Introduction

The market continues to trade cautiously, wound up within near-term ranges waiting on earnings season to unfold. Earnings kick-off in exactly one week with releases from Wells Fargo, JP Morgan and Citigroup. In the meantime tomorrow's NFP data and the Trump/Jinping summit has the markets attention and could spur some volatility. The summit is unlikely to produce any policy changes of firm news but could sway sentiment based on how relations between the two world leaders is perceived. The data bundle could be a real market mover. I expect it to at least sustain current trends with the possibility of being good to great.

International markets were mixed in the wake of yesterday's surprising FOMC minutes. The minutes revealed the Fed already talking about unwinding the balance sheet, an event that has been speculated on by the market but not been on the table til now. In Asia Chinese indices were mixed but flat, one indices closing with a gain near 0.25% and the other with a loss near -0.25%. Japanese stocks did not hold steady, falling -1.4% on Trump/Jinping unease.

European indices were equally cautious, holding near the flat line for most of the session. Indices were also impacted by Mario Draghi who gave a speech early this morning. In his comments he came across more dovish than expected. His comments, to the effect monetary easing was still the right thing to do, taking wind from sails filled with expectations the ECB may begin tightening soon.

Market Statistics

Our indices were indicated to open flattish for most of the morning, rising slightly after the 8:30AM data release. The open was a bit hectic even with volume as light as it was. The indices opened with a small gain and then proceeded to test break-even for support, bounce, test it again and bounce again before moving modestly higher. By 10AM the indices were all in the green but trading remained lackluster, the daily high was set less than 0.5% above yesterday's close and capped gains the rest of the day. Trading remained positive, but within the daily range, into the closing bell despite late day comments from the White House that put a damper on sentiment. The comments from Trump, "something should happen" with Assad.

Economic Calendar

The Economy

There was not a lot of data today but what there was is good. The Challenger report on planned lay-offs reveals that not only are job cuts trending lower from last year, plans for hiring have reached new all-time highs. The number of job cuts jumped 17% on a month to month basis in March but is -2% below the March 2016 total and is the 3rd month to be lower on a YOY basis. For the 1st quarter and YTD basis cuts are down -30% from last year as the energy sector rebounds. Cuts in the energy sector are down -84% from last year while those in the retail sector, this years leader, are up 184%.


Initial claims for unemployment fell -25,000, well ahead of expectations, to hit 234,000. Last week's number was revised higher by 1,000. The four week moving average of claims fell -4,500 to hit 250,000. On a not adjusted basis claims fell -9.2% versus an expected gain of 0.5% and are down -15% on a YOY basis. There has been some volatility in the first time claims figure over the past few weeks but based on this week's data it looks like the long-term downtrend may still be intact. Regardless, the figures remain consistent with ongoing labor market health and recovery.


Continuing claims, those filing for a second week, fell -24,000 to 2.028 million from last week's not-revised figure. The four week moving average of claims fell -7,750 to 2.023 million and a new 18 year low. Volatility in the initial claims figure has not passed through to the continuing claims figures, at least not yet. This figure remains firmly in downtrend and may hit new lows this spring.

The total number of claims rose by 4,563 to hit 2.326 million. This gain is not exactly expected but not out of line with the historical trends. Until something changes in the labor scene this figure remains in downtrend as well with an expected lows to be reached in late May and early October of this year. On a year over basis the total claims are down -5.2%.


Some thoughts on the NFP bundle. Job creation is likely to at least be steady and, bases on the ADP read, could be strong. The caveat is that there was some revision to last month's ADP so that must be considered here as well. So long as revisions don't come in horrifically low it should be a good read all around. The unemployment rate may come down, or it may rise, that will depend on the participation rate. The participation rate has been on the rise in recent months and could rise again, which is a good thing. I will not mind a rise in the unemployment rate if there are more workers looking for jobs. The real significant data points I think will be the hourly earnings and workweek. These too have been on the rise, signifying tightening of the labor market and strengthening of the consumer simultaneously.

The Dollar Index

The Dollar Index moved higher today, gaining about 0.2% to approach yesterday's 2 week high. The index is supported today by several factors including dovishness from the ECB, FOMC expectations and US economic trends. The index looks like it is set to move up to retest the $102 level and could begin that move tomorrow (NFP catalyst). The indicators are both bullish in support of higher prices although not overly strong. A break above $100.80 would be bullish, failure to breach that level could result in a test of support with an initial target near $100.


The Gold Index

Gold prices edged higher but only marginally and were not able to break resistance, again. Spot gold gained roughly 0.5% but was not able to move above $1,255. The metal is supported by geopolitical uncertainty and the recent pullback in dollar value, but not fundamentals. Longer term outlook for the dollar remains bullish, until that changes gold prices are likely to remain under pressure. Support targets are not that low however, in the $1,200 to $1,235 range, depending on the data here and abroad, and how the central bankers react to it.

The Gold Miners ETF GDX held yesterday's gains but did not move higher. The ETF remains below resistance at the 38.2% retracement level and appears to have stalled. The indicators are consistent with an asset trading at the top of a range but are not showing much strength. A fall from this level may find support at $22.50 or $21.50.


