Introduction

A cautious market hangs tough, if cautious, as President Trump gets down to business. Today the newly minted President held a meeting with some of the nations top manufacturers, reinstated the controversial Mexico City Rule, put a halt to Federal hiring, began the process to renegotiate NAFTA and officially flushed the TPP. The meeting with manufacturers was a seeming success, they all left in good spirits with the task of coming back in 30 days with a list of actionable items to help improve the ailing US manufacturing sector. The withdrawal from TPP slamming home belief in Trump's plan to improve US trade relations.

International markets were just as cautious as traders wait to see which way the geo-political wind will blow. Asian markets were mixed as Japanese shares fell under a stronger yen, falling more than -1.25%, while those in China were supported by a government pledge to "lead' the world through this new, Western, crisis. In Europe trading was less mixed and more negative with all indices closing with losses. Average declines were in the range of -0.50%, led by the German DAX.

Market Statistics

Futures trading was quiet, there was not much news to chew on aside from speculations of what President Trump might do. The indices were indicated to open flat to negative all morning and that held into the open of trading. At the open the indices began trading with small losses, made a quick dash to test break-even and then moved down to the lows of the day. The lows were hit just before noon, about -12 points for the SPX, then the index made a nice double bottom and then began to creep back up. The remainder of the day saw the indices trend within the early range and close near the mid-point of that range.

Economic Calendar

The Economy

There was no economic data today and there is very little this week. Tomorrow we'll get Existing Home Sales, Thursday we'll get Leading Indicators, jobless claims and New Home Sales, Friday wraps up the week with the first read on 4th quarter GDP, Durable Goods and Michigan Sentiment. Next week is another data dump as the we enter February, along with a BOJ and an FOMC meeting.

The Moody's Survey of Business Confidence fell nearly -3 points over the past two weeks, -1.6 points in the past week alone, as global business sentiment cools. Despite the fall the index remains high relative to the summer bottom and consistent with an economy in expansion. Mr. Zandi says that sentiment remains firm, the US is strongest and outlook is positive.


Earnings season is well underway, at this point a little more than 12% of the S&P 500 has reported. Of those who have reported 61% have beaten EPS estimates and 47% have beaten revenue estimates, both a little below recent averages. The blended rate for earnings growth is now 3.4%, up 0.2% from a the start of the reporting season, and will likely move higher. Based on the average we can expect it to come in near 7.5% by the end of the reporting season. Full year 2016 expectation held steady at 0.2%. This week there are another 70, 14%, S&P 500 companies scheduled to report.


Forward outlook remains robust, the forward all-index 12 month EPS projection continues to rise and hit another new high in the last week. For the 1st quarter 2017 earnings growth is expected to expand to 10.9%, down a tenth in the last week, and 2nd quarter 2017 growth is expected to expand at 10.6%, up a tenth in the last week. Full year 2017 outlook is also strong, 11.4%, and implies further expansion to growth in the 2nd half of the year.


The Dollar Index

The dollar took another hit today as Trump's protectionist agenda begins to unfold. The index is under pressure from uncertainty over Trump's agenda and how he may negatively impact the economy. The Dollar Index fell a little more than -0.50% to close below the $100.50 support target and just above the $100 level. This move brings the index down to a critical support level ahead of the FOMC meeting next week. The indicators are bearish and stochastic in particular looks weak, suggesting that support could be tested further or broken in the near term. If broken next support target is near $99 and the 150 day moving average.

I'll be honest, the chart is ominous but I am not quite ready to give up my bullish stance on the dollar, for a number of reasons. For one, Trump could swing sentiment back to the upside at any moment, that's a reality. Second, the US economy is on track for expansion this year, next week's data could be strong and support the dollar. Third, FOMC meeting is next week, any move in the dollar is suspect until then, regardless of direction. Fourth, the BOJ is also next week and could move the yen with their policy as Abenomics continues to flounder. For some reason expectations for rate hikes in the first half of the year have come down in the last week, I wouldn't be too sure about that.


The Gold Index

Gold prices continue to rise on a weaker dollar and economic uncertainty. This may continue into the near term if there is no clarity from the Oval office on economic policy. Spot price gained nearly 1% in today's action to touch a two month high but was capped at resistance. Resistance is just shy of $1,220. The metal looks like it might be forming a flag pattern, indicative of continuation, but I am leery of that ahead of next week's data dump, BOJ and FOMC meeting. Of course, the Trump Factor may have taken control of gold for the near term, uncertainty could drive it higher. A break above $1,220 would be bullish with upside target near $1,280 in the near term.

The gold miners got another lift today as higher spot prices lifts forward earnings outlook. The miners ETF GDX gained nearly 3%, moving above the 150 day moving average and setting a 2.5 month high. The indicators are bullish, momentum is to the upside, so this move may continue into the near term. The caveat is that major divergence is present in MACD while stochastic shows signs of resistance. Upside target is near the 50% retracement level, $23.80, with a possible move to $26.


