Introduction

Profit taking and new highs. The indices opened the day with new highs but profit taking quickly set in. Downward pressure was not strong, losses were minimal in most cases, and looks to be nothing more than profit taking and consolidation at this time. Early trading was lifted by positive earnings results in the pre-market session, this week's jobs data and comments from Steve Mnuchin. Later in the day markets were lifted again but this time by the upbeat vibe coming out of the Presidents meeting with his council of top US manufacturers.

International markets were mixed in the overnight session. Asian indices closed flat in the wake of the FOMC minutes. The latest read on the Fed was a bit more hawkish than what we've heard before, but not more hawkish than the market was expecting and still without a clear indication of when and how much the next interest rate hike will be. European indices were much the same but succumbed to selling once out markets opened and it became clear today was a day for profit taking.

Market Statistics

Today's action was light and a little bit choppy. Futures trading indicated a positive opening all morning and gained strength going into the opening bell. The indices opened at new all time highs, about +5 points for the S&P 500, and those levels held for the first 10 to 15 minutes. After that profit taking slowly chipped away at the early gains until the SPX was pushed into negative territory, shortly after 10:15AM. The intraday low was hit almost exactly at 11:15AM and from there the market bounced back to regain most of the days earlier gains. By noon the SPX had broken back into positive territory but intraday resistance capped gains. Buyers at least matched sellers, causing the SPX to bob along near break even the remainder of the day.

Economic Calendar

The Economy

Not much data today but what there was is good. Initial claims for unemployment gained 6,000 from last week's figure, last week's figure having been revised down by -1,000, to hit 244,000. This is slightly above expectations but nevertheless a low number. The four week moving average of claims fell -4,000 to hit 241,000, a new low dating back to 7/21/2017. On a not adjusted basis claims fell -2.2% versus an expected -4.3% and are down -3.3% from last year.


Continuing claims fell -17,000 from an upward revision of +1,000 to hit 2.06 million. The four week moving average of continuing claims fell -10,750 to hit 2.069 and appears to be headed lower. Taken together, the initial claims and continuing claims data is still solid, still trending lower and is consistent with labor market health.

The total claims fell as well, shedding -18,035 to hit 2.508. This decline is as expected and in-line with long running trends. The total number of claims is down -7.35% from last year and consistent with ongoing improvements in the labor market. We can expect to see this figure fall off into the spring with a downside target near 1.75 million.


The Dollar Index

The Dollar Index fell today but the losses were minimal. The index fell nearly -0.25% to hit support at the short term moving average, just above $101. Today's move is in response to the FOMC minutes from yesterday, the FOMC is more hawkish than they were before which supports the near term uptrend but they weren't more hawkish than the market was expecting so the news wasn't the bullish catalyst it may have been otherwise. The indicators are rolling over in indication of resistance to higher prices in the range of $101.50. Now that the Fed has tipped its hand its back to the data for us. Strong data and positive moves in the Trump economy should be dollar strong, weak data the opposite. A break above $101.50 is bullish, upside target near the recent highs. A break below support is bearish with downside target near $99.25.


The Gold Index

Gold jumped nearly 1.5% on yesterday's FOMC minutes and today's drop in the dollar. The move is capped at a 3 month high, just a hair above $1,250, and may be misplaced euphoria. The FOMC minutes did not give clear indication of the rate hike time line, which is helping to support gold, but the risk is that data will come in stronger than expected, push the Fed to lift rates sooner or faster than expected and send gold crashing back to reality.

Price action in the gold miners may reflect the reality of the gold outlook. The miners ETF GDX gained more than a full percent today but created a bearish candle beneath resistance with bearish indications. The ETF has been in a topping/reversal pattern the past month or so, recently hitting the first downside target at the short term moving average. Today's action extends a bounce from support at that target, based on the indicators we can expect to see support tested again. A break below the moving average, near $24.5, would be bearish with downside target near $23.50.


The Oil Index

Oil prices got a nice little boost today, up more than1.5%, but remain within the near term trading range. Today's action was supported by US inventory data which revealed a smaller than expected build, and news from Exxon that they'd lowered their reserve estimates by 3.3 billion barrels. WTI gained a little more than $0.80 to trade near $54.40.

