Introduction

Oil prices moved higher on news, and the market followed. The market moved higher today, primarily driven by rising oil prices although economic data was good as well. Oil prices began the day in retreat, giving up most of if not all of the gains made yesterday, but ended higher by nearly 2.5% after another supportive headline hit the market. The new news is that the Venezuelan oil minister says a meeting has been set for March to discuss proposed production caps.

Other positive factors supporting the market today was economic data; the labor market remains stable and durable goods order rose much more than expected. While good in terms of growth the question of how the FOMC will react to this data remains to be answered. Today at least good news was good news.

Market Statistics

The international markets were mostly up in Thursday trading, the one exception was China which saw a -6% decline led by the mainland Shang Hai index. Tightening liquidity and a lack of confidence in regulators helped to spark another round of profit taking in China's small cap sector.

In Japan the Nikkei rose by nearly 1.5%, perhaps supported by BOJ governor Kuroda's assurance to parliament that negative interest rates were having the intended affect. European indices moved higher on positive earnings and an upgrade to UK 4th quarter GDP.

Futures trading here at home indicated a positive, if barely, open for most of the morning. There was a little give and take during the early hours but little noticeable impact from today's data or the early weakness in oil. The opening was as expected, the indices posted small gains within the first minutes of trading and then proceeded to trade in a tight range around break-even levels until shortly after lunch. The Russia/OPEC headlines hit the market just before 1PM which is when today's rally got underway. The indices made steady gains throughout the afternoon, hitting their highs shortly before the close of the day.

Economic Calendar

The Economy

We got some fairly promising economic data today in the form of Durable Goods orders. New orders for durable goods rose by 4.9%, nearly double the expectations and a positive tailwind for 1st quarter GDP. Within the number durables ex-transportation rose by 1.8%, more 9 times better than the 0.2% expected and a sign that more than just auto sales is driving the numbers. Shipments rose 1.9%, unfilled orders rose by 0.1% and inventory fell by -0.1%; all pointing to a pick up in demand. In terms of capital goods, new orders rose a stunning 21.6%.

Jobless claims remain steady and at levels consistent with healthy labor markets. Initial claims rose by 10,000 from last week's not revised figure to hit 272,000. The four week moving average of initial claims fell -1,250 to hit 272,000. On a not adjusted basis claims fell by -3.8% versus an expected decline of -7.4% as predicted by the seasonal factors. On a year over year basis not adjusted claims are now down -11.4%.

The states with the biggest increase in claims were Wisconsin and Minnesota with increases of +387 and +106. The states with the biggest decreases in claims were Pennsylvania and Texas with declines of -3739 and -2342. No reasons were cited by those states showing increases but a couple of common themes emerged from those showing decreases; most states saw a decline in layoffs in construction, manufacturing and F&B.


Continuing claims fell by -19,000 to hit 2.253 million, last week's figure was revised lower by -1,000. The four week moving average of continuing claims fell 5,250 to hit 2.257. Continuing claims have been hovering around this level for the past month and appear to be topping out following the declines we've seen in the initial claims numbers in that same time frame.

Total claims fell -12,802 to hit 2.707 million. This is the fifth week total claims have been at/near this level following the post-holiday spike we saw in the first week of January. Total claims are now down -5.5% from last years level at this time and remain consistent with the historical perspective, as well as labor market health. Based on the historical data we should start to see the total number of Americans begin to fall within the next month or so as we enter the spring hiring season.


Tomorrow's data could be a real market mover. Most important will be the GDP revision even though it is a lagging indicator and 2 months out of date. Expectations are for 4th quarter GDP to fall to 0.4% from the previous estimate of 0.7%. Other data due out tomorrow includes Personal Income and Spending, expected to rise 0.4% and 0.3% respectively, and Michigan Sentiment.

The Oil Index

Oil prices were, you guessed it, volatile in today's session. WTI flirted with the $32.50 level during the early part of the session, moving lower by 3% or so. Later in the day the Russia/OPEC news helped push prices higher and left WTI with a gain of near 3%, closing above $33 at settlement time.

The good news, at least in the near term, is that prices seem to be holding above $30 on the hopes that prices have bottomed, and that output/supply will be coming down over the next year or so. The bad news is that prices are still range bound, driven by rumors more than anything else and subject to quick reversal.

The announced meeting is good news for prices but at this time there is no real sign of a change in fundamentals so any uptick in prices remains highly questionable. At best we may see prices continue to stabilize at or near current levels until a clearer picture of the supply/demand outlook emerges.

The Oil Index fell about -1% in today's session, falling just below the 30 day moving average, only to regain the loss following the OPEC/Russia news hitting the market. Despite the late day rally the index remains range bound in consolidation waiting for a more concrete signal that supply/demand imbalance is stabilizing. The indicators, particularly stochastic, are consistent with a range bound asset and suggest the index will be testing support again in the near term. First target for support is the 950 level with 900 next target should 900 fail. Resistance is the 1,000 level and likely not to break unless oil prices make a significant move higher, or the earnings projections for the energy sector begin to move higher.


The Gold Index

Gold prices were a little volatile in today's session. Spot gold moved down by about -1% in the early part of the day only to regain the loss and a little more by early afternoon.