The Oil Index

Oil prices fell today as signs of rising US production offset hopes and signs the OPEC cuts are taking hold. Today's news, a meeting of OPEC ministers over the weekend confirmed the cartel is on track to meet its 1.8 million barrels per day production cut and US rig counts made their largest one week gain in nearly 4 years, the 8th month of increases. WTI fell nearly -1.0% to trade near $52.75 and the mid-point of the one month range. Price may remain volatile as higher prices are capped by rising US output and lower prices are supported by OPEC.

The Oil Index fell nearly -1.0% as well, creating a very small black candle and setting a new 1 month low. The index fell below the short term moving average with today's action and looks like it may move lower. The indicators are bearish and stochastic is showing weakness with a cross of the lower signal line. If the index does move lower next support is near 1,235. Longer term outlook remains positive for the sector, earnings growth projections have not fallen, 350% for full year 2017, so any dip is a likely buying opportunity.


In The News, Story Stocks and Earnings

McDonald's reported earnings before the bell and wowed a market expecting a miss. The world's largest fast food chain beat on both the top and bottom lines on strength in Asia. Global comps increased 2.7%, more than double expectations and led by China and Japan, while those in the US fell. US comps were hurt however due to comparison with the launch of all-day break-fast so results are still decent. Of note, profitability in China is improving and US comps will be impacted by all-day breakfast the rest of the year. Management says that the move to all-day breakfast was the right thing to do, but at the cost of lower menu mix. Shares of the stock fell more than -2% intraday to test support at $120 and the short term moving average.


Haliburton reported earnings before the bell with mixed results. The company reported a 5% increase in revenue, revenue that fell short, a wider than expected loss but a better than expected adjusted profit. The company says it has managed itself well through the downturn, has gained marketshare, been able to improve margins and is positioned for growth during the upswing. Shares of the stock fell more than -2.5% on the news, falling from resistance at the short and long term moving averages.


The VIX rose today but the candle is not bullish. The fear index made a small gap higher to open at the short term moving average, moved up to test resistance at $12.00 and then fell back below the moving average. The index appears to be trending sideways, near long term lows, and indicative of calm markets. The indicators are pointing higher at this time but the indications are weak and more consistent with a sell signal within a downtrend than a reversal or buy signal. The chance of increasing fear remains, there are plenty of things to be worried about right now, but those chances will subside as earnings season unfolds, we move past next week's data, the FOMC meeting comes and goes and President Trump gets his administration running.


The Indices

The indices fell today but price action was more sideways than not, and within recent ranges. Basically, there was no inauguration inspired break-out and the market continues to move sideways. Today's action was led by the Dow Jones Transportation Average which lost -0.94%. The index has created a medium sized black candle, near the mid-point of the near term range, falling from resistance at the previous all time high and supported by the short term moving average. The index has reached a point of equilibrium and ripe to make a move. The indicators have moved to a point of equilibrium as well, MACD momentum is very near to zero and stochastic has moved to the middle of its range, and at a point where the market could go either way. A fall from this level confirms resistance, downside target near 8,550, a move up confirms support with upside targets at the current all-time and above.


The S&P 500 made the next largest decline, -0.27%, and created a small spinning top candle. This is the 15th spinning top since the start of the year and the 31st day of trading within the near term range. The prevailing trend is up, the index is in consolidation above support and the indicators are consistent with that. Support is a long term up trend line, confirmed by the short term moving average, and faces only the resistance of current all-time highs. Today's action confirms support at 2,260, a break below this level would be bearish in the near to short term with downside target near 2,220. A move up from here is bullish and trend following with upside targets in new all-time-high-territory.


The Dow Jones Industrial Average made the third largest decline, -0.14%, and created a very small spinning top doji. This candle confirms the bottom of the 1 month trading range, at the short term moving average, but is not a strong indication of future movement. The indicators are moving lower at this time, consistent with a test of support within the prevailing up trend. Support is near 19,800, a break below this level would be bearish in the near to short term with downside target near 18,900. A bounce from this level would be bullish and trend following with upside targets in all-time-high-territory.


The NASDAQ Composite made the smallest decline today, only -0.04%. The tech heavy index created a very small doji spinning top candle, the 15th of near perfect sideways trading since the first of the year. The indicators are bullish at this time but over the past month are consistent with range bound trading within a tight and narrowing range. Support is just below today's close, near 5,500, a break below which would be bearish. A confirmation of support or move to new all time highs would be bullish and trend following.


The indices continue to wind up within tight and narrow ranges. Not surprisingly, this wind up is focused on the next FOMC meeting with volatility driven by earnings, economics and the shift in Presidential powers. The way it looks now, the indices could go either way but based on the prevailing trends, forward economic outlook, forward earnings outlook and Trumponomics I am bullish and see them breaking out to the upside. The caveat is that the break out has not happened, there is a chance of correction, so caution is still the word of the day. If a correction does unfold I'll be buying on the dip.

Until then, remember the trend!

Thomas Hughes