The Oil Index is looking very promising. On a technical basis it looks to be putting in a nice bottom at the 1,200 level. Today's action saw the index open with a gain near 1.5% only to sell off, hit support at 1,200 and bounce back to close near the open. The indicators are both consistent with support at this level, MACD has diverged from the most recent low and is now confirming support while stochastic is trending higher after putting in a double bottom of its own. Resistance is near 1,235 and the short term moving average, a break above this level is bullish with upside target near 1,300 in the near term.


In The News, Story Stocks and Earnings

Kohl's reported before the bell and delivered a mixed bag. Results were better than expected but comp sales were down and guidance was weak. Company CEO says sales are being hurt by online. Full year guidance is a range with $3.80 at the top end, consensus is $3.80. Despite the lack luster results the dividend was raised which helped to support share prices.


Jack In The Box delivered a trifecta of weaker than expected earnings, less than expected revenue and weak forward guidance. The silver lining, if there is one, is that earnings are up significantly from last year. Despite this shares of the stock fell more than -11% in the premarket and closed with a loss of only -7%.


HP Inc, the legacy business of former Hewlett Packar, reported before the bell as well and turned out to be the darling of the market, for today at least. EPS was at the high end of the guided range, above consensus estimates, with a 4% increase in net revenue. Forward guidance is in-line with estimates and helped sooth fears the company would not be able to compete in today's marketplace. Shares of the stock rose slightly in the pre-market session and the extended those gains to nearly 9% to hit a more than 2 year high.


The Indices

Today's action was positive but shows signs the rally may be hitting a peak. The indices in general were able to hold flat to yesterday's close and in some cases set new all-time intraday and/or closing highs. Today's leader was the Dow Jones Industrial Average which posted a gain of 0.17%. The blue chips spent the day trending sideways just above yesterday's close, only briefly dipping into negative territory during the middle part of the day. The index continues to drift higher on bullish indicators although there are some potential warnings signs. First, momentum is not that strong and may be peaking. Second, stochastic is reaching overbought. Together these bring up the possibility of correction or consolidation but do not guarantee it, stochastic for one could easily simmer at this level indefinitely during a prolonged uptrend. Upside target is still 21,000, first target for support is 20,500.


The S&P 500 was the only other major index to post a gain in today's session and almost didn't. The index opened with gains near 5 points, gave all that up and more, spent hours hovering around break-even, dipped into the red just before the close and then in the last 2 minutes moved up anough to close with a gain of 0.04%. The index created a hanging man/dragonfly doji, set a new all time closing high, and may continue to trend sideways tomorrow. The indicators are both bullish but are also both showing signs of peaking which usually lead to consolidation or correction. Consolidation at this level would be bullish and could lead to an extension of the rally. Upside target is in the range of 2,400 to 2,500 short term, first target for support should a pull-back occur is the short term moving average nea 2,300.


The NASDAQ Composite snapped its winning streak with a loss of -0.43%. The tech heavy index created a medium sized black bodied candle while setting an all-time intraday high and formed a Dark Cloud Cover. This usually precedes a change in trend which in this case could be consolidation or pull-back. The indicators are both consistent with a peak in trend but do not at this time suggest a major correction. Near term support is just beneath today's close, at the lower end of today's lower wick, near 5,800. A break below here would be bearish near term and could go as low as 5,750. A consolidation and move higher would be bullish with upside target of 6,000.


The Dow Jones Transportation Average posted the largest decline, a whopping -1.19%. The transports created a large black candle falling from resistance at the just-broken previous all-time high. Today's move met support at the shot term moving average, near 9,335. The indicators have rolled over confirming the peak but remain bullish in the longer term. Support may be tested further, a break below the moving average would find additional support targets at 9,250 and 9,150.


It looks like the rally has hit a peak and entered a period of consolidation. This may go on until the next round of market moving events begin to take place. In the near term there is economic data. Tomorrow's calendar is light with only Michigan Sentiment and New Home Sales but next week's is packed. After that there is the FOMC meeting March 15th and whatever developments occur in the Trump economy. We've been promised a look at the tax plan and health care reform in the coming weeks, perhaps one of those will set the bulls running again. I remain bullish but looking to take profits in preparation for the next big move.

Until then, remember the trend!

Thomas Hughes