Introduction

Janet Yellen's testimony before congress began today and was largely uneventful. She used the words "considerable progress" in relation to the Fed's mandate and the market liked what it heard. And then it marched right on up to set another brand new all time high. I have to say that these are pretty exciting times to be in the market, how high the market will go is always hard to pinpoint but going higher it is, and we're watching it happen.

International indices were hesitant in the overnight session as participants were waiting on Janet Yellen's testimony. In both cases, Europe and Asia, indices closed mostly flat with one notable exception. Japan sank more than a full percent on talk from the finance minister and news from Toshiba. The Japanese finance minister says it may take some time to establish positive trade talks; Toshiba says it will delay the release of earnings by a month at least while they investigate something to do with their US nuclear operations.

Other news that did not go unnoticed was the confirmation of Steve Mnuchin as Treasury Secretary and the resignation of Flynn in the wake of his inappropriate Russian contact. Mnuchin's first acts were to label Venezuelan politicians as drug traffickers.

Market Statistics

Today's action was a tale of two markets, one before/during Yellen's testimony and one after. Before and during the testimony the indices tread water in sideways action at or slightly below yesterday's closing prices. Toward the end of testimony the indices began to move up from near the lows of the day, reaching break even right as the session was coming to a close. The verdict, pretty much as expected with absolutely no fireworks. In other words it was Goldilocks testimony and the market moved up, and up, and up.

Economic Calendar

The Economy

Two bits of economic data today, PPI and Janet Yellen's testimony. PPI came in hot at 0.6%, double expectations, but remains tepid over the long term. The more important core PPI, ex food and energy, was a much cooler 0.2% and in line with expectations. Year over year not adjusted PPI is running at a rate of 1.6%, core is running the same. While not too high the concern is that inflation has picked up noticeably over the past 6 months and is on a trajectory to reach the Fed's 2% target over the next 6 to 12 months.


Janet Yellen's testimony went on for about 3 hours and was largely uneventful, aside from the usual grandstanding senators trying to trip her up or make some kind of point. To keep it short I'll simply list the important bullet points that I got from the statements and Q&A. First, fiscal policy with the current administration is a source of uncertainty. However, the economy is sustaining moderate growth, the labor market is getting stronger, wage growth has picked up and business sentiment is improving. The FOMC expects to see inflation gradually rise to the 2% target rate and rate hikes will be evaluated on a meeting by meeting basis. In terms of the dual mandate, she says the FOMC has made considerable progress and that waiting too long to raise rates is a growing risk.

The Dollar Index

The Dollar Index gained on today's news, rising nearly 0.35% and extending its move above the shot term moving average. Yellen's testimony and the PPI data helped to firm rate hike expectations and subsequently the dollar. The CME's FedWatch tool shows this as well, expectations for rate hikes have risen in each of the next 3 months with June rising above 70%. Near term outlook is now bullish, upside target is $102.50. Looking forward economic data, here and abroad, will be the drivers until the next round of central bank meetings. Tomorrow is a non-policy meeting of the ECB, next policy meeting is March 9. The next BOJ meeting is March 15th, the next FOMC meeting is also March 15th.


The Gold Index

Gold prices were able to hold steady in today's action despite the rise in dollar value. Spot prices closed the session very near flat for the day, just above $1,226. Lingering uncertainty over the FOMC rate hike timeline and President Trump may be supporting prices in the near term but longer term fundamentals remain skewed to the downside.

The gold miners were also supported in today's session, opening with a small gap to the upside and then falling from there. Today's candle is small and black with a long lower shadow, falling from and confirming resistance at $25.50. Price action is also confirmed by the indicators, both of which are showing bearish crossovers in the near term, and divergence in the short. Resistance is $25.50, down side target is $23.50 in the near term.


The Oil Index

Oil prices held steady today as well, WTI gaining a half percent to trade just above $53 and near the middle of the near term range. US supply and rising production continue to offset the OPEC deal, tomorrow's storage data could tilt the scales one way or the other. Oil prices may remain in this range indefinitely and until there is more clarity concerning oil fundamentals. Until then rising US rig counts will continue to put pressure on prices.

The Oil Index continues to hang below resistance while the indicators continue to support higher prices. Today's action created a small hanging man doji just below the short term moving average and looks like it is having a hard time with resistance. The indicators however are consistent with a bullish buy and suggest that resistance will break down. The general trend in the index is up which makes the current set up trend following. Stochastic is the strongest indication right now, the two recent bounces from the lower signal line are divergent from the latest low, indicative of support and showing a strong bullish entry signal. MACD has not yet confirmed but is fast approaching the zero line from below, about to make a bullish crossover of its own. A break above the moving average and resistance at 1,230-1,250 would be bullish and supported by forward earnings outlook, upside target is 1,300.


In The News, Story Stocks and Earnings

The health insurers made headlines today when first one and then another major merger was scrapped. Early in the day Aetna and Humana announced they mutually agreed to end their merger talks following on anti-trust grounds. Later in the day Cigna pulled out of its deal with Anthem and delivered a lawsuit worth nearly $15 billion. Shares of Aetna jumped a little more than 3%, the others closed flat on the day.


ITT reported before the bell and beat on the top and bottom lines. Despite the beat revenue and earnings are down year over year and forward guidance is weak. The silver lining is that the dividend was increased but not enough to send shares moving higher. Shares of the stock fell in the premarket session but were able to regain some of the loss before the closing bell.


AIG reported after the closing bell and delivered mixed results. The net loss per share increased more than 100% from last year but due to increases in prior year adverse reserve development. Other positive highlights include faster than expected cost reductions and an increase to the current buyback program. Under the new terms there is approximately $4.7 billion to be used on share repurchases. Shares moved higher during the open session and then fell more than -2% after the release of earnings.


The Indices

The indices had a good day today. Early trading was cautious as traders waited on Yellen's testimony, later it was risk-on once the market realized there were to be no shocking surprises. The Dow Jones Transportation Average is the only one to not move higher, and the only to not set a new all time high. The transports created a small doji spinning top just below resistance at the current all time high and looks like resistance will be tested again. The indicators have both rolled into a trend following buy signal, consistent with a test of resistance and possible break to new highs. Resistance is 9,500, a break above this level would be bullish.


The Dow Jones Industrial Average made the largest gain in today's session, 0.45%. The blue chips created a medium sized white candle, setting a new all time closing and intraday high, and looks like it could continue higher. Both indicators are bullish and moving higher, consistent with a trend following entry, and support higher prices. Upside target is 21,000.


The S&P 500 made the 2nd largest gain in today's session, 0.40%. The broad market created a medium sized white bodied candle and set a new all time intraday and closing high. The index is moving higher, extending the Trump induced rally, and the indicators support higher prices. Both MACD and stochastic are moving higher following bullish, trend following, crossovers and stochastic is on the verge of showing strength by crossing over the upper signal line. Upside targets are 2,350 and 2,500 in the near to short term.


The NASDAQ Composite made the smallest gain today, just over 0.30%, but was able to set new all time highs, closing and intraday. The indicators are both bullish and moving higher, suggesting higher prices although divergence in MACD persists and stochastic is approaching overbought in both the short and long term. The indicators give reason for caution, there is a chance for correction, but until that happens the trend is up. Upside target is near 6,000.


The market is moving higher and that is going to start building some euphoria and start attracting new money, the "revolution" may not be televised but the rally certainly will. I expect to start seeing more and more positive coverage in the news, and that I think will draw in new money and to lead to further upside for equities. I am bullish, excited, and cautiously looking to add to my positions.

Until then, remember the trend!

Thomas Hughes