Introduction

The FOMC hiked as expected, was a little on the hawkish side as expected, and the market shook it off. Today's action recovered much of yesterday's losses, leaves the indices trading just below freshly set all time highs and has paved the way for Santa's rally to hit Wall Street. Supporting the move was a raft of better than expected economic data, and a substantial increase in forward outlook in manufacturing and housing markets.

Asian indices fell in the overnight session. The US decline, the rate hike, the outlook, the dollar strength all helping to depress prices. Losses were in the range of -1% although one index, the Nikkei, was able to eke out a small gain, about 0.1%. European markets were more cheered by yesterday's news. The FOMC, the rate hike, dollar strength all led to a surge in banking stocks that lifted the entire region by roughly 1%. The euro lost more than -1% versus the dollar bringing it a step closer to parity, maybe it'll get there this time.

Market Statistics

Futures trading was a bit mixed this morning, a little up down and sideways but generally around or just under break even levels. New and data did not seem to have much effect. At the opening bell the indices moved immediately higher and continued to drift higher for the first few hours of the day. Highs were set near lunch time, about +0.65% for the SPX, and then the market began to pull back. The retreat was slow to begin with, cutting the days gains by a third within about an hour of hitting the high. This level held for a few hours until just before 2PM when the retreat began to pick up speed. At this time the days gains were cut to just under half, about +0.25% for the SPX, where some early evidence of support began to kick in. Support held and from that point the indices trend sideways into the close.

Economic Calendar

The Economy

Lots of economic data and lots of surprises, all nicely positive. First up is jobless claims, initial jobless claims fell -4,000 from last week's not revised figure to hit 254,000. This is the 93rd week of claims below 300K and the 44th week of claims trending near 250K. The four week moving of claims rose, adding 5,250 to hit 257,000. On a not adjusted basis claims fell -13.5% versus an expected decline of -12.2%. On a year over year basis not adjust claims are down -2.6%. New York led with a decline of -15,000 new claims.


Continuing claims gained 11,000 from last weeks upward revision of 2,000 to hit 2.018 million. The four week moving average of claims gained 8,750 to hit 2.038 million, both numbers are just off their long term 43 year lows. Despite some recent volatility in claims this figure remains fairly stable around the 2.05 million mark and historic lows, consistent with labor market health.

The total number of Americans claiming unemployment jumped by 331,537, shy of my estimated 500,000. Regardless, the figure remains consistent with seasonal trends, long term improvements and overall health in the labor market. On a year over year basis total claims are down -10%. Over the next few weeks we can expect to see claims hover near today's level and then spike up to the seasonal high which should be somewhere near 2.75 million. After that claims should fall off into the spring and ealy summer.


The Consumer Price Index came in as expected, +0.2% on the headline and the core, month to month. On a year over year basis headline, not adjusted, CPI is running 1.7% and 2.1% ex-food and energy. Shelter and gas lead the increases, up +0.2% and +2.7% respectively, while food remains unchanged. While this increase is mild year over year inflation is running at/near the Fed's target and with PPI running on the hot side we could see this figure begin to rise in the near future.


There were two regional Fed business survey's released before the opening bell; the Philly Fed MBOS and the Empire State Manufacturing survey, both stronger than expected. The Philly Fed MBOS jumped 13.9 points to hit 21.5, the 5 month of positive reading and the highest level in over 2 years. Within the report New Order declined -5 but remains positive at 13.9, Shipment gained 3 to hit 22, Inventories turned positive and show growth, Unfilled Orders was positive for the 2nd month in a row and Employment rose for the 2nd month to turn positive for the 1st time in 12 months. On top of all that the 6 month forward outlook jumped 29.3 points to hit 52.6, also a 2 year high.


The Empire State Manufacturing Survey is slightly less robust but nonetheless positive and better than expected. The headline jumped 8 to 9.0, New Orders climbed 8 to hit 11.4, Shipments were unchanged at 8.5 and Unfilled Orders rose to 10.7. On the negative side Labor and Inventories both fell. Looking forward the 6 month outlook jumped 20 to hit 50.2.


The NAHB Housing Market Index was released at 10AM and help to send the market up to its intra-day highs. The headline number jumped 7 points on a month to month basis to hit 70, the highest level in over a year. On a year over year basis this month's reading is +10 or +16.6% higher than last year at this time. All regions saw increases with strength in the Northeast and the West. Single family homes sales came in at 76, up 7, the 6 month outlook came in at 78, up 7, and traffic of prospective buyers came in at 53, up 6 and the first positive reading in over a year.

The Dollar Index

The dollar, it got stronger today. The domino's have fallen into place; the Fed met expectations with a rate hike, the Fed upped their rate hike time line for 2017 and economic data remains positive and trending stronger. With all this in place the risks to the dollar and its rise are hiccups in economic recovery, strength in global economies and possible tightening by foreign central bankers. Until then the trend in the Dollar Index is up and looks strong, how high it goes is the question now. Today the index gained more than 1.5%, creating a long strong white candle, to hit a new high. And the move is confirmed by the indicators. Both MACD and stochastic are firing bullish signals within an uptrend, the stochastic qualifying as a strong signal (both %K and %D are pointing higher after %K dipped down in tandem with a test for support), and consistent with continuation. Upside targets are $103.50 in the near terms and $105 in the short to long.


The Oil Index

Oil prices are under pressure even as hopes the OPEC/Russia deal will rebalance the market. Today dollar strength helped to depress prices as traders try to balance the possibilities that OPEC will or will not be able to reduce overall supply and support the oil market. WTI closed today's session at a price of $50.85 with a loss near -0.40%.

