The FOMC minutes signaled all clear, at least for now, and the market rallied for a fourth day.

Introduction

Today was one of those days in which there were two distinct periods of trading; before the FOMC minutes were released and after. Early trading was quiet and lack luster. There was little action and gains were marginal. After the release trading volume picked up and the indices began a steady march that carried them higher into the close of the day.

Market Statistics

International markets were relatively quiet today as well. Asian indices were mixed with Chinese indices rising in post-holiday trading and those in Japan falling on some weak data. Japanese machine orders fell by more than 3% despite the BOJ's stance that their economy is on track for recovery. European indices were largely unaffected by the news from Asia and were able to hold steady for most of the day, closing with gains in the range of 0.2% to 0.60%.

Futures trading was weak all morning. The indices were indicated to open with losses in the range of -0.5% and that held through the early pre-opening session. Today's data was positive, supportive of a rate hike, but did little to move the market. Between Alcoa's release of earnings after the bell and the FOMC minutes at 2PM it was pretty clear that attention was focused on events later in the day.

The market opened weak as indicated, losses near -0.5%, but those levels were able to hold. The indices tread water from that point forward, until 2PM, with some bullish bias. The market popped on the FOMC release, which was more of the same. They are ready to raise rates, but find it appropriate to wait. The post-release rally met some resistance but by 2:30PM the indices were making another new high, and then another, leaving the indices near the highs of the day.

Economic Calendar

The Economy

The economic calendar for today was light on the number of releases if a little on potential impact. Aside from the weekly jobless claims numbers the FOMC minutes were the only other release. On the jobs front Initial Claims fell by -13,000 to hit the lowest level since July. This is just off the 15 year low. Last week's figures were revised lower by -1,000 for a net decline of -14,000 from last week's report. The 4 week moving average of claims also fell, shedding -3,000 to hit 267,000 and its lowest level since early August.

On a not adjusted basis claims rose by 5.8%, about half of the expected 11.4% gain projected by the seasonal factors. On a year over year basis not adjusted claims are down -11%. Michigan and Illinois led with increases in claims of 2,837 and 871 respectively. Kansas and Georgia led with declines of -2,588 and -868. These drops are indicative at least of declining job losses, if not job creation stronger than the NFP indicated.


Continuing Claims rose by 9,000, on top of an upward revision of 4,000, to hit 2.204 million. The four week moving average continued to decline, losing -14,750 to hit 2.221 million. Continuing claims, despite this weeks gain, continues to trend near the long term lows and indicative of labor market health.

The total number of claims for unemployment fell by -61,340. This is the 9th week of declines since hitting a peak in later summer and a new long term low dating to before the financial crisis. Total claims are now down -9.5% from last year at this time and appear to be trending lower. Based on this and the other claims data it looks like joblessness is reaching new levels. Job creation may be lack luster but job openings are at high levels and that is helping to suck up labor market slack.


The minutes turned out to be another FOMC non-event. They still think it is right to raise rates soon, but are in no hurry to do so. They cite things like high dollar, slow China, global market turmoil and low inflation as their reasons for standing pat. They also lowered their target for inflation to remain below 2% until the end of 2018. According to them US growth is moderate and labor market slack is nearly if not completely gone. Although there is renewed risk from global slowing there is no material change to the outlook. The news helped send the market to a high intra-day high.

The Oil Index

Oil prices continued to rebound today but I think it is mostly on fear. Russia's entry into the Syrian conflict is raising the chances for international conflict in the region and putting a premium into oil prices. Despite this risk premium US stockpiles remain high as does global production levels. There are some signs of slowing US production but so far not enough to cause a drop in available supply. WTI and Brent both gained near 3.5% with WTI closing near $49.50 for the first time since July.


The Oil Index gained a little more than 2% on the rise in oil and has extended its rebound above resistance targets. Today's action created a long white candle moving up from the 1,175 support/resistance line set last month. The indicators are bullish and on the rise with MACD setting a +12 month extreme peak in support of the move. The index is moving higher and looks like it will continue higher into the near term. Now that oil prices are rebounding we can start to expect earnings outlook for the oil companies to rise which, along with outlook for the end of the year and next year, should be bullish for the sector.

The Gold Index

Gold action was tepid today despite the dovish tone to the FOMC minutes and subsequent drop in dollar value. The DXY fell about a half percent after the minutes, to a three week low, but gold prices did not rise in response. Prices fell more than -0.6%, perhaps on the lowered inflation target. Without inflation, and with lower targets, there is lowered expectation for higher gold prices. At the same time the rate hike is still on the way, eventually, which will strengthen the dollar as well. In the meantime movers of gold are economic data (ex-inflation), earnings and outlook which all support the rate hike. Gold may not move down to its recent lows, but I don't see any reason for it to rise either.

