Introduction

The market continued to test support while we wait on next week's FOMC meeting. Looking to the economic calendar I see that the next four trading days, culminating with the FOMC announcement on Wednesday, are packed with data that promise to move the market. Tomorrow is of course the NFP and unemployment data, I expect to see some strong numbers across the board; strong jobs creation, declining unemployment, rising participation and increasing wages. After that Monday is a dud, nothing released that day, and then PPI Tuesday mornings, CPI Wednesday morning and the FOMC later that day.

Today's action was affected by economic data and the ECB meeting. Trading in Asia was less affected, being closed long before the ECB meeting or the release of US data, although producer level inflation in China suggests an uptick in economic activity. Official PPI jumped 7.8% in February, the fastest pace since before the global financial crisis, but was offset by weak consumer level data. Chinese indices fell on the news, about -0.5%, while equities in Japan continue to rise on weaker yen and better than expected GDP growth.

European market closed almost exactly flat after a choppy session. The trade was driven by Mario Draghi who's comments may qualify as Goldilocks. The ECB kept rates unchanged, as expected, with little to no change to the statement. The comments during the press conference however came across as mixed, he talked up the health of the global economy, the effectiveness of ECB policy and signs of recovery in the EU while maintaining the stance that rates would remain at or below current levels for quite some time. Other positives from the press conference are higher targets for 2017 inflation and GDP growth.

Market Statistics

Futures trading was flat to negative for most of the early morning. This moderated to flat as the ECB announcement was hitting the wires and turned slightly positive after the press conference and the release of today's economic data. The open was calm, the indices opened with small gains and were able to hold them for most of the day. Early action was calm, trading within tight ranges just above break-even. Around 1:30PM this all changed when some sell orders hit the market. The S&P lost about 10 points over the next 45 minutes, hitting intraday bottom at 2,355. A double bottom formed between 2:15 and 2:45 resulted in a push back toward break-even levels from below. The late day rally held into the close, leaving the indices near the highs of the day.

Economic Calendar

The Economy

First off let me comment on the ADP figures from yesterday. Wow. That was surprising but not unexpected, the labor market as a whole has been building up to a boil for a long time. Data within the report was also quite good, showing a healthy and broad increase in jobs across all sectors.

Today's data is not as surprisingly good as yesterday's but is consistent with ongoing labor-market recovery and health. First up is the Challenger, Grey & Christmas report on planned lay-offs. The number of lay-offs planned or announced in February is 36,957. This is down 19% from the previous month and is down -40% from last year. On a year-to-date basis job cuts in 2017 are down -40% from this same time last year as well. Retail leads the cutting, led in turn by JC Penny and their announced store closings. Energy has recovered from last years cuts, this months total for the sector is down -87%. The number 1 and number 2 reasons for cutting jobs are cost cutting and restructuring. On a side note, Challenger says that plans to hire or increase hiring have hit an all-time high.


Initial claims for unemployment rose by 20,000, rebounding from last week's 44 year low, to hit 243,000. Last week's figure was not revised. The four week moving average of claims rose by 2,250. On a not adjusted basis claims rose by 14.6% versus an expected 5.0% and are down -1.5% year-over-year. Despite the narrowing between in YOY data the not-adjusted claims are trending well below last years levels, as are adjusted claims, and both remain consistent with ongoing labor market health.


Continuing claims fell by -6,000 to hit 2.058 million from last week's revised figure. Last week's figure was revised lower by -2,000. Except for a little volatility over the holiday season this figure has been hovering near this level, just off the long term low, since last September and is consistent with labor market health.

The total number of American receiving unemployment benefits fell by nearly 100,000 this week to hit 2.434 million. This is in line with expectations, seasonal and long-running trends, and consistent with ongoing labor-market recovery. This week's total is the lowest level since the post-holiday peak and likely precedes a multi-month decline in claims that will end in late spring.


Import/export data was also releases at 8:30AM. Import prices rose 0.2% versus an expected 0.1%. Export prices, ex-oil, rose 0.3% and in-line with expectations.

The Dollar Index

The Dollar Index lost a little ground today despite dovish comments from Mario Draghi. The index fell -0.20% creating a small black bodied candle hanging below potential resistance levels. The ECB's actions were not unexpected, the comments were however a little confusing in that they seemed to predict economic improvement and the need for stimulus at the same time. Bottom line, the FOMC is on track to raise rates next week and this year while the ECB isn't which puts them on divergent paths once again. The dollar may churn sideways o pull-back over the next few days, so long as the data is not strong and supportive of rate-hikes, up to and until the FOMC meeting but the short to long term outlook is bullish. Resistance is near $102.50, a break above would be bullish with next resistance at the current long term high. Near term support is along the short term moving average near $101.15 with a firmer target near $101.50.


The Gold Index

Gold prices fell a little more than -0.5% to trade at a new 5 week low. The move is driven by rising expectations for a Fed interest rate hike, probability now over 90%, and could be the beginning of a much larger move. The question now is not when the next rate hike will be but how much will they raise rate this year, and how often. The data is picking up, there is a real chance for accelerated economic growth this year, so it is not impossible the FOMC will raise rates more often or in larger increments than expected. Support target for gold is $1,200, just below today's closing price, a break below this level could easily go to $1,150 in the near term with lower prices a possibility in the long term.

