Introduction

The broad market pulled back slightly from new all time closing highs, but not before setting new intra-day all time highs. Today's action was not the follow through we'd like to see in a really strong rally but may be the next best thing; a cool, calm consolidation at new all time highs.

The morning started with global markets in rally mode. Asian and European indices were moving higher and setting new long term highs in both regions. Asia was strongest, both China and Japan gaining more than 1.25%, Japan rising more than 1.75%. Europe was stronger in the early portion of the session but pared gains to just above break-even on the open of the US market.

Market Statistics

Futures trading was positive all morning but not strong. The indices were indicated to open with gains of only a few points and this held for most of the morning. There was quite a bit of earnings and little bit of data to move early trading but none did more than cause a mild ripple on the charts. The open was orderly if a bit choppy, the indices opened with marginal gains and then trend sideways from there for the first half of the day. At noon the indices were near the lows of the session, just below break-even for the S&P 500, and then shortly thereafter falling to new lows. The SPX hit its intraday low just after 1:30PM, about -5 points, and bounced from there, moving higher over the next hour to regain all of the losses. Late afternoon saw the indices continue to churn within the earlier ranges and close near the midpoint of the day.

Economic Calendar

The Economy

Today's economic calendar included Trade Balance, New Home Sales and Leading Indicators along with the weekly jobless claims. Claims rose by 22,000, from last week's surprise drop, to hit 259,000. Last week's figure was revised higher by 3,000. The four week moving average of claims fell by -2,000 to hit 245,500, a new low dating back to November of 1973. On a not adjusted basis claims fell by -19.9% versus an expected decline of -26.9% and are down -5.2% year-over-year. The largest increase in claims was California, +16,984, the largest decline in claims was in New York, -22,100. This week's increase is not too surprising given last week's large drop and a sign of post-holiday seasonal volatility.


Continuing claims rose by 41,000 on top of last week's upward revision to hit 2.100 million. The four week moving average fell by -1,250 to hit 2.92 million. This figure remains near recently set long term lows and consistent with long term labor market health.

The total number of Americans on unemployment rose by 54,418 to hit 2.561 million. This is likely the peak, based on seasonal trends, and should begin to fall off next week. On a year over year basis this week's figure is -6.1% below this same time last year and consistent with long term improvements in the labor market. Looking forward we can expect to see total claims figures fall off into the spring with a target near 1.88 million. Simply based on the pledged new jobs we've been hearing about lately I would expect to see the spring hiring season come in on the strong side.


New Homes Sales fell a surprising -10.4% in December from November and are down -0.4% from last December. The market had been expecting sales to remain flat. Despite the miss full year 2016 new homes sales grew 12.2% over 2015 and are expected to continue growing into 2017.

The Index of Leading Indicators rose by 0.5% in December after rising 0.2% in October and 0.1% in November. The Coincident and Lagging Indices both rose as well, by 0.3% each.According to economist at the Conference Board the index is indicating continued growth in 2017, and the possibility of that growth expanding in the 1st half, perhaps as early as the 1st quarter. The biggest contributor to this month's gains are an increase in forward outlook.


Tomorrow's data includes the first read on 4th quarter GDP, durable goods and Michigan Sentiment.

The Dollar Index

The Dollar Index has begun to rebound from support levels. The index gained nearly 1% intraday, rising up from the $100 level, but gains were capped at the $100.50 level and previous long term high. Today's move is in response to economic data and forward outlook; the US economy remains on track for growth, rising interest rates and a stronger dollar while global economies remain in QE mode. The indicators remain weak, consistent with a test of support within an uptrend, but not yet supportive of higher prices. The index may remain at/near current levels over the next week as economic data is released and up to the release of the FOMC statement next Wednesday. A move higher faces resistance at $100.50, $102.50 and $103.50. A break below support would have a target of $98.65 in the near term.


The Gold Index

Spot gold fell another -0.75% today, extending a drop from resistance levels, to trade below $1190 and at a two week low. This move is driven by the dollar's bounce from support and a decline in safe haven flows although today's spat between President's Trump and Nieto may renew those flows. To be brief, President Nieto canceled his trip to the US saying Mexico won't pay for a wall while Trump says the cancellation was mutual. More on that story to come. Getting back to gold, now that is below $1200 with stronger dollar in the forecast it will come down to the FOMC. A hawkish Fed will mean a stronger dollar and weaker gold, a dovish Fed the opposite.

The gold miners fell in today's session and look poised to move lower. The Gold Miners ETF GDX fell -2.5% to trade just above support with increasingly bearish indications. Both MACD and stochastic are consistent with a trend following sell signal; stochastic has already confirmed, MACD is very close. Support is near $22.50, coincident with the short term moving average and the 50% retracement level that has provided support and resistance in the past. A break below these levels would be additional confirmation of a trend following sell with downside target near $20. Depending of course on the FOMC and the dollar.