The bull case for gold seems to be gaining strength. First, safety seekers around the world are moving into gold. Second, fund inflows are supporting gold prices as managers buy to match demand, a report today detailed how year to date inflows to the GLD have already surpassed outflows for all of 2015. Third, spot prices are approaching a significant technical signal, a bullish crossover of the 200 day moving average by the 50 day moving average, the golden cross. Fourth, low expectation for additional or aggressive FOMC rate hiking it putting pressure on the dollar. Resistance is at $1250 as evidenced by yesterday's action, aA break above resistance, could easily attract momentum players (and short covering, don't forget about the Goldman Sachs call to short gold) and send prices up to $1300.

The miners moved higher in today's action, the Gold Miners ETF GDX gaining about 1.5%. The move may be loosing steam in the near term, momentum is waning, but the strength of the rally and extreme peak in MACD suggests a pullback will be another entry point for the bulls. The ETF is trading near the mid point of two support/resistance targets, $18 to the downside and $20.50 to the upside, leaving plenty of room for the sector to move up or down before hitting strong support or resistance.


In The News, Story Stocks and Earnings

The Dollar Index is caught in an incredibly narrow range between resistance and support while the market waits on economic data. Support is the 30 day moving average, resistance is just above the moving average, at the 38.8% retracement level near $97.50. Strong data will likely increase the expectations for a rate hike and strengthen the dollar, weak data the opposite. At this time the Fed Funds Futures are predicting the chance of a March hike at 6%, not very high, but this could change quickly if the data is better than expected.


Domino's Pizza released earnings before the bell and confirmed their dominance in the global pizza delivery business. The company beat on the top and bottom lines driven by strong comp store sales domestically and abroad, as well as a growing store count. US comp sales rose 10.7% for the 4th quarter, 12% for the year. International comp store sales rose 8.6% extending the trend of consecutive quarters of positive comp growth to 22 years. Aiding the results, and setting them up for yet another strong year, was the addition of 901 new location in 2015. Shares of the stock jumped on the news, gaining more than 13% on 5 times average daily volume.


Shares of Williams Cos and Energy Transfer Equity were halted briefly this afternoon when a report hit the wires that the latter was trying to pull out of a deal to acquire the former. According to the NY Times report ETE has considered offering a $2 billion payment to Williams Cos to back away from the deal, which has lost significant value in the 5 months since it was closed. Williams Cos fell more than -10% on the news, triggering circuit breakers, while ETE briefly surged higher. Both companies closed the day with a loss but off of the lowest levels of the day.


Weight Watchers reported earnings after the bell, disappointing investors. Although the company says the partnership with Oprah is progressing nicely earnings came in at -$0.03, $0.05 below consensus. Guidance is also on the weak side and helped to send the stock down by nearly -20% in after hours trading.


The Indices

The day began rather quietly, the indices opened flat and traded flat for more than half the day. By early afternoon things had changed dramatically, rising oil prices helped the bulls gain control and send the indices up by 1% or more. Today's leader was the Dow Jones Industrial Average which gained 1.29% to close at the highest levels in nearly 2 months. Today's action created a long white candle that broke above the 16,600 resistance level with bullish indicators. Both MACD and stochastic are pointing higher with today's action suggesting a move to next resistance at 17,000.


The S&P 500 was the next biggest gainer in today's session, adding 1.14%. The broad market created a long white candle moving up from the short term moving average and broke the 1950 resistance line. The move looks bullish and the indicators are confirming so a move up to next resistance near 1980 looks likely.


The Dow Jones Transportation Average made the third largest gain today's session and is the only of the four major indices not to make a new high. The transports gained 1.08% and appear to be on the way to retest the 7 week high set on Monday. Momentum remains strongly bullish, although it is also waning, and stochastic has begun to show some strength with a cross of the upper signal line. Upside target here is at least 7,500 as indicated by the most recent peak in the MACD. This peak is convergent with the index high and a long term extreme, indicative of a retest of the high if not higher prices.


The NASDAQ Composite brings up the rear in today's action with a gain of only 0.87%. The tech heavy index moved up after testing support at 4,535 and the short term moving average to set a new one month high. Along with the index high is a new high in the MACD, an extreme peak, that suggests growing momentum and higher index prices. Stochastic is also moving higher although it is still near the middle of its range. Next upside target is near 4,635 with a possible move to 4,750.


The market wants to move higher and has some fairly strong momentum behind it. Based on the charts it looks like they will continue to move higher in the near term at least, although there are some risks present.

The first is that today's rally was based largely if not entirely on the move in oil prices, a move sparked by the suggestion of a meeting to curb production and not an actual change in fundamentals. The news could turn out to be real, there could be an actual meeting and production could be curbed but until it happens is little more than rumor. Oil prices could just as easily give up today's gains as build on them, and just as easily sand bag the equities market.

Another risk is the data, and the FOMC. There is a lot of data due out over the next week including tomorrows release of GDP. It's hard to say how the market will react but I think it safe to say that if it is too strong the specter of higher interest rates will reemerge to weigh the market down.

I'm hopeful, still bullish, but also still very cautious. No matter what happens with oil, the data or the FOMC I still think it is earnings we need to be worried about and we have yet to see an uptick in expectations.

Until then, remember the trend!

Thomas Hughes