Introduction

The market churned near recent highs for another day as it digests central bank news, earnings, economic data and waits for more of each. It's been a full week of data, earnings and central bank news and today was no different. Today is the single busiest day of the earnings season with 65 S&P 500 companies reporting. So far the season is about as expected, bad but not as bad as expected, and that did not change today. Lots of reports, lots of beats and lots of year over year decline.

The FOMC meeting was a non-event it seems, their stance that a rate hike is coming but not just yet is nothing we haven't heard before. Now focus is turned to the BOJ which is expected to produce some form of QE, but maybe less than the market was first hoping for.

Asian indices were mostly flat as traders wait on the BOJ. The bank is expected to match Shinzo Abe's batch of stimulus measures with a small rate hike and an increase in purchases but both are little more than token amounts. The Nikkei led with a decline of -1.13%, driven by a strengthening of the yen. European indices were choppy and flat, earnings and central banks the biggest headlines from the region, closing with losses in the range of -.25%.

Market Statistics

Futures trading indicated a mildly negative open all morning. Neither earnings nor economic data could move the needle, leaving them slightly negative at the opening bell. After the open trading was choppy, the indices fell hard in the first 15 minutes, bounced back to test break even and then proceeded to drift slowly lower from there until retesting the earlier low by 11:15AM. A brief consolidation at the low resulted in another bounce that took the indices back to test the high of the day by 2PM, and then to new highs going into the late afternoon.

Economic Calendar

The Economy

Jobless claims was the only data on the schedule today. Initial claims rose by 16,000 from a -1,000 downward revision to last week's number to hit 266,000. This is the 73rd week of claims below 300,000, and the 4th month of claims trending near the 43 year low. The 4 week moving average of claims fell by -1,000 and is now 256,000. On a not adjusted basis claims fell by -13.8% from last week, the seasonal factors had expected a drop of -18.3%. This week's not adjusted claims are flat to last year, once again erasing the gap in YOY claims and suggesting claims have reached a point at which they are as good as they are going to get. Even so, at these levels initial claims are consistent with labor market health.


Continuing claims rose by 7,000, on top of an upward revision of 4,000, to hit 2.139 million. The 4 week moving average fell by -7,000 to hit 2.135 million. These numbers are consistent with the 3 month trend of claims just above the long term low and ongoing labor market health.

Total claims rose by 129,201 to hit 2.197 million. The gain itself is not surprising but the size of it is. Even so, this week's data is consistent with historical trends and not overly concerning. On a year over year basis total claims are down -4.5%, near long term lows, and consistent with overall labor market health. We can expect to see this figure continue to drift higher over the next 2 to 3 weeks before turning lower once again.


Tomorrow the big headline in economic data will be GDP. The 1st estimate for 2nd quarter GDP is expected out at 8:30AM and the expectations are for 2.5%. Also on tap are Chicago PMI and Michigan Sentiment. Next week is the turn of the month so will be data heavy, ADP, NFP, Unemployment etc.

The Dollar Index

Between the Fed's completely benign policy statement and shifting BOJ outlook the dollar weakened. Today the Dollar Index fell nearly a full percent to test support along the short term moving average, just below the $96.60 target support, and may go lower. If the BOJ doesn't deliver at least as expected the yen is likely to strengthen and this will weigh on the dollar. A break below the moving average will be bearish and could take it down to $95.60 or next target near $94.30. The indicators are consistent with a drop to support and pointing lower so I expect to see $95.60 tested again at least.


The Oil Index

Oil prices fell again today as production and supply overshadow expectations of market rebalancing. WTI fell more than -1.5% and has now entered bear market territory, down more than -20% from its high set earlier this year. Next target is near $40 and that may be hit very soon, a break below this level could send prices plunging back to $35 and if so, would derail hopes of earnings rebound in the sector. The flipside is that gasoline prices are falling back to their lows too, a small boost for the consumer.

The oil sector is slipping on oil prices, the Oil Index falling to a 1 month low. The index fell slightly more than -0.25%, creating a small spinning top doji, to dip tentatively below the 1,100 level. This level is the first target for support along the bottom of the near term trading range, if it does not hold a move down to 1,075 or lower is likely. Extreme low for the range is 1067, so long as that levels hold the range should remain intact. Of course, oil prices may continue to fall and if so could send the index crashing through support.


The Gold Index

Gold prices got a boost from the FOMC if nothing else did. Falling dollar values helped to support gold, lifting spot prices by 1% intraday. Prices are now moving higher, up from support, within the 30 day range above $1300, and look like they could go up to $1375 or so. There are at least two possible catalysts tomorrow, the BOJ and GDP data both have the power to weaken the dollar and support gold.

The miners are rebounding along with gold, up nearly across the board in today's session. The Gold Miners ETF GDX however fell, shedding roughly -1.75% in a move that confirms resistance is present at the $30 level. This level is equal to the tip of a failed flag pattern and could prove to be strong. However, with gold prices on the rise it is likely the ETF will move higher along with it. A break above resistance at $30 level would be bullish and could lead to further upside. Based on MACD peak analysis momentum is convergent with the uptrend so a test of the most recent high, near $30.65, is likely at least.


