Introduction

Trump announced his tax reform plan is a mere weeks away, and the market set new all time highs. The news came during a meeting with airline executives and put a decidedly different spin on today's trading. During the early portion of the session it looked as if the market would continue to drift sideways within tight narrow ranges, after the announcement it looks as if the market will keep moving up into all-time-high territory.

Global indices were higher in the overnight session. Asian indices drift higher on rising oil and gold prices, aided by a letter from President Trump. President Trump sent a letter to China's supreme leader and received glowing praise for his efforts at establishing positive and constructive dialogue. This news helped support European markets which were further aided by positive earnings news that helped them gain about 1% on average. Asian indices were closed well before the Trump tax news, the European shortly after.

Market Statistics

Futures trading, like the global indices, was listless in the early hours. The indices were indicated to open flat to slightly positive, about 4 or 5 points for the SPX, and there was little change in that throughout the early session. There was a lot of earnings activity pre-open, and some positive labor data, but still no move in the futures. The open was positive and orderly. The indices began the day with marginal gains, quickly moved up to near term resistance, simmered for a half hour or so, heard the Trump news and then moved up to set new all time highs. The SPX topped out the first time before 11:30AM just shy of 2,310, +15 points, but held the days gains. A brief pullback led to consolidation that lasted well into the afternoon and eventually retested the early high. The test did not last long, the market blew right threw it and marched right on up to make another new high, where it remained until the close of the day.

Economic Calendar

The Economy

There was not a lot of data today but what there was is good. First up, initial jobless claims. Initial claims fell -12,000 to 234,000 versus expectations for a small gain. The previous week's figures was not revised. The four week moving average of claims fell -3,750 to hit 244,250, a new low dating back 43 years to November 3rd, 1973. On a not adjusted basis claims fell -6.9% versus the -2.1% projected by the government. Year over year not adjusted claims are down -10.75% and continue to trend lower over the long term. Simply stated, first time claims are trending lower over time, hitting new lows and remain consistent with ongoing labor market improvements.


Continuing claims rose by 15,000 from last week's not revised figure to hit 2.078 million. The four week moving average of claims fell however, shedding -3,750 to hit 2.075 million. Although it is still trending above the recent low this data is still trending near the long term low and is consistent with labor market health. The recent rise in continuing claims is due to seasonal factors that should work their way out of the data over the next few weeks.

Total claims made a small gain this week, 32,996, versus my expectation it would fall. Even so, total claims remains consistent with seasonal and long term trends, and the concept of labor market health. On a year over year basis claims are down -7.3% and will likely begin falling off as we go into the late winter and early spring.


Wholesale inventories was reported as 1% for December, in line with expectations, and up 2.6% year-over-year. The previous month was not revised. Wholesale sales rose 2.6%, faster than expected, and are up 6.8% year-over-year. The previous month was revised, up 0.1% to 0.5%. The inventory to sales ratio fell to 1.29, the lowest level in two years. While not a robust report it does reveal activity within the economy as wholesalers turnover and replace merchandise. The most positive aspect is that sales are outpacing increases in inventory; as sales deplete inventories manufacturer orders and production could see a boost.

The Dollar Index

The dollar got a boost from Trump's tax announcement. The Dollar Index gained 0.33%, extending its rebound but halted at resistance. The tax plan could be the spark to renew dollar bullishness. Lower taxes are expected to further the US economy's ability to grow, spur inflation and lead to higher interest rates and those are all supportive of dollar strength. Today's gains were capped at the short term moving average which is just above the $100.50 level. The indicators are bullish, both pointing higher, but a move above resistance is needed to get bullish on the index again. A break above the short term moving average would be bullish with upside target near $102.50 in the near term. A failure to move higher may result in a retest of support with target near $99.25.


The Gold Index

Gold prices retreat from their latest highs on the latest in Trump news, spot prices falling a little more than -0.25% after an initial push to retest yesterday's 2.5 month high. Gold has been supported on geo-political tension and soft dollar outlook but that could all be changing right now. Trump's tax plan, and the economic data, has put a bit of strength into the dollar while at the same time his letter to China has eased trade-war fear. If presidential activity and market sentiment continue to shift along those lines the impetus to own gold will disappear and prices will likely fall.

The Gold Miners ETF fell more than -2%, confirming resistance at the $25.50 level. This level is the the 3 month high and consistent with resistance associated with the post-election rally, the dollar's push to new long term highs and gold's fall to long term lows. The candle is long and black, engulfing the prior three days and confirming yesterday's small hanging man doji. The indicators are consistent with a peak, showing divergences that have foreshadowed market weakness for many weeks, but not yet indicative of a sell. If prices continue lower from here first target is the short term moving average near $23.50.


The Oil Index

Oil prices remain volatile and trapped within the near term range. Today's action was driven by a surprise draw in gasoline stockpiles, a net difference of 2 million barrels when compared to expectations, fueled by rising demand. This draw down may be a sign of shifting fundamentals and market rebalance but for now remain a single piece of data in an ocean of conflicting signals. Until a clearer indication of fundamental change is present oil prices will likely remain within the near term range between $51.50 and $54.75.

