Introduction

Global markets were cautious in today's trade with the ECB, NFP and FOMC at hand, but the dip was bought. There was little to move the market today, the economic and earnings calendar's were both light on events, and there is quite a bit of market moving data due out later this week so volume was light and action directionless. The dominant thing in everyone's mind is the FOMC meeting, they are expected to raise rates by at least 25 basis points, but not enough to overshadow the NFP on Friday. Expectations aren't wild, only 210,000, so anything in the range of 175,000 to 250,000 should be Goldilocks.

Indices in Asia were more mixed than down. Chinese markets were up on optimistic talk coming out of the annual meeting of China's parliament. Japanese market were down however as a stronger dollar hurt the yen and North Korea fires more missiles at them. This time 4 ballistic missiles were fired with at least 3 of them landing within Japan's economic zone of operations. Europe moved lower as well, first down about a half percent but paring those losses by the close.

Market Statistics

Futures trading indicated a negative open all morning. The trade was relatively steady for most of the morning, down about -5 points for the SPX, but fell off a bit going into the open. At the open there was a mild rush of selling, not too strong, that pushed the index down about -13 points but that was the bottom of the day. The market had begun to move higher by 11:30AM, after the SPX closed the gap formed last Wednesday and confirming near term support. Between 11:30 and 1PM the indices halved their losses at least and then entered a tight trading range that persisted into the close.

Economic Calendar

The Economy

Only one economic release today, Factory Orders for January. New orders for manufactured goods rose by 1.2%, better than expected but down a tenth from last month and the 6th month of increases. Last month was not revised. Within the report shipments continues to rise while unfilled orders fell. Inventories rose by a tenth after falling -0.3% last month. Durable goods order rose by 2%, led by transportation equipment.

Moody's Survey of Business Confidence gained 0.5% to hit 33.6 and is just off the short term high. Mr. Zandi's summary is little changed. He says that global business remains optimistic, stable and strong. The global economy is growing at the high end of its potential, view of current conditions has improved from the fall and forward outlook is positive.


Earnings season is just about over for this cycle. To date, 98% of the S&P 500 has reported earnings with 65% beating earnings estimates and 53% beating revenue estimates. The blended rate is 4.9%, not bad considering the long earnings recession we were just in but not as good as I had expected. Forward outlook remains positive although the estimates are creeping lower.


First quarter 2017 is now expected to see earnings growth of 9.0%, down -0.3%, with second quarter growth down to only 8.5%. Full year 2017 outlook fell to 9.7%, still robust, with that growing to 11.9% in 2018. Estimates for next year are on the rise, rising a tenth from last week. Energy is still expected to lead in 2017 with full year growth of 315%.


The Dollar Index

The Dollar Index fell in early trading to test support at the short term moving average. Today's action is most likely backing-and-filling as forward outlook is quite bullish for the dollar. The FOMC is expected to raise rates next week, the CME's Fedwatch tool rising above 80% today, with the prospects of 3 hikes this year growing day by day. The risks this week are the data, which may be too weak or too strong, and the ECB meeting on Thursday. A hawkish sounding ECB or Mario Draghi could boost the euro and take the wind out of the dollar's sails. Support is the short term moving average, upside targets are near $103.75.


The Gold Index

Gold prices held steady today, spot gold closing with almost no movement, but downside pressure remains. The FOMC is a near certainty to raise rates, if the data is good they might be expected to raise rates a little quicker than they are now. If so support for gold could dry up. First target is $1,200 but a break below here could send it down to $1,150 in the near to short term.

The gold miners continue to lose ground. The Gold Miners ETF GDX fell more than -2.5% today to test support at $21.50. The ETF appears to be heading lower, the indicators are both consistent with a strengthening sell-off and lower prices, but a break below support is required. There may be a bounce from here this week while we wait on the data and then the FOMC next week but longer term outlook remains bearish. Resistance may be as high as $23.50, a break below support could go as low as $18.50.


The Oil Index

Oil prices lost ground today as rising US production and storage continue to offset OPEC production cuts. Today's action was supported to by talk of further OPEC cuts but negative all the same. WTI fell a little more than -0.25% to trade just above $53, near the mid-point of the near-term trading range. There is still no clear indication of supply/demand rebalancing so I expect this range to hold in the near to short term.

