Introduction

The FOMC did not raise rates but weakened growth outlook, poor earnings expectations and fear of Brexit continue to weigh on the market. Today's action was volatile, an early plunge in equities was reversed later in the day but likely due to tomorrow's OPEX rather than true market support. While the FOMC's decision to hold rates steady may be seen as a positive it is also a negative as it shows a lack of confidence in the economy, further evidenced by their lowered outlook for 2017 and 2018.

Global markets were not happy with the FOMC statements, among other issues. Asian indices fell, led by the Nikkei's -3.0%, on poor growth outlook and the BOJ's decision to hold rates steady. Their decision, aided by the dovish Fed, caused the yen to strengthen and further eroded confidence in Abenomics. In Europe the combined effect of the FOMC and BOJ meetings, along with Brexit concerns, also caused selling. The EU indices fell nearly -2% intraday but were able to regain most of the losses before the close of the session.

Market Statistics

Futures trading indicated a lower opening from the earliest portion of the electronic session. The indications were for an open nearly -1% from yesterday's close and this did not change much throughout the morning. Economic data released in the pre-opening hours continues to show weak growth, slowly rising inflation and positive outlook but little to spark a rally. After the open the indices drifted lower for the first hour or so, hitting morning lows a little more than -1% below yesterday's close. By 10:40AM they had hit bottom and began a steady rise that eventually regained all of the early losses. By 3PM most indices were trading in positive territory and were able to hold those levels into the close of the session.

Economic Calendar

The Economy

Today's data was mixed and did little to alter outlook; growth is slow, inflation is low and while forward outlook is for growth, it too is faltering. First up is jobless claims. Initial claims gained 13,000 this week to hit 277,000. This is the 67th week for claims to come in below 300,000. Last week's figure was not revised. The four week moving average of claims rose by 250 to hit 269,250. On a not adjusted basis claims rose 14.5% versus an expected gain of only 9.3% and are no 2.9% above last years level in the comparable period. Despite the rise adjusted claims remain low relative to the economic recovery, near the long term lows and consistent with labor market health. The fact that not adjusted claims keeps bobbing along at or near last years levels suggest that perhaps we've reached the end of recovery and the labor market has reached a point of equilibrium.


Continuing claims also rose this week, gaining 45,000 to hit 2.157 million. Last week's figure was revised upward by 17,000, the four week moving average gained 1,000 to hit 2.150 million. Despite the rise continuing claims remain consistent with labor market health and trending near the long term lows. The risk I see now is, taking into account the weak NFP and sluggish growth, is for claims to begin reversing so we will need to keep a close eye on them over the next couple of months.

The total number of claims fell by -34,678 to hit 1.981, the first time they have been below 2 million since last fall. The fall to this level is expected, based on seasonal and long term trends, but is fast approaching an expected seasonal bottom. Beginning in the next 2-3 weeks we should see this figure begin to rise with a projected peak in late July early August near 2.25 million. Regardless, the total claims figures remain consistent with labor market health and are very near the long term low. This week's figure is -7.5% lower than last year at this time.


CPI data was also released this morning before the bell. The headline all-inclusive number was +0.2%, slightly below forecast and half of the number reported last month. Headline CPI is up 1% over last year. At the core level, ex food and energy, inflation rose 0.2% last month, in line with expectations and equal to the previous months increase. Core CPI is up +2.2% over the past 12 months. The food index fell -0.2%, the energy index rose 1.2% led by a 2.3% advance in the gasoline index.


The Philadelphia Fed Business Outlook survey gained 7 points to hit 4.7, much better than the expected 0.7 and the previous month's -1.8. However, even with the beat the data within the report is not to promising. The employment index fell more than 6 points to hit -10.9, the 6th month of negative readings. New Orders fell 1 point and remain in negative territory, shipments fell -2 points and are also in negative territory as are unfilled orders. The 6 month forward outlook remains positive but slipped -6.3 points, the second month of decline, to hit 29.8.


The National Association Of Home Builders released the Index of Home Builder Sentiment at 10AM. The index rose 2 points from last month to hit 60 after holding steady at 58 the previous 4 months. Present conditions gained 1 point to hit 64, the 6 month outlook gained 5 points to hit 70 and traffic rose 3 points to reach 47. All readings are within their respective 12 month ranges.

The Dollar Index

The Dollar Index went on a wild ride, first up a little more than a half percent, then down about a half percent and then back up to close near the open of the day. The FOMC decision and increased dovishness, along with the BOJ's strengthening of the yen, weakened the dollar while at the same time Brexit fears helped to strengthen it. The tug of war between bulls and bears created a long legged doji with a close below the short term moving average. At face value it seems as the dollar should weaken from here but the Brexit remains a wild card, as do the ECB and BOJ which are both expected to make some form of additional QE in the coming months. The index is currently trading near $94.60, between the resistance of the short term moving average and the support of the 78.6% retracement line. A break beyond either line would be significant following today's doji candle and could lead to further movemet in the direction of the break.


The Oil Index

Oil prices fell again today as demand outlook was hurt by Brexit fears and lower growth outlook. At the same time supply concerns are heightened due to rising rig counts, high global production and yesterday's weak draw down of US stockpiles. WTI fell more than -4% to close near the $46 level and a one month low. Prices may continue to fall until one or both of two things happen; demand outlook stabilizes/rises and production comes in-line with demand. First target for support is around $45.

