Introduction

Indices fell in the wake of Trump's 1st press conference post-election. Whether or not this is the onset of a deeper correction or just another of news driven volatility is yet to be seen. We've still a number of major catalysts at hand including earnings season, the ECB, the inauguration and the FOMC so I'm leaning toward the idea today's action is day to day news driven volatility and not the start of correction, at least not yet. The specific reason for today's slump, a lack of fiscal clarity in yesterday's press conference, could be easily rectified by Tweet at any time and likely clarified as early as minutes post-inauguration.

International markets sold off on the Trump press conference too. Asian indices were led lower by the Nikkei which lost nearly -1.25%, a stronger yen, another result of yesterday's presser, adding downward pressure to Japanese equities. European markets started the day in negative territory if barely, and then fell further on cues from our own. The DAX was one of the days biggest losers, closing with a loss slightly greater than -1% after hovering near break even for most of the early part of the day.

Market Statistics

Futures trading was relatively flat all morning, if in the red. The indices were indicated to open with losses in the range of -0.25% and that held into the open of trading. There was a little bit of data, jobless claims and import/export prices, but neither piece was enough to move the market. The open was a little hectic, the indices opened with losses as indicated and then proceeded to sell-off into the morning. The SPX hit it's low just after 11AM, slightly more than -21 points below yesterday's close and at the support of a long term up trend line, confirmed by the short term 30 day moving average, where it began a bounce that had, by the close, recovered nearly all of the day's losses.

Economic Calendar

The Economy

Initial jobless claims rose a less than expected 10,000, in addition to an upward revision of 2,000, to hit 247,000 in this week's data. The 4 week moving average of claims fell -1,750 to hit 256,000. This is the 97th week of claims below 300K, the longest streak since 1970. On a not adjusted basis claims rose by 16.9% versus an expected 12.2% but the numbers continue to diverge from last years data. YOY not adjusted claims are now -18.4% below last years levels and present a couple of possibilities. The first is that this year's data isn't tracking exactly in line in a day to day year over year comparisons and will soon catch up with last years spike in claims. The second is that the labor market has made a substantial improvement over last year, at least in terms of post-holiday labor force reductions.


Continuing claims fell -29,000 to hit 2.087 million, last week's figures were revised higher by 4,000, and the four week moving average of claims rose by 1,650. The recent rise in continuing claims has begun to subside but remains near 3 month highs. Despite this rise claims remain low relative to the long term trends and consistent with labor market health.

The total number of Americans claiming unemployment has begun to spike, as expected. This week's data, for the period ending 12/24, saw claims rise by 140,578 to hit 2.294 and a 10 month high. This spike in claims needs to be monitored but so far is as expected, in line with seasonal and long term trends. Based on the historical data we can expect to see claims spike again next week, possibly as high as 2.75 million, and then begin to subside going into the spring. If the data skews from expectation it'll be time to take a deeper look to see what may be happening. In related news Amazon and Taco Bell each announced today the intent to create 100,000 new jobs in the coming years.


Import/Export Prices data was released at 8:30AM, both rising on a month to month and year over year basis. Import prices are up 0.4% the November to December period and 1.8% year over year. Export prices are up 0.3% month to month and 1.1% year over year. Rising fuel prices drove the gains in import prices, non-agricultural goods the rise in export prices.


The Dollar Index

The dollar fell today on an absence of news pertaining to Trump's plan for the economy. The Dollar Index shed a little more than -1% intraday, falling below the short term moving average and the near term trading range to approach support targets near $100.50. The index was able to bounce back from the lows, confirming support at the previous long term high, but may test those lows again in the near term. Near term action is driven by a lack of news and a cooling of expectations, this leaves the index ripe for rally in the event of positive data, Trumponomic developments, ECB action, BOJ action or FOMC action. Tomorrow we'll get PPI data as well as retail sales and a couple of regional reports, next week it's the ECB, more data and the inauguration, the week after is clear and then the FOMC. Long term outlook remain dollar strong.


The Gold Index

Gold prices remain elevated on weaker dollar values. Today spot prices moved up to another new short term high, testing resistance at $1,200. The metal was able to move above $1,200 intraday but was capped at that level, closing with a loss of -0.10% at $1,195. $1,200 is likely resistance. This resistance is likely to hold while the dollar remains above support, a break above this level would be bullish in the near term with upside target near $1,235. In the near term uncertainty of FOMC intent and Trumponomics has softened the dollar and strengthened gold, short to long term remains skewed toward dollar strength and weaker gold as the economy strengthens and the FOMC raises rates. Tomorrow's PPI is an opportunity for sentiment to be reinforced, for good or bad.

The gold miners tried to move higher but hit resistance, just like the underlying metal. Today's action create a small to medium sized black candle that may be indicative of near term reversal. The bearish argument is that the candle looks like the 2nd of 2 tops in a near term double top pattern that would be trend following, and supported by gold outlook. The caveat is that the market could continue to lose faith in the FOMC or Trumponomics and cause a further decline in the dollar and rise in gold. The indicators are consistent with a peak within a downtrend, stochastic for one confirming resistance with a bearish crossover at the upper signal line, while %D is confirming resistance at the upper signal line. Near term support is just below today's close at the 50% retracement level and the short term moving average, a break below here is bearish and trend following with downside targets near $19.75 and $18.50.