The Oil Index gained 0.34% today, contrary to the broad market's decline, in a move confirming support at the 1,200 level. The index appears to be building a base at this level, supported by forward earnings outlook, and is only awaiting the right catalyst to send it higher. The indicators are both confirming support at this level and set up for a fairly strong bullish entry signal in-line with the prevailing long-term trend. MACD has turned bullish and stochastic is set up for a strong bullish signal so all that's left is for a move to the upside. Near term resistance is the short term moving average, just above today's close, with additional targets near 1,235 and 1,250. A break above these could lead to a long term upward movement with upside targets near 1,350 and 1,500.


In The News, Story Stocks and Earnings

Shares of Tyson Foods, maker of all manner of poultry products, got slammed today on reports one of its suppliers had a case of the bird flu. This is the first case of bird flu in a year and is in process of being contained. If not it could affect other companies, Cal-Maine is one that springs immediately to mind. Cal-Maine is one of the largest supplier of shell eggs in the country and could get a boost if the hen population gets sick and eggs get scare. Shares of Tyson fell more than -2.5% on the news, finding support near the bottom of the three month trading range. Shares of Cal-Maine gained 1% and look like they may be heading back to the top of a 6 month range.


Shares of GoPro got slammed today as well following a downgrade by Goldman Sachs. The investment banker says the camera makers market is saturated and the entry into the drone business was not very promising. The rating was dropped to a sell from neutral with a price target of $6. The stock fell nearly -8% on the news and is now trading at a new all-time low, just above $8.


The VIX gained a little more than 2.5% in today's session but created a black bodied candle. Today's action made a small gap up at the open, opening at the short term moving average, and then falling throughout the day. The index appears to be falling back to the long-term lows and the indicators are in agreement. Both MACD and stochastic are indicating a peak and falling off, consistent with a retreat to support. Support is near $10.50 and historic low levels, levels consistent with ongoing market rally.


The Indices

The indices tried to sell-off again and again it was a halfhearted attempt. The early declines did not last long, buyers stepped in on the dip, and drive them back almost to break-even by the close. If not for a round of selling in the last 15 minutes today's losses would be even less. The Dow Jones Transportation Average led with a decline of -0.75%. The transports created a small bodied black candle with long lower shadow, hammer doji-like, confirming near term support at the short term moving average. The indicators are both bearish, consistent with a test of support, but very weak so the test may not be very deep. A break below the short term moving average is bearish in the near term with downside target near 9,250 and would be a possible entry for long term bullish positions.


The NASDAQ Composite made the second largest decline but only half that of the transports, -0.37%. The tech heavy index created a small white bodied spinning top candle testing near term support at the bottom of the gap opened last Wednesday. The indicators are consistent with a pull-back or consolidation so support could be tested again. A break below 5,820 would be bearish in the near-term with downside target near 5,750 and a long term up-trend line. A move higher from here may find resistance at the all-time high, a break above that is bullish with new all-time high targets near 6,000.


The S&P 500 made the third largest decline, -0.33%, closing with a loss of -7.81. Today's action created a small doji hammer testing support at the bottom of the gap opened last Wednesday. This is a good thing as it allows those who've missed out on the last week's rally to get in without having to chase prices, and for a calm consolidation while profits are taken and new positions are opened. The indicators are consistent with a top, both rolling over from recent peaks, so support may be tested again. A break below support would be bearish near-term with downside target near 2,350 and the bottom of last week's trading range. A move up from support may find resistance at the all-time high, a break above there would be bullish with upside target near 2,450.


The Dow Jones Industrial Average made the smallest decline today, -0.24%. The blue chips created a small spinning top doji, testing for support, but did not close the gap formed last Wednesday. The indicators are rolling over, consistent with a peak, so the gap could be closed tomorrow or Wednesday if nothing spurs the bulls into buying. A break below 20,850 would be bearish near-term with downside target near 20,500, a bounce from these levels would be bullish with upside target at the all-time high with chances for new all-time highs.


Today's action was not bad at all. There was some selling but no one lost their nerve over the weekend, there was no mad rush to get out of the market and near-term support levels held. Tomorrow could be more of the same, there are only two data points and neither one a market move in my opinion; consumer credit and the trade balance. The earnings calendar is also light, we've entered the doldrums of the cycle so there's a few weeks before things get going, so probably nothing market moving there either. As for the rest of the week; Trump could Tweet, we might get a look at the new health care plan and there is some key labor data due but the big mover will be the NFP on Friday. Until then, near-term ranges could hold, after that we'll have to see. Longer term I remain bullish. If there is a deeper pullback or correction, caused by the NFP or the FOMC, it will likely be a buying opportunity. If there isn't a deeper pull-back or correction hold on tight because more new highs are on the way.

Until then, remember the trend!

Thomas Hughes