Introduction

Another day of uncertainty, another day with the market hanging out near the latest all-time highs. Today's economic data was decent but not stellar, the round of earnings more of the same; not awesome but not bad, when one company misses estimate another beats.

International markets fell in the over night session although losses were minimal. In Asia losses were led by the Nikkei, -1.22%, pressured lower by a steadily appreciating yen. In Europe early losses were trimmed to near break-even levels as earnings and economic data lifted sentiment. Trading was led by England, the FTSE rising 0.47% after the BOE held rates steady and raised their growth outlook. The bank now sees 2017 UK growth in the range of 2.0%, up from 1.4% target issued last August, and the 2nd upgrade since the Brexit referendum.

Market Statistics

Futures trading indicated a negative open all morning. In early trading the S&P was indicated to open close to 10 points below yesterday's close but that moderated to only about -5 points after the data and earnings dump. The open itself was a little hectic, the indices opened with small losses as indicated and made a push lower in the first few minutes of the open session. The good news is that support kicked in within the first 10 minutes of trading and sent the indices back to break-even, where they hovered the rest of the day. The SPX specifically was able to bob above and below the break-even level a minimum of 5 times before 2PM, and then a few more times after that, closing with little movement to show for the day.

Economic Calendar

The Economy

The Challenger, Gray&Christmas report on planned layoff's jumped 37% in January. The number of planned layoff's came in at 45,934, an increase from the previous month but down -39% from January of last year. The retail sector led, accounting for 49% of the monthly total, as brick&mortar operations suffer from the impacts of online shopping. On a year over year basis the number of retail layoff's in January was nearly unchanged from last year so it doesn't look like issues within the sector are worsening, just persisting. Looking at the chart it is clear that the trend in job cuts over the past year is down, consistent with strengthening within the labor market.


Initial claims for unemployment fell -14,000 to hit 246,000. Last week's figure was revised higher by 1,000 and the 4 week moving average increased by 2,250. On a not adjusted basis claims fell -1.1% versus an expected gain of 4.9% and are down -10.6% over last year. On an adjusted basis we've now had claims below 300K for more than 100 weeks, very nearly the longest trend on record. Looking at the chart is appears as if the adjusted figure is stabilizing around the 250K level, very near the long term low and at a level consistent with ongoing labor market health.


Continuing claims fell -39,000 to hit 2.064 million, last week's number was revised higher by 3,000. The four week moving average also fell, shedding -13,000, and is moving back toward its long term low. Regardless, continuing claims are trending near long term lows and consistent with ongoing labor market health.

The total number of claims fell by -55,817, in line with expectations and consistent with seasonal trends. Now that the total claims figure has crested its peak we can expect it to continue lower over the next 22-23 weeks. In terms of the long term trends and labor market health? This figure is consistent with long term improvement and ongoing labor market health. Considering yesterday's ADP, 240,000 and well above expectations, along with today's data and the trends I would expect to see tomorrow's NFP come in at or above 200K with a drop in the unemployment rate, a possible increase in participation and a rise in average hourly earnings.


The first read on 4th quarter productivity and unit labor costs were both expansionary and better than expected. Productivity increased at an annualized rate of 1.3% in the 4th quarter, consensus expectation was 1.0%, driven by an increase in output offset by an increase in hours worked. Output increased 2.2%, outpacing hours worked by more than 1.25%, which in turn helped to keep unit labor costs below expectations. On a year over year basis 4th quarter productivity is up 1.0% from 2015, led by a 2.2% increase in output and offset by a 1.1% increase in hours worked.

Unit labor costs rose by 1.7%, slightly less than the consensus 1.9%. This represents a 3% increase in wages offset by the 1.3% increase in productivity. The take-away is that wages are on the rise, 3% is a strong number, but is not having an overly negative effect on labor cost. Full year labor costs rose by 1.9%, well below the 2.9% YOY increase in average hourly reported with the last NFP release. Based on these figures it looks like the consumer is improving at a pace greater than inflation.


The Dollar Index

The dollar fell in today's action on an absolute lack of FOMC engagement. Yesterday's policy statement was the most vanilla, uninformative bland statement I've seen in years. They took no stand, gave no insight and created no waves begging a couple of questions from my inner conspiracy theorist. The first of which is, is the FOMC looking at the same data I am because I see a growing chance they will fall behind the curve, a situation that will lead to surprise interest rate hikes, a faster rate of increase and the possibility of larger increases than expected. The second is this, are they getting political? Or maybe trying to avoid the All Seeing Eye of Trump by not making waves? He's said a strong dollar isn't always that great, maybe they took it to heart, their lack of action certainly caused the dollar to fall and isn't likely to add much support.

Near term, the dollar is under pressure from Trump comments and an apparently dovish Fed. Longer term the data supports improving economic conditions, rising inflation and normalized rates. The dollar may continue to fall, but I think when it hits bottom the bounce could be huge (imagine a surprise rate hike, and one bigger than a mere 25 basis points). Today the Dollar Index fell about a half percent but bounced off the intraday low a 10 week low, to close with a small gain on the day. The indicators remain bearish but continue to diverge from the low which makes the move lower appear weak and extended. Next target for support is near 98.65, resistance is now back at the 100.50 level.


