Introduction

Global indices cheered a less than hawkish FOMC but there was no follow-through here at home. Today's action looks like a day of profit taking ahead of OPEX. With little in the way of economic data or earnings over the next two weeks it is likely we'll see more of this in the coming days.

The first reports of the earnings season are in, Oracle delivered much better than expected results yesterday and Adobe did the same today, but the big banks aren't scheduled to report for another month. With Alcoa sidelined as a market bell-weather it is the big banks that will indicate the beginning of peak season and the next likely period of significant market movement.

Asian indices finished the day higher but gains were not evenly distributed. The Nikkei lagged with an increase of only 0.07% while the Hong Kong index gained a little more than 2%. Japanese trading was hit by the BOJ's decision to hold rates steady and the statement that came with the decision. The bank sees positive signs within the economy and signaled no need for further stimulus at this time. In Europe indices began the day with significant gains but they were muted on reports of a letter bomb at IMF headquarters.

Market Statistics

Futures trading indicated a positive open all morning but cut the gains to near nothing as reports of the IMF incident hit the market, just prior to the 8:30AM release of data. The data was decent and helped support the market although the early highs were not reached. The open was weak, the indices posted gains but not as much as futures had suggested, about 2 points for the SPX versus an expected 4. Trading for the first hour was weak as well, drifting sideways just above break-even until profit taking pushed the index into negative territory. Losses were minimal, the indices tread water just below break-even the rest of the day, closing with little to no movement.

Economic Calendar

The Economy

Lots of data today, starting with Housing Starts and Building Permits. Housing starts jumped 3% in February, ahead of expectations, and are up 6.2% YOY. Single family homes led with a gain of 6.5% as construction of multi-family dwellings slows down. Building permits fell however, shedding -6.2% versus an expected gain of 1%, but are still up nearly 4.5% YOY. Single family homes also led in this category posting an increase of 3.1%. Completions rose 5.4% in the month and are up 8.7% YOY.

Initial claims for unemployment fell -2000 to 241,000 from last week's not-revised figure. The four week moving average of claims also fell, -750, to hit 237,250. On a not-adjusted basis claims fell -8.8% versus an expected -7.9% and are down -6.0% from last year. Claims continue to trend at/near long-term lows and consistent with labor market health.


Continuing claims fell -30,000 to 2.0300 million. on top of last week's upward revision of +2,000. The four week moving average also fell, -11,750, to 2.054 million. Both the headline number and moving average are trending near the long-term low and edging lower, consistent with ongoing labor market health.

The total number of claims jumped 55,000, a little surprising to me, but remain consistent with long term and seasonal trends. This week's figure, 2.490 million, is 5.9% below last year and consistent with labor market health. Looking forward we can still expect to see this figure fall off into the spring, how low it goes will be an indication of the health of labor market trends, will it the market keep improving or will it level out?


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey fell from last month's long-term high of 43.3 to 32.8 but remains strong relative to current and past economic expansions. The index has been positive for 8 months and is still sitting above recently broken 6 month highs. Within the report New Order was positive for another month and rose 1 point, Shipments gained 4. Deliveries and Unfilled Orders, both positive for 5 months, also rose indicating longer delivery time and more back-logged orders. Employment and hours Worked also increased, employment gained 6 points and has been positive for 4 months while hours gained 5 points and has been positive for 5 months. Most promising is the Future Outlook, gaining ground yet again to hit a 2.5 year high. The only negative is another increase in prices paid, another sign of slowly rising inflation.


The JOLTs report, job openings and labor turnover, and remains consistent with multi-year trends. The number of job openings held steady at 5.6 million while the hires and separations rate both edged higher. Separations were led by quits which edged higher by 129,000 to 3.2 million. The quits is used as an indication of labor market confidence and has been trending at long term highs for at least a year.


The Dollar Index

The Dollar Index slipped a little further in today's trading as BOJ confidence helped to undermine a dollar already falling on a lack of FOMC impetus. The Fed did indeed raise rates, and they also indicated a possible trajectory for the rest of the year, but they don't seem to be in much of a hurry and have kept the word "gradual" in their statement. Today's action saw the index fall a little more than -0.5% to break support at the $100.50 level. The indicators are both pointing lower and consistent with such a move. A break below this level would be bearish in the near term with targets at $100, $99.25 and $98.65. Looking out to the next 2 weeks there isn't much data to move the dollar one way or the other so sentiment, and day to day news, could induce some volatility.


The Gold Index

Gold prices got a big boost from the FOMC statement and outlook. The less-than-hawkish tone was nothing more and nothing less than what they have said before, exactly in-line with expectations and sell-the-reality event. Near term. Longer term we are still faced the possibility of the Fed turning more aggressive than expected. Inflation data remains mixed but trending steadily toward their target rate, and there is still the possibility that fiscal stimulus from the Executive Branch could spur economic activity and force their hand. Gold is moving higher in the near term, adding a little less than 1% today to trade at $1228, with resistance near $1,250.

