Introduction

The market moved higher in listless trading, lots of news but nothing to give direction. The biggest headline was Putin's interview this morning while attending a conference in Arkhangelsk. He told US reporters unequivocally that he'd nothing to do with manipulating US politics, I don't think too many believed him and the news did little to move the market. In other news 4th quarter GDP was revised higher and labor data came in as expected, neither important enough to move the market either but at least a positive reinforcement of trends and outlook.

International indices were equally without direction. Asian indices fell on dollar strength and geopolitical uncertainty, the Nikkei losing about -1.00% while the Chinese indices fared a little better. European indices were mostly flat, the invocation of Article 50 by Theresa May has traders wary but so far no signs of economic meltdown.

Market Statistics

Futures trading was flat all morning. There was some fluctuation but nothing more than a few ticks either way. The open was a little hectic. An initial round of selling lasting about 10 minutes drove the S&P down by a point or two until buyers regained control of the market to push prices back into positive territory. An early high was hit around 11AM setting the days range, from that point forward the indices moved sideways within that range while remaining positive for the day. After hours action was light, not much in the way of earnings but comments from Wilbur Ross could have stocks moving tomorrow. He says the administration would like to trigger NAFTA talks before Congress spring recess.

Economic Calendar

The Economy

US 4th quarter GDP was revised higher by 0.2% to 2.1%. This follows 3.5% in the 3rd quarter and 1.4% in the second, leaving full year real GDP at 1.6%. Looking forward to the current quarter and year, expectations remain positive and expansionary if in a wide range with a mid-point near 3%.


First time claims for unemployment fell -3,000 to 258,000 from last week's not revised figure. The four week moving average of claims gained 7,750. On a not adjusted basis claims rose 1.5% versus an expected 2.7% and are down -3% YOY. Over the past few weeks these figures have bounced from long-term lows and appear to be stabilizing just above those levels. This may indicate a slackening in the pace of hiring, consistent with the season, so next week's NFP may not be as good as last month's.


Continuing claims rose by 65,000 to hit 2.052 million. Last week's figure was revised lower by -3,000. The four week moving average of claims fell 1,250 to hit a 17 year low. While a positive sign that labor trends are intact I do expect to see this figure bounce higher in the next 2 to 3 weeks simply based on the rise in initial claims. Regardless, this number is good and indicative of labor market health.

The total number of claims fell by -69,526 to hit 2.322 million. This is the lowest level in 11 weeks and consistent with season and long term labor market trends. To date, the total number of Americans on unemployment is in downtrend with no expectation of that to end. This should result in a net decline in unemployment, offset by rising participation rates.


Tomorrow there are a few bits of important data; Personal Income and Spending, PCE, Chicago PMI and Michigan Sentiment. Next week is the turn of another month which means another round of macro-data including the NFP, ADP, Challenger, FOMC Minutes, Auto Sales, Construction Spending and more.

The Dollar Index

The Dollar Index gained nearly 0.5% in a move extending a bounce from support. Today's action takes the index back above the $100 handle for the first time in a week and appears to be moving higher. The index is trapped in a range once again, with US economic outlook providing support. Aiding the move was weak inflation data from Germany suggesting that the ECB would not be doing to much tightening in the near to short-term. The $100.50 level may provide resistance, a break above that would be bullish with upside target near $102.50. Tomorrow's PCE data could be a mover, it is the Fed's preferred measure of inflation.


The Gold Index

Gold prices fell on dollar strength but did not fall too far. Spot gold shed about -0.75% to trade near $1,245 and remains above support. The metal may continue to fall, especially if the data comes in strong, but geopolitical uncertainty remains as support so downside is limited. Support targets are $1,235 and $1,220 in the near-term.

The gold miners fell along with gold, as expected, but did not fall too far. The Gold Miners ETF GDX shed a little more than -1.30% to trade at the bottom of the 2 week range, near the mid-point of a short-term range dating back to last fall. The ETF appears to be winding up, waiting for gold and the dollar to make their move, and it could start in the next week. Starting tomorrow we get PCE inflation data, then next week is the FOMC minutes and other major data points used by the Fed. A move up could go to $25, a move lower could go to $20, a move beyond either may take additional catalyst.