The Gold Index

Gold prices got a lift today from Fed dovishness and a stronger dollar. The caveat is that gains were capped at resistance on strengthening economic outlook. Spot gold gained nearly a full percent in today' session to trade above $1,215 but gains were capped at the $1,220 level. A break above this level would be bullish and could take it up to $1,250, the caveat is that tomorrow's NFP could reassert bullish outlook for the US economy and the dollar.

The Gold Miners ETF GDX gained just over 2%, gapping up at the open, but price action held within a very narrow range. Today's candle is a very small spinning top appearing exactly at the 38.2% retracement level and within yesterday's long upper shadow. The ETF continues to drift upward on strength in gold but the indicators persist in weakness. Both MACD and stochastic are showing wicked divergence suggesting a market on increasingly shaky footing. Resistance is at today's close, near $24.50, a break above could be bullish but I'd be careful, gold and the miners can only go so high on Trump driven flight to safety and Fed indecision.


The Oil Index

Oil prices were choppy today, up a half percent and down a half percent as OPEC production cuts and rising US output vie for dominance of the market. OPEC has managed to lift and support prices above $50, US production has prevented further advance and all while demand outlook holds steady. Where this tug of war ends is yet to be seen, at this time the market remains skewed toward over-supply so prices are likely to remain under pressure.

The Oil Index held steady in today's action, just off yesterday's low, posting a small gain for the day. Action was supported by results from ConnocoPhillips which reported a smaller than expected loss, better than expected production and the expectation to meet 2017 goals. The indicators are bearish with a renewed surge in downside momentum so the index may drop down to next support, near 1,200, although forward outlook remains positive. Longer term, earnings growth is still expected to be robust this year and oil prices are still expected to hold above $50 so I am bullish and looking to buy on the dip.


In The News, Story Stocks and Earnings

It was a busy day for earnings, both before and after the bell. There were quite a few big names before the bell, like International Paper, but there more after the bell. International Paper is one that beat on both the top and bottom line in the 4th quarter, growing EPS by roughly 25%, although full year results were down slightly from the previous. The company's CEO said in the release that they are entering 2017 with improving economic conditions and several catalysts expected to enhance earnings, a statement that sounded good but did not cheer investors. Despite the beat and positive outlook shares of the stock fell more than -6% in a retreat to recent support levels.


Amgen beat EPS estimates by a dime but provided weak guidance for the upcoming year. The interesting news was positive results with one of their drugs that helped to lift shares more than 1%in after hours trading.

Amazon beat EPS estimates as well, but missed on revenue and reported some weak statistics for some of its largest divisions. The good news is that the company reported another quarter of profitability, the bad news is that forward guidance is weak. Shares fell nearly -4% in after hours trading.


GoPro reported earnings above estimates on weaker than expected revenue. The company also gave weak forward guidance, -20% below consensue, resulting in a -10% drop in after hours trading.

Chipotle Mexican Grill was also not able to deliver positive results. The fast casual burrito pusher missed on both the top and bottom lines as comp sales plunge -4.8%. Shares fell nearly that much in the after hours session.


The Indices

The indices held heir ground today in a choppy session. In most cases it was a real crap shoot whether or not the individual indices would close in the red or the green, except in the case of the Dow Jones Transportation Average. The transports held within a tight range today, creating a small doji spinning top, but made the largest move with a decline near -0.70%. The index has fallen below the short term moving average and retreat to support levels which has left it looking like a double top reversal could be at hand. The neckline would be current support, near 9,000, that if broken could lead to a correction in the range of -5% to -10%. The indicators have rolled over into a bearish signal, consistent with the drop from resistance, but have yet confirm any form of reversal; they are at worst indicative of ranging at this time.


The next largest move was made by the NASDAQ Composite, a decline of -0.11%. The tech heavy index created a small spinning top doji just below the current and recently set all time high in a move that looks like nothing more than simple consolidation. The indicators are moving lower in the nearer term but remain bullish in the longer, consistent with an index trending at new highs. A fall from this level would find first support at the short term moving average, about -1%, with next support targetnear 5,400, about -4%.


The Dow Jones Industrial Average made the smallest decline, -0.03%, creating a small bodied spinning top candle. The index is sitting on support at the short term moving average, just beneath current all time highs and within the near term range. The indicators are consistent with consolidation within an uptrend, confirming support at the bottom of the near term range, and have begun to roll into a trend following entry set-up. A break below support would be bearish but may not fall much below the 19,500 to 19,000 range, a bounce from the moving average would be bullish and trend following with targets in new all time high territory.


The S&P 500 was able to post a gain, a small one, after bobbing above and below break even many times throughout the day. The index created a small white bodied candle, moving up from support at the short term moving average and long term up trend line. It appears to be drifting higher, supported by short and long term traders, although some indecision persists. The indicators are consistent with consolidation within an uptrend and showing some weakness in the near term, I might expect to see the near term range persist if not for tomorrow's NFP. A move higher would be trend following and bullish, upside targets in new all time high territory. A break below support would be bearish with downside target near 2,200.


The indices continue to churn and consolidate and now there is only the NFP (and earnings and Trump) to hold it back. The trends are up and outlook is positive, on the charts in the economy and with earnings, so I am bullish. There is a bit of risk in the market no matter what the VIX is reading, Trump's maneuvering could back-fire to say the least, so I remain cautious. If the market bounces I'm ready to ride it higher, if it corrects I'm ready to buy on the dip and in either case eagerly awaiting tomorrow's data.

Until then, remember the trend!

Thomas Hughes