The Oil Index managed to close with a gain today but action was not overly bullish. The index opened with a loss, gapping lower, and then moved up throughout the day to create a white bodied candle. While not a confirmation, it is a move lower following three days of action that could be a blow-off top. The indicators are bullish but also consistent with a peak and test for support so there could easily be more downside ahead. Support target is near 1,250, a break below here would have a next target near the short term moving average in the range of 1,225. All this of course dependent on oil prices, and how those prices affect earnings outlook. Longer term I am bullish on this sector based on earnings growth outlook but I expect there could be some volatility driven by oil prices/sentiment up to and until earnings growth becomes a reality.


The Gold Index

Stronger dollar, hawkish Fed, Gold is falling, that about sums it up. Spot gold fell $30 or -2.5% in today's session to break below my $1,150 support target and trade near the $1,130 level. The move looks pretty strong, in continuation of the short term down trends and supported by forward outlook, with downside targets near $1,100 in the near term and possibly lower. Now that we're below $1,150 a chance to retrace back to the long term low near $1,050 is a real possibility.

The Gold Miners ETF GDX has broken out of its multi-month trading range and consolidation. To the downside, in line with the prevailing short term trend. The ETF fell more than -4.5%, breaking below support at the 61.8% retracement level, and is heading lower. The indicators are consistent with a sell within a down trend, any rebounds or signs of strength are likely selling opportunities. Next downside target is $16.50, the 78.6% retracement level, in the near to short term with a full retracement back to the long term low near $12.50 highly likely.


In The News, Story Stocks and Earnings

Yahoo! it's execs, investors and board members were not yelling yahoo this morning. The company revealed another hack, this one affecting over a million users and under investigation by the FBI, and has thrown its takeover by Verizon into question. The news is completely unrelated to the previously disclosed hack and calls into question, once again, what is Yahoo! good for? Shares of the stock fell nearly -6% on the news to trade at 4 month low.


The Home Builder sold off despite the strong housing data. The XHB Home Builders SPDR fell more than -1.0% and created a large black candle with long upper shadow. This is the second such candle in a row and reveals a hard fought battle between bulls and bears in which the bears appear to be winning. The ETF is retreating from a long term resistance area, near $36, and this move is supported by the indicators. The indicators are bullish but in retreat and showing wicked divergence, consistent with a fall from resistance and potential for correction. Support target is near $34 and the short term moving average, a break below here would be more bearish and could lead to a move down to $33. Thinking about the housing market, we are entering the seasonally slow period so there could be some sideways movement/consolidation going into the winter and spring while we wait to see if there is any follow through on the recent round of strong housing data.


The VIX fell about -3.0% but flat over the past few days, holding steady just below the short term moving average. The index is trading near 12.50 and levels consistent with market calm if not rally. The indicators have turned bullish but look tentative, as if the market is not sure where it is going to go from here. A move above the moving average is likely bullish for the index, bearish for the SPX, with an upside target near 15 and then 17. A move lower would be consistent with rally with a target near the long term lows around 11.25. Now, tomorrow is Quadruple Witching Day and the option expiration immediately after a heavily speculated FOMC meeting so there is a chance for some volatility; intra-day action may not be indicative of the index closing price or overall market direction for the SPX, just be warned.


The Indices

The indices tried to rally but just couldn't sustain the gains. Despite late day weakness today's action is still more bullish than bearish, above near term support and consistent with a near term consolidation. Action was led by the Dow Jones Transportation Average which closed with a gain of 0.44%. The transports created a small, weak, tombstone doji which is often seen at the bottom of a down trend and confirming support. The indicators are consistent with a test of support and suggest that it may continue tomorrow, support being 9,250 or thereabouts (previous all time high). A break below this level would be bearish in the near term and could take the index down to 9,000 and the short term moving average. The near term trend remains up at this time.


The S&P 500 made the 2nd largest gain in today's session, 0.39%. The broad market created a small bodied white candle with long upper shadow, evidence of resistance to higher prices but also indicative of support at the 2,250 level. The indicators are a bit mixed but generally bullish and rolling into a possible buy signal within an uptrend. The caveat is that the indicators could remain mixed so confirmation is required. A move below support may go as low as 2,150 in the near term, a move up from support may find resistance at the current all time high, a break above that would signal a continuation of the up trend.


The tech heavy NASDAQ Composite comes in third today with a gain of 0.39%. The index created a small bodied white candle with longish upper shadow that came very close to touching the freshly set all time high. Today's action is weak and mild considering how far the index has come over the past few weeks and is consistent with the formation of a flag within a rally. The indicators are showing unconfirmed divergence, a red flag, but otherwise are bullish with stochastic firing a trend following buy signal, consistent with the continuation of an uptrend. Support is near 5,400, resistance is the all time high, a break above here would be bullish.


The Dow Jones Industrial Average brings up the rear with a gain of 0.30%. The blue chips created a small bodied white candle with visible upper shadow sitting just below the fresh all time high. The index appears to have hit a peak within an uptrend and the indicators are consistent with this. Both MACD and stochastic are showing near term weakness along with divergence from current highs that suggest consolidation or correction. Near term support is near 19,750 and yesterday's low, a break below here could take the index down to 19,500 or 19,000 with a quickness. A move higher would be consistent with the prevailing trend.


The indices rebound from yesterday's Fed induced sell-off, maintaining the integrity of near term trends. They appear to have entered a consolidation that could perhaps become the signal that near term trends will continue on into the short term. There are some risks, one of them is tomorrow's expiration day, but we're back to where economic data and outlook, and earnings outlook, are more important than the Fed and both of those are positive. The possibility of pull back remains, the charts look good but the indications are mixed, so I am cautious but remain bullish. If a pull back doesn't appear, if there is no dip to buy on, if yesterday's sell-off is all we get and the Santa Rally keeps on ho ho hoing up to new highs, I may have to pull the trigger on a second entry.

Until then, remember the trend!

Thomas Hughes