The gold miners rose along with gold and rose again today but sellers stepped in and drove them back down. The Gold Miners ETF GDX gapped up at the open by more than 2%, hitting resistance at $23.50, and only sold off from there. Today's candle is a medium sized black bodied candle forming a bearish attack and may signify strong resistance at this level. Based on yesterday's price action and outlook for the dollar and gold the past two day's look like a combination of short covering followed by profit taking. The indicators continue to swing toward bullishness buy may be setting up for a bear signal within a bear market so I would be careful about bullish positions. If the ETF continues to fall support target is $23.50.


The Oil Index

Oil prices held fairly steady after yesterday's rebound. WTI fell a little more than -0.20% to trade just shy of $49. Prices are under pressure from rising US production and inventory, despite yesterday's drawdown, and will likely remain so in the near to short term.

The Oil Index opened with a small gap to the upside only to sell off throughout the remainder of the session. Today's candle is a small and black bodied and falling from resistance at the 1,200 level. This level may provide strong resistance in the near to short term is oil prices remain low. Looking forward the sector is still expected to see earnings growth into the end of the year and next year, the question now is how badly that outlook will be affected by the recent drop in oil prices. Until then I expect to see this index continue to move sideways with the possibility of a move down to test for firm support. Support appears to be just above 1,150, a move below here could go as low as 1,100.


In The News, Story Stocks and Earnings

Adobe reported earnings after the bell and beat on the top and bottom lines. The software company achieved record quarterly earnings and cash flow, increased its buyback plan and raised its guidance which combined to drive shares higher in after hours trading. The stock jumped more than 4% and is trading at a new all time high.


Dollar General reported before the bell and beat on the top and bottom lines. Net income increased more than 9%, guidance was issued above the consensus target and the dividend was raised leading to 2% pop in intraday trading. Shares hit resistance at $75 where sellers stepped in to drive shares back to break-even by the close. While the company is doing well now, it is sure to be hurt by border adjustment, should that come to pass, due to all the cheap junk they import from overseas.


Cato also reported before the bell and it is not good. The apparel company says sales were hurt by ongoing softness in retail as well as mistakes they made themselves. Because of this quarterly revenue fell and comp sales fell more than 12% each while quarterly earnings were a net loss and full year earnings fell -28%. Shares of the stock fell nearly -10% on the news but were able to recover most of the losses before the close.


The Indices

Today's action was was choppy and to the downside although most of the day's losses were recovered by the close of trading. Today's loss leader was the Dow Jones Transportation Average with a loss of -0.52%. The transports created a small black bodied candle falling from resistance at 9,200 and look like they may go a little lower. The indicators remains bearish, suggesting further downside, with target at 9,000 for the near term.


The S&P 500 made the next largest decline, -0.16%, and created a small to medium sized black bodied candle. Today's action fell from resistance at the top of yesterday's candle, just shy of 2,390, and about 10 points below the current all time high. The indicators are bearish but have begun to roll into trend following entry signals but are far from confirming. This may lead to range bound trading over the next week or more. Near term support is the bottom of last week's trading range, near 2,360, resistance is just above today's open.


The Down Jones Industrial Average made the smallest decline, only -0.07%, and set a 2 week while doing it. Today's action created a small bodied black candle with upper and lower shadows indicative of indecision but biased toward the downside. Price action has given the first indication that resistance is present at 21,000, if it is not broken near term trends may turn bearish. The indicators are bearish and suggestive of a test of support but also showing early signs of support and a possible trend following bounce. This may indicate a new trading range, possibly between 20,500 and 21,000, and consolidation leading up to the next big market move.


The NASDAQ Composite bucked today's trend closing with a small gain, 0.01%, and a hairsbreadth away from a new all time high. Today's candle is a small spinning top doji, a sign of indecisiveness but not a candle to make a trade on. The indicators are mixed, still slightly bullish but rolling over into what could become a trend following entry. Compared to the other indices the indicators here are more bullish but not yet confirmed so extreme caution is warranted for any new bullish positions being considered. Resistance is the current all time high, near term support is near 5,800.


Today's action gives me pause. It would have been nice to see follow through from yesterday and maybe a new all time high but without that it looks as if the market has entered another holding pattern while we wait on the next big move. Now that we've passed the FOMC meeting we've got a good month for the market to churn, consolidate and move sideways within recent ranges... or pull back to firmer support, it could happen. I remain bullish on the broad market for the short and long term, earnings and GDP growth outlook are good even without a Trump Bump, but the near term has become a question mark so I have turned neutral. Tomorrow could be a wild day in terms of volatility, it is triple witching options expiration and St. Patricks Day, and there is some data but nothing I expect to move the market.

Until then, remember the trend!

Thomas Hughes