The gold miners remain under pressure and poised for a move lower. The Gold Miners ETF GDX fell -0.65% today, reversing yesterday's rebound and falling from support turned resistance at $21.50. The indicators remain bearish and supportive of lower prices. Stochastic is showing weakness with a cross below the lower signal line but MACD momentum is falling off so any move lower that does occur may be muted. Downside target is the long term low near $18.50.


The Oil Index

The reality of supply/demand imbalance has hit the oil market, prices are falling. WTI fell another -2.5% in today's session, extending yesterday's -5% decline, to trade near $49.25 and the lowest levels since last November. This decline may continue into the near term with a possible floor near $45. This is the price at which shale production is expected to turn-off and if so could slow production and supply enough to possibly support prices.

The Oil Index opened lower and moved lower from there to hit support levels, about face and move higher. The index closed with a gain slightly greater than 0.5% and indicative of support at this level. Price action has returned to the top of the long-term trading range that was broken when OPEC announced their deal. Now that the deal is coming to a close and we've seen it didn't really do anything the market has also returned to reality, which I think is a good thing. Long term outlook for earnings growth is still bullish, the market should be able to move higher in the short to long term once a near term bottom can be established. Today's candle has a long lower shadow, indicative of support, but not a guarantee lower prices will not be seen so I'd be cautious for now. The indicators are bearish in the near term but remain consistent with support over the longer term in the range of 1,100 to 1,170.


In The News, Story Stocks and Earnings

Zumiez reported after the bell and did not satisfy investors. The company blew away fourth quarter estimates but provided weak forward guidance. Quarterly results include an 8.7% increase in net sales, a 5.1% increase in comp sales and a 38% increase in net earnings. The downside is that forward guidance is below consensus, a net loss in the first quarter, although mitigated by plans to open 18 new stores this year. Shares of the stock were down marginally during the open session and then fell an additional -10% in after hours trading.


Ulta Beauty reported after the bell as well and the report was an echo of Zumiez. The beauty product company beat top and bottom line earnings but gave weak forward guidance mitigated by plans to open new stores in 2017. Shares of the stock fell -5% in after hours trading.


The VIX rose 3.71% today and is approaching the top of the near term range. Today's rise is not alarming in and of itself but could be the precursor to a sharper move should the market get spooked. The indicators are consistent with a trading range and move to the top of a trading range but not overly bullish. The top of the range is near 12.50, a break above this could be bullish for volatility and bearish for the market. Regardless, the VIX remains low and consistent with bull market conditions.


The Indices

Today was a day of mixed trading. The indices first seemed to want to move higher, then they succumbed to selling and dipped into negative territory only to bounce back before the close and end, for the most part, the day with small gains. One index bucked today's trend and closed with a substantial loss and that was the Dow Jones Transportation Average. The transports closed with a loss of -0.68%, at a 3 week low and below the 9,230 support target. Today's action is a little alarming for the bulls, a break down of support is not what we want to see, but is not yet indicative of deeper correction. The indicators are consistent with a test of support so this level may be tested further or broken. If broken downside target for support is 9,000 in the near term and 8,500 in the short to long.


The day's biggest gainer was the S&P 500 with an increase of 0.08%. Today's action snaps the 3 day losing streak and confirms again near term support at the bottom of last week's trading range, near 2,360. The indicators are still pointing lower so there could be further testing of support but for now it looks like it will hold. A break below support has a near term target of 2,325, near a long term up-trend line. A bounce would be trend following with initial target at the current all-time highs.


The NASDAQ Composite and Dow Jones Industrial Average both closed with gains of 0.02%, just barely above yesterday's close. The tech heavy index created a small spining top doji just above the short term moving average. This is the fourth such candle this, all within last week's trading range and above near term support levels. The indicators are pointing lower, consistent with a test of support, but not suggestive of deep correction at this time. Near term support is near 5,800, a break below here would be bearish with possible targets as low as 5,500. A bounce would be trend following and bullish with targets at and above the current all-time high.


The Dow Jones Industrial Average created a small doji candle touching down to support at the bottom of last week's trading range, the pre-Wednesday support level. Today's action closes the gap formed on last Wednesday, the last index to do so. The indicators are rolling over and pointing lower, consistent with a test of support but not indicative of deep correction at this time. Near term support is just below today's close, near 20,850, and likely to hold provided there is no shock to the system or let-down in expectations. A break below support would be bearish near-term with downside target near 20,000. A bounce from this level would be bullish with upside target at the current all-time high and above.


This week has been a bit nerve-wracking for us bulls as the indices retreat from last week's all time highs. The good news is that near term support levels are holding, for now, and that forward outlook remains positive. Tomorrow's NFP could be the trigger to start the next big market move, whichever direction it is, but if not the FOMC meeting is only a few days away and is usually a pivotal moment for the market. Speaking of the NFP, strong data should not be negative for the market since the FOMC is already expected to raise rates next week and several more time this year. This means there is a chance that good news could be good news and not a harbinger of doom, if the NFP is as strong as the ADP that would be great news for the economy. I'm still bullish, cautiously anticipating the next move but aware there is a chance for correction. If there is I'll be buying on that dip too.

Final thought. Today is the bull market's 8th birthday. In terms of cyclical bull markets that is old and it could mean the end. In terms of secular bull markets, in which we are in, 8 years is only about middle-aged so I think we can still expect to see many more years of higher prices.

Until then, remember the trend!

Thomas Hughes