The Oil Index

Oil prices gained more than 1.25% despite yesterday's bearish inventory data. Inventories are at new record levels with US production on the rise but traders are looking beyond this to signs a drawdown is imminent. One reason is signs of tightening markets in Asia, due to the OPEC cut, which have driven US exports to new highs. Another is the onset of driving season, declining gas storage and a refining sector ready to start cracking. However, oil prices are likely to remain range bound until concrete signs of declining storage emerge. Until that happens I will remain cautious on oil, leaning toward bearish.

The Oil Index made small gains today but remains below resistance. The index is poised to move higher but is having a hard time breaking through the 1,200 level on the first go. The indicators are bullish and showing a buy, following the recent bounce from strong support, with upside target near 1,250 in the near-term. The move may be triggered by oil prices but more likely earnings expectations, which remain strong.


In The News, Story Stocks and Earnings

Carmax reported earnings this morning and blew away the estimates. The used car dealer reported top and bottom line beats driven by a near 10% increase in comp store sales. The company is benefiting from improving labor markets, improving consumer strength, consumer sentiment and a rising level of used-car inventory. Shares of the stock opened with a -3% loss, quickly moved lower to test a support level and then bounced back to close with a gain greater than 2%. Today's action may not lead to an immediate rally but does look like a bottom has been hit.


Sunoco struck oil this morning when it announced the divestiture of part of its North American business. The company is selling most of its convenience store locations to the owners of 7-11 in a deal worth $3.3 billion dollars. The proceeds are to be used by Sunoco to pay off debts and to move forward the plan to become a leading nationwide supplier of fuels. Shares of the stock jumped more than 20% on the news.


Constellation Brands reported this morning a delivered a tasty treat for investors. The company beat on the top and bottom lines as beer sales in particular and beverage sales in general rebound from weakness seen at the end of last year. The company was also able to raise the dividend by 30% and raise full year guidance to a range well above the consensus estimate. Shares of the stock jumped 4% in the premarket session, moved up as much as 10% from there and then closed at a 4 month high with a gain near 6%.


The Indices

Today's action was lot like yesterday's but not quite as violent; they opened, they moved higher, they hit resistance and then retreat back to break-even or lower. In both cases action was restrained by near-term trading ranges, winding up for the NFP and earnings season, the difference is that yesterday's action was driven by FOMC news while today's news was less than exciting.

Leading today's session, barely, is the Dow Jones Transportation Average with a gain near 0.4%. The transports trend exactly sideways within the 7 day range for the 7th day in a row. It is forming a congestion band that is biased to the upside based on trends, expectations and the indicators. The indicators are both bullish and pointing higher, consistent with higher prices, with the short term moving average as resistance. A break above the moving average would be bullish, and trend following, with upside target near 9,250 and 9,500.


Today's runner up was the NASDAQ Composite with a gain of only 0.24%. The tech heavy index created a small spinning top doji sitting on support at 5,850 and near the mid-point of the near-term trading range. The index has been consolidating within this range and setting up for a trend following move higher. The indicators are a bit mixed but consistent with support at current levels and setting up for bullish crossovers. Looking over the past month or so the MACD has made a reverse Head and Shoulders which is highly suggestive of support and a potential reversal in momentum. The stochastic is a bit erratic, showing volatility in the index within the trading range, but set up now to make a bullish crossover at a higher level. Both these signals, if triggered, are trend following and would come along with a bounce from the moving average, and most probably new all time highs, a bullish combination.


The Dow Jones Industrial Average was the laggard, closing with gains near 0.10%. The blue chips created a doji spinning top sitting on support at the 30 day moving average. The index is trading near the bottom of its near-term trading range and looks like it could move up to the upper end. The indicators are mixed but confirm support at this level and suggest a shift in momentum is possible The same reversal pattern is evident in the MACD and stochastic is set up for the same trend following crossover, all this is left now is for a confirmation. A bounce from the moving average would be bullish, upside target near 21,000. A fall below the average would be bearish with possible support at 20,500 and the bottom of the near-term trading range.


The S&P 500 finished the day with a gain of 0.19%, creating a small doji candle. The index is sitting on near-term support, within the near-term trading range, and poised to move higher. The indicators are set up like on the other charts, poised for a trend following buy signal that could come with some strength. Upside target is 2,400 with a possible break to new all-time highs.


As a chartist, trading with the trend is always (usually) the smartest thing to do. Right now the charts are set up for what could be significant entry signal. The indices have been in consolidation for over a month. They have bounced from the bottom of near-term trading ranges and edging higher. The indicators are set up for a strong trend following entry and the whole thing is supported by forward economic and earnings outlook. A good report tomorrow could spark a rally that is carried forward through earnings season. The only caveat is that it hasn't happened yet, and the signal is yet to fire let alone be confirmed. Needless to say, I'm bullish. I'm cautious for the near-term, the Trump/Jinping summit a possible hot-spot among many others, but bullish for the short and the long.

Until then, remember the trend!

Thomas Hughes