The Oil Index fell to a one month low in a move that tested support at the 1,100 level. Today's candle s not overly large but comes with a long lower shadow in evidence of support. The 1,100 and slightly below has been the bottom of a 6 week trading range and may continue to support prices.The indicators are pointing lower but very weak, consistent with a trading range and test of support along the bottom of that range. If the index breaks below 1,100 a move to 1,050 looks likely.


The Gold Index

Gold, wow, made a 2% jump this morning to trade at a +2 year high near the $1320 mark on dovish Fed statements. This move was amplified by the BOJ policy stance which further weakened the dollar but was not able to hold the gains. By late day gold had reversed the move and retreated back below resistance at the $1,290 level creating a very distinctive shooting star type candle. Today's candle and the failure to close above resistance levels is alarming and may indicate an end to further rally in gold. First target for support should it continue to fall is near $1250.

The gold miners had a wild ride today as well, first rising on the move in gold and then later falling under the pressure of profit takers. The Gold Miners ETF GDX gapped up at the open, above the $26.70 resistance target, only to fall from that level and close near the low of the day. The index has created another very ominous dark cloud cover candlestick and does not appear as if it will be able to move higher. The indicators remain mixed; momentum is bullish but declining, stochastic is moving higher but showing a bearish crossover and sign of rolling over at/near the upper signal line. A fall from this level may find support near $25, or just below that near the short term moving average, with a drop below these levels possibly going as low as $22.50.


In The News, Story Stocks and Earnings

The battle for control of Viacom rages on. Today the holding company through which Sumner Redstone controls the company ousted 5 directors including CEO and long time friend Phillipe P. Dauman. The board responded by filing charges against the company claiming that his, Redstone's, daughter is behind the decision and working to fulfill her own agenda. Sumner issued a statement through a spokesperson stating to the effect he was disappointed in the handling of Viacom and the 40% decline in value seen over the past year. Shares of Viacom gained nearly 5% in today's session in a strong move up from the short term moving average.


Earnings season is getting underway although the unofficial kick-off is not for another 4 weeks. Oracle reported after the bell, beating revenue expectations with earnings in-line with expectations. Cloud services, SAAS and PAAS all beat expectations while a -12% decline in software licensing offset those gains. In the statement Larry Ellison says the company expects "hyper growth" in the cloud, SAAS and PAAS businesses to continue into the foreseeable future. Shares of Oracle gained more than 3% in after hours trading after drifting marginally higher during the open session.


Smith&Wesson also reported after the bell, producing top and bottom line beats on strong sales. The company reported EPS of $0.66 versus an expected $0.54 and also raised guidance. Sales in the quarter were up more than 20% along with a 450 BPS increase in gross margins. Shares of the stock jumped more than 7% on the news to regain the upper side of potential resistance and the short term moving average.


The Indices

The indices began the day in free-fall but were able to bounce from support. The bounce did not take them very high, but high enough to reverse all of the early loss and all of yesterday's. Today's move was led by the Dow Jones Industrial Average which closed with a gain of 0.53%. The blue chips bounced from the 17,500 level, just above the long term trend line, creating a small bodied white candle with long lower shadow indicative of support. While at once a positive sign of support along the trend line, the move also failed to cross the short term moving average which could provide resistance tomorrow and next week. The indicators are pointing lower, if weakly, and suggest support will be tested again.


Runner up in today's action is the S&P 500. The broad market gained 0.31% and created a small white candle with longish lower shadow. The shadow is indicative of support, and bounce from support, at the 2,050 level. This level may prove to be strong but declining indicators suggest it will be tested again. If the bounce begun today is able to push higher tomorrow first target for resistance is just above today's closing level at the short term moving average. A fall below 2,050 would be bearish for the near term and could take the index down to 2,020 or lower.


Next runner up in today's session is the NASDAQ Composite with a gain of 0.21%. The tech heavy index also created a small bodied white candle with long lower shadow, bouncing from support levels near 4,790. The move did not quite make it up to the short term moving average which is the first likely area of resistance should the bounce continue. The indicators pointing lower and suggest further testing of support is likely. If support is broken a move down to 4,600 looks likely. A break above the short term moving average would be bullish and could go as high as 4,950 before meeting next possible resistance.


The Dow Jones Transportation Average was the only major index to not move into positive territory with today's bounce. The transports created a small doji, possibly a hammer, after testing support at 7,500 and the bottom of the 3.5 month trading range. Today's action may indicate a continuation of the range but the indicators are still pointing lower so further testing of support is likely. A break below this range would be bearish and could take it down to 7,000 or lower.


The market staged a nice rebound from today's low but I am not quite convinced. The FOMC may have relieved fear of rising interest rates but they also raised fear of slow, slower and slowing growth that give very little reason to believe current earnings projections for the coming quarters and next year will stand.

The nearest worry for the market now is the Brexit. This may prove to be a non-event for the market but until it passes is certainly something to be wary of. If they exit it could spark a major rally in the dollar, yen and gold. If they don't it may be the balm the market needs to soothe fears and move higher.

I am still very wary of the coming earnings cycle. Today's reports were nice and suggest the aggregate will be better than expected. If so that will be great, I've been waiting for some positive revision to outlook and rising forward expectations. If not the market will have very little reason to rally. I am still cautious in the near term, anticipating possible correction and waiting for the next signal to rally.

Don't forget, tomorrow is OPEX and will likely cause some volatility.

Until then, remember the trend!

Thomas Hughes