zero line and not yet crossed over while stochastic has made a bullish crossover with %D still pointing down, both suggesting bullish activity but not yet confirming it. The break out makes the index look like it wants to move higher but indicators say a retest of support is very possible. Support is near 5,040 and the short term moving average, upside target is near 5,200.


The Dow Jones Transportation also made a notable gain but remains low in its range. Today's action created a long white candle rising 1.5% from recent support levels with indicators consistent with a trend following entry. The index is now back out of correction territory and could be moving higher although technical resistance remains. Momentum is to the upside with stochastic in process of making a second and much stronger bullish crossover in confirmation of recent support. Resistance is just above today's closing prices, near the short term moving average and the bottom of the Nov/May trading range. A break above this level would be another confirmation of the trend following signal with targets between 8750 and 9250.


The Dow Jones Industrial Average was third in today's march higher, closing with a gain of 1%. The blue chips also created a long white candle after breaking above resistance and the short term moving average. Today's action is accompanied by a trend following signal that has only the all time high as resistance. MACD completed its bullish crossover today adding strength to the strong stochastic signal which began earlier this week. Current target is the all-time high with 18,750 as target should a break above resistance occur.


The S&P 500 made the smallest gain today, just under 1%. The broad market was able to form a strong white candle, like the other indices, and also move above the short term moving average. The indicators are bullish with MACD confirming the stochastic signal so a continuation of this move and test of resistance looking likely. Today's action was halted at the bottom of the previously broken up trend line, near all-time high levels, with only the all-time high above that as resistance. A break above this level would be bullish with a target between 2150 and 2200 in the near to short term.


It looks like the rally is still on but I am as cautious about getting back on board with it as I was about getting too bearish a week ago. The Fed has given the all clear, at least for the summer, and data remains in line with trends so as long as long as earnings and expectations for the end of the year remain positive I will remain bullish. In the meantime there are headwinds to be wary of including quadruple witching options expiration tomorrow and the upcoming earnings season which starts in 3 weeks. Between those two events are plenty of economic data releases.

Until then, remember the trend!

Thomas Hughes