The Oil Index

Oil prices rallied for a second day, extending a bounce from the bottom of a near term trading range, and gained more than 1.6%. WTI closed with a gain of $0.84 to trade above $53 for the first time in a week. The bounce is driven on rising demand in China and further signs the Saudis and OPEC are serious about production cuts. China's state run oil company says that demand will grow in 2017 to hit a record high with net imports rising more than 5.25%. On the OPEC front the Saudi's have announced further cuts, to be enacted in February, in compliance with the OPEC deal. Others have also shown signs of compliance but this is tempered by rising production in the US.

The Oil Index did not rise, falling instead to post a loss near -0.5%. The loss is not major, merely sideways drift within the 1 month trading range, and above support. Support is at the bottom of the range, near 1,260, and confirmed by the short term moving average. The indicators are consistent with range bound trading and leave open the possibility for another test of support. A break below the short term moving average is not necessarily bearish, additional support may be found along at 1,235 and the 50% retracement line. The short and long term outlook for this sector remains bullish.


In The News, Story Stocks and Earnings

Delta Airlines reported earnings before the bell and beat expectations. Earnings and revenue fell from the year ago period, primarily due to the new pilot agreement, but both came in better than expectations. Along with this the company provided upbeat outlook that helped to lift the stock in pre-opening trading. The stock opened flat however and had a volatile day as profit taking set in. The indicators are set up in a strong buy signal, a break above resistance would be bullish for the near to short term.


Earnings season gets a kick in the pants tomorrow morning when 3 of the nations largest banks report earnings; JP Morgan, Wells Fargo and Bank of America. Their reports will set the tone for the entire season and could spark a big move. In terms of expectations, this is their chance to come in better than expected and possibly raise full year outlook in response to the elevated rate-hike environment we now find ourselves in. If they fail to meet expectations, or give only tepid outlook, we could see them lead the market lower. The Financial Sector SPDR XLF shed more than -1% intraday but was able to recover most of those losses before the close. Today's action was light, another day in a month of sideways trading within a tight consolidation band as the market gears up for earnings, the indicators are incredibly neutral and could go either way. A break below $23.25 is bearish, a break above $23.75 is bullish, either could result in a move of $3 to $4 in the near to short term.


The VIX moved higher in early trading, tested the short term moving average, and then retreat to close with a loss. The fear index is trending sideways at long term lows, indicative of an unencumbered market and a high potential for rally. The indicators have rolled over into a sell signal, consistent with a long term reduction in volatility, and suggestive of an extension of the current rally. The index is at/near long term historical lows so I'm not sure it can go lower, trending near these levels is good enough.


The Indices

The bears tried to take control but it was not much of an effort. The move did nothing more than take the indices down to near term support levels and provide entry for the bulls. Today's leader was the Dow Jones Transportation Average with a loss of -0.46% and may also be the most bullish looking of the charts today. The index tested support at the short term moving average, just below the recently broken previous all time high, with indicators rolling into a strong trend following entry. Stochastic has already fired the trend following bullish crossover and confirmed with the strong signal, MACD is close behind. Resistance is at the previous all time high and current all time high and look like they will be tested at least, a break above is bullish in the near to short term.


The Dow Jones Industrial Average is runner up in terms of loss having shed -0.32% in today's session. The index created a small bodied candle with long upper and lower shadows forming a spinning top of more substantial size. The index is trending sideways within a range and while not overly bearish, does not look overly bullish either. The indicators are listless and consistent with range bound trading and have not formed the kind of signal as seen on the DJT chart. Near term support is the short term moving average near 19,675, resistance is 20,000. A break past either will have near term implications at least with possible moves in the range of 500 to 1000 points.


The NASDAQ Composite fell -0.29% but created a near perfect hammer doji, opening and closing at almost the exact same price. This doji confirms near term support at 5,500, further confirmed by the indicators. Both indicators have confirmed support with trend following bullish crossover that could lead the index higher into the short term. Near term resistance is the new all time high, set yesterday, with upside targets near 5,750.


The S&P 500 posted the smallest loss in today's session, only -0.21%. The broad market created a small doji candle testing support along a long term up trend line. Support is at 2,250, confirmed by the short term moving average and the indicators, a break below which would be bearish. The indicators are consistent with a trend following entry, stochastic has already fired the early signal, is in process of confirming with a stronger signal with MACD following close behind. Upside target is 2,300 in the near term and 2,500 in the short to long.


I am very encouraged by how things are developing. The charts are setting up nicely, earnings and economic outlook are both positive and expansionary, the only thing keeping me from getting really excited and going full-bull is the fact that there are still a few hurdles ahead. Those include earnings, the inauguration and the FOMC and of those, earnings and the inauguration are the more important and the earnings question could be answered tomorrow. Once past those hurdles I see the long term secular bull market continuing on to new highs. I'm bullish but still a bit cautious, waiting to see what the next week will bring.

Until then, remember the trend!

Thomas Hughes

The advertising for the End of Year subscription special is over. However, we will leave the link open until midnight Sunday in case anyone else wants to take advantage of the savings.