In The News, Story Stocks and Earnings

Ford shocked the market this morning with its earnings report and may indicate a broader problem in the auto industry and other businesses. The company beat revenue expectations but fell short on the earnings side. Revenue grew year over year, earnings fell, driven by rising costs but the real bad news was expected impact of the Brexit. Company execs expect to see the Brexit cost them $1.2 billion over the next 2 years, news that sent share prices tumbling nearly -10%.


Harley Davidson beat on the top and bottom line but gave cautious guidance. EPS grew 7.6% over last year but slower than expected US sales led them to lower the 2016 delivery guidance. Worldwide sales were down nearly -2%. Softness in the US market and global economic uncertainty were cited several times in the report. Share of the stock fell -5% in the pre-opening session but regained all of the loss and more during the day.


After hours reports from Alphabet and Amazon hit the market with mixed results. Both companies beat expectations top and bottom lines but only shares of Alphabet moved higher. Shares of Amazon fell -3% on a 31% increase in net year over year quarterly sales and guidance for similar next quarter. Shares of Alphabet gained more than 3% on a 21.3% year over year gain in revenue that allays fear of slowing growth.


CBS beat top and bottom, CEO Les Moonves says the core business is strong. Along with the report comes a 20% increase to the dividend and an additional $5 billion to the share buy back program. Shares were mostly flat in after hours trading.


The Indices

Today's session was choppy, indices held within tight trading ranges but were able to close at or near the highs of the day. The session leader was the NASDAQ Composite, driven by gains in Apple and Facebook who reported earnings earlier this week, and by Amazon and Google who reported after the bell today. The tech heavy index was able to close with a gain of 0.30% and set a new 8 month high although it remains more than -1.2% below its all time high. Today's action extends the earnings driven, post Brexit, rally and looks set to drift higher although the indicators continue to weaken. Near term upside target is near 5,200 although tomorrow may see more churn if today's after hours earnings reports are any clue.


The second best performing index in today's session was the S&P 500. The broad market gained just over 0.15% and created a small white bodied candle within the 8 day range. Price action over the past 2 weeks has been weak but holding near the new all time high and may continue to drift higher. The caveat is that MACD momentum has fallen to 0 and crossing over while stochastic is high in the overbought range, an indication of weakness in the market and potential correction. A break to another new all-time high would be bullish, if the index pulls back from the current the high first target for support is near 2,120


The Dow Jones Transportation Average posted the smallest gain, only 0.03%, creating a very small spinning top doji testing support at the short term moving average. Today's move extends the fall from resistance begun earlier in the week and looks set to pull back to test it again. The index is probably range bound, resistance now at 8,000, and support somewhere below. The indicators are consistent with a move lower or test of support, MACD is crossing 0 today confirming a strong bearish crossover in stochastic. First target for support is the short term moving average near 7,750, next is near 7,500, but 7,750 is the important one for tomorrow.


The Dow Jones Industrial brings up the rear in today's action, posting a loss of -0.09%. Today's candle is a small doji spinning top, one in a series, suggestive of indecision in the market. Price action has pulled back from the recently set all time but is above near term support targets near 18,250. The uptrend could continue but near term indications point to a test of support. MACD momentum turned negative today and is accompanied by a rapidly fading stochastic, consistent with a tired bull and possible correction. First target is the short term moving average, about -1% below today's close, near 18,250, with 18,000 as next target should that fail.


The market looks confused. The broad market surged to new high driven on good news and relief, now that the good news has faded it's time to decide what to do next and the available information is not too promising. The Brexit is still an unknown, global growth is slow, earnings are mixed with negative year over year growth predominant, economic data is sketchy and anFOMC rate hike is still lurking in the shadows.. These may be bricks in the wall of worry and if so that's great, the market will keep on drifting higher.

The major indices are set up for a pull back or correction. The indicators are pointing to a test of support that may be nothing more than ongoing consolidation at current levels. They may indicate a consolidation that could last up to 5 weeks, until the end of the summer season. The risk is that consolidation will turn into correction. Looking at a longer term chart doesn't help this view. The weekly view of the S&P 500 shows glaring divergences that make the market look frothy, extended and vulnerable.


First and foremost in my mind, Q3 earnings growth is coming into question. We may be coming out of the earnings recession but it is possible negative growth will persist one more quarter. If so, it will likely weigh on sentiment and possibly cause a shift in the market as managers adjust portfolio's to accommodate. Another concern is oil prices, they had been supporting the rally. Now that oil prices are falling that support is gone. With market support so questionable in the near term I remain very cautious, suspicious of correction. Longer term I am bullish and think any such correction or consolidation, subject to earnings outlook, will be an entry for longer term bullish positions.

Until then, remember the trend!

Thomas Hughes