The oil sector advanced today as relatively firm oil prices support positive forward earnings outlook. The Oil Index gained 1.0%, extending its bounce from yesterday's bounce from the 2 month low, but does not look overly strong. Today's candle is a small spinning top doji, indicative of market indecision, and below potential resistance at 1235. The indicators are consistent with pullback and bounce from support but remain bearish in the near term so that support is likely to be tested again, near 1,200. Longer term outlook remains bullish, earnings growth, economic growth and the opportunity for rising demand are all in the cards, so this dip looks buyable.


In The News, Story Stocks and Earnings

Another big day for earnings with numerous reports before the open and after the close of trading. Early hours was dominated by a few names but the one that sticks out for me is Twitter. Twitter beat EPS estimates by a hair but missed big on revenue. The company reported the slowest quarter of revenue growth in its history and spurred renewed criticism of Jack Dorsey's choice to CEO two companies. Along with the miss forward guidance was weak and helped to depress share prices. Shares of the stock fell in the pre-market session, gapped lower at the open, shed nearly -13% and closed at the low of the day.


Coka Cola revenue beat, EPS matched estimates and guidance was weaker than expected. The company reported its 7th quarter of declining revenue on rising dollar value. KO down -2%.

YUM! Brands revenue missed, EPS beat, comp store sales miss. Operating profit grew 27% as strategic shifts take hold. Taco Bell and KFC remain steady, Pizza Hut is expected to struggle. Shares of the stock gained more than 1% to trade just shy of a near 2 year high.

Viacom reported a decline in year over year revenue but blew past top and bottom line estimates. Along with the beat the company outlined a 5 year strategic plan investors founds encouraging. Shares of the stock rose nearly 4% but were capped at resistance.


After hours was just as busy with reports from Pandora, Expedia and News Corp. Pandora missed top and bottom line expectations on weak growth. The company also gave weak forward guidance and sent shares plummeting 5% in after hours trading.

Expedia also missed top and bottom. Bookings for the quarter were in line with expectations but forward outlook is weak. Shares fell more than 3% in after hours trading.

News Corp reported earnings and revenue down from last year, a net loss, but beat expectations. Shares fell marginally on the news.


The Indices

The indices began the day in wait-and-see mode, waiting to see what might happen in terms of Trump, geopolitical tensions and earnings. To be honest, I don't think there was much expectation for much of anything to happen today at all, much less an indication of when we could expect to learn more about the Trump Tax Plan. There is a lot of expectation built into this plan, the chance for significant increase to forward earnings outlook exists, and that was shown by today's market moves.

The Dow Jones Transportation Average led today's action and is the only index to not set a new all time high. The transports created a medium sized white bodied candle moving up from support. Support is the short term moving average and a previous all time high, confirmed by the indicator. Both MACD and stochastic are consistent with a bounce from support in the near term, both also consistent with short term support at or just below current levels. Today's move is trend following, upside target is the current all time high. A break above that would be bullish.


The NASDAQ Composite made the second largest move, 0.58%, and set a new all time high. The index created another medium sized white bodied candle, extending its rally, but the indicators continue to weaken and give mixed signals. MACD is barely bullish, confirming today's high, but the peak is yet another lower peak in a string of 5 since the election. Stochastic is also warning by showing a peak above the upper signal line, overbought territory. These are by no means an indication of an end to the trend but are reasons for caution. Upside target is 5,750, first target for support is 5,600.


The S&P 500 posted a gain of 0.58%, exactly the same as the NASDAQ, and created a medium sized white bodied candle. Today's action breaks out of the near term consolidation in a move that set a new all time high, above 2,300. This move is trend following and rising up from support. Support is a long term up trend line and the short term moving average and confirmed by the indicators. Stochastic has been firing bullish signals for weeks and gave another one today, both %K and %D moving higher, %K crossing above the upper signal line. MACD is most promising as it confirmed today's move with a bullish crossover. Upside target is 2,400 in the near to short term.


The Dow Jones Industrial Average made the smallest gain today, only 0.40%, but was able to set a new all time high. The blue chips created a medium sized white bodied candle moving up from support and confirmed by the indicators. Support is the previous and recently set all time high, and the short term moving average. The indicators are both bullish, MACD confirming today with a bullish crossover. This move is trend following with upside target near 20,500 in the near to short term.


Aside from the NASDAQ I am pretty bullish on the market. The NASDAQ looks like it might be ready to correct, maybe not, but the others look ready to run. The economic trends are up, the earnings outlook is good, Trump induced fear is subsiding (at least stabilizing) and now we've got positive news on tax reform. I remain cautious, but I am expecting to see the markets move higher in the near to short term, providing no more black swans or other buzzwords pop up to scare the market lower.

Until then, remember the trend!

Thomas Hughes