The Oil Index

Oil prices gained nearly 1.75% to trade above $50 and at a 2 week high. The move is supported by OPEC hopes, hopes they will follow through on talks to extend the production cuts another 6 months. Despite the move downside pressure remains. Current supply, storage and capacity remain high with little expectation of a major pick up in demand. This means the ceiling for oil is likely at the recent high, near $55, if not lower.

The Oil Index got a lift from today's rise in oil prices but was halted at resistance. The index made a small gap up to the 1,200 level where it met sellers. Price action created a small black bodied candle, hanging at resistance, but otherwise looks strong. The indicators are both pointing upward, in support of higher prices, and suggest that resistance will be tested again at least. A break above 1,200 would be bullish with an upside targets of 1,225, 1,250 and 1,300. Looking forward, the bounce in oil prices, no matter the cause, is a plus for the sector because it supports earning growth outlook.


In The News, Story Stocks and Earnings

Lululemon, the would-be iconic manufacturer of all things yoga related, reported earnings after the closing bell yesterday. The company delivered what could be the worst results in its history as comp store sales decline and revenue misses expectations. The CEO says they are not happy with the quarter, by the looks of the chart the market is not happy with it either. Share prices fell nearly -25% to trade at a 15 month low.


The VIX fell a half percent today to trade below $11.50. The fear index is back to it relative low levels, just above the long-term low and consistent with a quiet market, if not a rising one. Based on this indication it looks like the SPX is comfortable at its current levels, there is little fear of correction, and could easily continue to consolidate until the onset of earnings season.


The Indices

The indices extended their bounce from support and the move looks like it could go higher. Leading today's move is the Dow Jones Transportation Average. The transports closed with a gain near 0.90%, creating a medium sized white bodied candle. This move takes the index to a new 2 week high and is confirmed by the indicators. The indicators are both confirming a trend following buy, stochastic has been moving higher and today MACD made a zero line crossover, although upside is limited by potential resistance. Resistance is the top of the near term range, at the current all-time high, near 9,600.


The Dow Jones Industrial Average was the 2nd best performer today with a move of 0.32%. The blue chips created a small white bodied candle halted at potential resistance with mixed indications. Potential resistance is 20,750, a break above which would be bullish in the near to short-term. The indicators are mixed in that MACD remains bearish although the set-up is consistent with a trend following swing to the upside. If the index does move higher next resistance is the current all-time high, just above 21,000.


The NASDAQ Composite and S&P 500 were just about neck and neck all day. The NASDAQ closed with a gain of 0.28% and set a new closing high. The tech heavy index appears to be moving higher although a more definitive break of resistance would be nice. The indicators are in support of a trend following swing to the upside but not yet confirmed by MACD. A break to new highs would be bullish and could go as high as 6,050 in the near-term. Failing to break to new highs may result in a near-term trading range with support target of 5,750.


The SPX closed with a gain of 0.29% and created a small white bodied candle. The index appears to be moving higher within a near term range with the current all-time high as target. The indicators are consistent with a trend following swing in momentum but have yet to confirm. Based on the magnitude of and convergence with the most recent bearish MACD peak it looks like the index could retest support at the long term up-trend line, which means that the near-term trend is most likely range-bound between 2,335 and 2,500.


Today's and this week's bounce from support and move higher is very promising. It shows support for the index at high levels consistent with consolidation but is not yet a sign of higher prices to come. Considering the amount of data due out next week, and the reports on the list, it is likely that the near term trading ranges will persist at least until next Friday if not longer. The next possible trigger for higher prices will be the onset of earnings season, still about 2 weeks away, discounting the possibility that something from the political sector sparks a rally before then. I remain bullish for the short and long-term, neutral for the near-term.

Until then, remember the trend!

Thomas Hughes