The gold miners tried to move higher but were capped at resistance. The miners ETF GDX opened slightly lower than yesterday's close to move higher and create what would have been a large white bodied candle. The index broke above the 100% retracement level, previous all time low, but found resistance and was pushed back creating a regular white candle with long upper shadow. Today's high is consistent with the high set last month, when the index tested resistance and was shut down. The indicators are bullish at this time, pointing up in indication of possible testing of resistance, but remain weak and consistent with resistance and range bound trading. The MACD peak is weak, not large or extreme, and stochastic is trending in the middle of its range. Resistance is between $15.75 and $16 with support near the bottom of the three month range near $13.00.


In The News, Story Stocks and Earnings

Netflix announced that it would raise prices for its basic service by a dollar per month. This may not sound like much but with an estimated 60 million subscribers could result in substantial income for the company. Simple math comes up with a possible $760 million addition to annual revenues. Shares of the stock gained 3.5% to trade at a four month high. Earnings are scheduled to be released next week, guidance could be materially affected by development.


Domino's Pizza reported before the bell. The deliverer of tasty pizza reported a 6% rise in earnings and an 8% rise in revenue but missed analysts expectations. Consensus called for $0.74 per share, more than a nickel above the actual $0.67 reported. The company also reported double digit comp store growth in the US with high single digit growth in international markets. The primary headwind cited was currency exchange rates. The news was met with mixed emotions and caused shares to fall more than -4% to trade just above support levels. Volume was high, as was volatility, creating a long legged doji candle. Support is near $100 with resistance along the short term moving average.


Alcoa reported after the bell and kicks off the unofficial start of the earnings season. The aluminum giant missed on both the top and bottom lines, by substantial margins, in a report that highlights reasons for the recently announced split. The value added products all produced significant gains on a year over year basis, all undermined by low commodity pricing. Analyst had been predicting $0.13 per share, actual results were $0.07. Shares of the stock lost 5% in after hours trading.


Helen Of Troy, maker of popular consumer products, reported a top and bottom line beat after the bell. The company was able also to narrow guidance to the upper end of a previously stated range and above consensus estimates. Shares of the stock popped in after hours trading, gaining more than 7% to trade at a new all time high.


The Indices

The indices opened weak but upon reflexion strength was exhibited most of the day. Except for the early dip to support the bulls were in charge all day. The middle portion of the day was mostly sideways but once the minutes were released action was all up, led by the transports. The Dow Jones Transportation Index gained 1.38% and was the market leader all day. The index is approaching resistance targets near 17,200 with rising indicators so it looks like a test of resistance is on the way. Both MACD and stochastic are on the rise although only MACD is showing any strength at this time.


The S&P 500 made the next largest gain today, just shy of 0.9%. The broad market also created a large white bodied candle in a move that is approaching resistance. The index has now regained the long term up trend with bullish indicators and looks like it could break past the next resistance target. Resistance is just above today's closing price, near 2,015, and, once broken, could lead to additional movement up to 2,050 or higher. The indicators are positive, MACD is bullish and rising, stochastic is pointing up, both in line with the underlying trend, but the signal is still weak. A consolidation and move above resistance would help strengthen the near term outlook.


The Dow Jones Industrial Average was the third largest advancer in today's session. The blue chips gained 0.82% in a move that is approaching resistance targets, just like the first two. Today's action fell just short of my resistance line at 17,250 but looks like it will go that high at least. The indicators are bullish and on the rise, pointing to higher prices, and the MACD peak is convergent with the new two month high, so a test of next resistance target is very likely . A break above that level would be bullish and could lead to a move up to test the current all time high.


The NASDAQ Composite was today's laggard with a gain of only 0.41%. The tech heavy index was under pressure all morning even as the others were trying to move higher and was barely able to move above break even. Despite the sluggishness in the index today's action confirmed support at the short term moving average and the recently broken resistance level with rising indicators. The index looks set to move up to next resistance, near 4,950. Although bullish, the indicators are remain weak so a break above next resistance is questionable.


The FOMC gave the market the all clear one more time. The news was largely as expected, did not produce any surprises, and was barely an impediment to the rally. The indices are moving higher, perhaps to consolidate at resistance levels, with earnings season at hand so for now I think that will be focus of the market. The long term trend remains up, economic trends remain up and outlook for the future is positive so there is a good chance this rally could have legs.

Until then, remember the trend!

Thomas Hughes