The Oil Index

Oil prices rebound today, WTI gaining more than 2% at the close of trading. Despite the gains oil prices remain trapped in a near term trading range driven by OPEC cuts and rising US production. This week's news includes further sign of OPEC's commitment to production cuts and signs those cuts are digging into supply counterbalanced by rising US rig counts and oil storage levels. I expect this tug of war to go on into the near to short term.

The Oil Index fell despite the rebound in oil prices, shedding about -0.25%. Although counter to the move in oil the move in the index has a bullish undertone, testing support at the short term moving average following a trend following bounce from strong, longer term support. The indicators are promising, stochastic is firing a strong buy signal and MACD is close to confirming, so I expect to see it move up to test the top of the near term range at least. Longer term, earnings outlook remains robust and 2017 year end oil prices are expected to be higher so I am bullish on this sector. A break above 1,300 would have targets near 1,350 and 1,400.


In The News, Story Stocks and Earnings

There was quite a bit of earnings news before the bell and the results are about as expected, mixed with a positive overtone. There were some notable misses, on revenue earnings and guidance, but just as may beats or upgrades so nothing really has changed, we're still in a stock picking sector rotational kind of environment.

Caterpillar reported EPS that beat expectations smartly but were only flat compared to last year. This comes on a decline in revenue that was worse than expected. The company blames weak global economic conditions and provided weakened guidance although it does not include the possibility that Trumponomics will actually spur the US and global economy to growth. In regard to that company CEO said that the Trump outlook was promising but any benefits would likely not be realized by them until next year. Guidance was reported as being lowered but what really happened was the range was widened around the current mid-point, allowing for the possibility of better or worse results than previously expected. Shares of the stock fell more than -1% after setting a new intraday 2 year high.


Ford reported 4th quarter and full year results that were a little better than expected and the 2nd best in company history. EPS met estimates and revenue was a little strong. Guidance for 2017 is a little on the weak side, full year pre-tax profit is expected to hold flat with EPS down on expected investment in global infrastructure. Shares of the stock fell more than -3% on the news.


Royal Caribbean beat EPS, missed on revenue and raised full year guidance. Company CEO says that bookings are stronger than ever, guests are booking earlier and earlier and at higher prices. Shares of the stock jumped 10% on the news and is one of 58 S&P 500 companies making new highs today.


After hours action was all about tech, and coffee, as earnings from some of the biggest names in the industry hit the market.

Google - Earnings miss but revenue beat, shares of the stock fell -2.5% but regained some of the loss before the afterhour session came to a close.

Microsoft - Beat on the top and bottom lines on strong demand, shares rise to new all time highs on positive forward guidance.

Intel - Beat on the top and bottom line but full year 2017 guidance was little light. The company expects to see full year EPS in a range of $2.66 to $2.94, consensus is $2.83. Shares fell nearly -1.0% on the news.

Paypal - Revenue and earnings were in line with expectations, guidance was in line with expectations. Shares of the stock fell -2.25% on the news.

The Indices

The indices held almost exactly flat for the day, where was up a hair another was down a fraction. Regardless of closing positive or negative for the day all the indices set new intraday all time highs. The leader was the Dow Jones Transportation Average with a gain of 0.51%. The transports made a medium sized white bodied candle, the third in a move up to test all time highs, and set a new all time intraday high by about a dozen points. Today's move is trend following and supported by the indicators. Both MACD and stochastic are firing trend following entry signals and both have plenty of room to move higher.


The Dow Jones Industrial Average also posted a gain, 0.16%, and set new all time closing and intraday highs. The index is setting new all time highs, in line with near, short and long term trends, and supported by the indicators. Stochastic firing an early entry signal and MACD will likely confirm with a zero line crossover tomorrow. Upside target is 20,500 in the near term with additional targets in the short to long term.


The NASDAQ Composite posted the smallest loss, -0.02%, and created a very small spinning top. The tech heavy index, despite making a black bodied candle, set a new all time intraday high in line with the prevailing trends. The indicators have both confirmed the new highs with trend following bullish crossovers and support higher prices. Upside targets are near 5,750 in the near term.


The S&P 500 made the largest decline but still only -0.07%. The broad market was able to set a new intraday high despite posting a loss and looks like it will go higher. The indicators are both firing trend following bullish crossovers, MACD confirming today, and support the idea of higher prices. Upside targets are now 2,350 in the near term with additional targets in the short to long.


At the risk of jinxing the whole thing I have to say I am pretty pleased with the way things are setting up. The indices are breaking out to new highs, the indicators are confirming with technical trend following buy signals, economic trends and outlook are positive, earnings trends and outlook are positive and the whole thing is being turbocharged by the idea of tax reform, improved trade agreements and job creating Trumponomic outlook. With all this behind it I just don't see any reason to be bearish, and no reason to be selling. I still advise caution, better to be safe than sorry, but I think the bull market is back and getting ready to stampede.

Until then, remember the trend!

Thomas Hughes