Introduction

The market breathed a sigh of relief in the wake of Le Pen's first-round loss. Le Pen is slated to run-off against Macron but not to win. The news helps to alleviate fears of further instability within the EU and takes a major worry off the minds of traders. With that weight gone indices around the world were able to move higher. Now it's time to look toward the rest of the week, and next, for the next round of major market-moving events.

This week the economic calendar is light with the ECB meeting on Thursday and 1st estimate for 1st quarter GDP Friday topping the list. Next week's calendar promises lots of potential catalysts including the FOMC meeting and a host of monthly macroeconomic data. Between then and now will be two of the busiest weeks of the earnings season and the possibility of Trump news including healthcare reform, tax reform, trade deals, a possible government shut-down and Korea.

Global markets cheered the Le Pen loss. Asian indices were mostly higher led by the Nikkei's 1.37%. Chinese indices were mixed, Hong Kong posted smalls gains while the mainland index posted a loss near -1.40%. European indices were more firmly bullish with gains in the range of 2% to 4%. The DAX was strong at 3%, the FTSE a little less so at 2%, the French CAC gained nearly 4% and all led by the pan-European FTSE MIB's near 4.25% gain.

Market Statistics

Futures trading was indicating a strong open all morning, in the range of 1% for US indices. There was no economic data and little earnings to move markets before the bell so the trade was fairly steady. At the open the SPX gained just over 22pts and then proceeded to drift higher before entering a tight sideways trading range. The index held gains of 1% all morning, pulling back from the highs a bit after lunch, but holding strong all day.

Economic Calendar

The Economy

No data today and only a little this week, relative to the massive amount due out next week anyway. Tuesday is New Home Sales and Consumer Confidence, nothing on Wednesday, Thursday is weekly jobless claims, Durable Orders and Pending Homes Sales and then Friday wraps it up with GDP, Michigan Sentiment, Chicago PMI and the Employment Cost Index.

Moody's Survey Of Business Confidence gained a half percent to hit 33.3. This is not a new high but is trending near a multi-month high. Mr. Zandi says responses indicate global business sentiment is strong and stable, supported by buoyant financial markets and growing above its potential.


There was no update from Factset or Reuters on earnings this week, they both tend to take a week off early in the reporting season. That being said the general run of reports that came in last week was positive and gave no indication the season would not end at least as good as expected. Forward outlook remains positive with growth expanding into the end of next year.


The Dollar Index

The Dollar Index fell a full percent in today's action as the anticipated Le Pen loss led to an unwinding of flight-to-safety. The dollar was able to gain versus the yen but both the dollar and the yen fell versus the euro, leading to today's declines. The index has now reached the bottom of its 6 month trading range and support target at the $99 level, a break of which would be bearish. The indicators are pointing lower, suggesting a further test of support, but are not strong and do not suggest a break of support. The current MACD peak is consistent with potential support, making a higher low while the index makes an equal low, while stochastic is showing a weak bullish crossover while in overbought territory.

This week the ECB is most likely to move the index, one way or the other, and is not expected to make a policy move. The FOMC meeting is next week and also not expected to make a move. The combination of the two is likely to cause volatility however the long-term outlook remains tilted in favor of the dollar. The next meeting still carries a low probability of FOMC hike, about 4%, but longer term the chances are rising. June and July are now both near 70%.


The Gold Index

Gold prices extended their slide from recent highs on declining risk-off flight-to-safety trading. The spot price fell a little more than -1% to trade near $1,275, the lowest price in over 2 weeks. Now that geopolitical fears are subsiding gold prices can revert back to more normalized levels in line with dollar trends, perhaps as low as $1,250 in the near term.

The Gold Miners ETF GDX created a white bodied candle today, but had to fall more than -2% to do it. The ETF opened with loss, and below the short and long-term moving averages, and then tried to move higher from there. The market was able to regain a small portion of the loss but no more. The indicators are consistent with lower prices, MACD reconfirming today with another bearish crossover. Downside target is near $22 and the low end of the short-term trading range.


The Oil Index

Oil prices tried to hold their ground today but were not able to do it. Rising US production, rising US rig counts and high levels of global capacity continue to outweigh the OPEC production cut and any hopes of further cutting. Now that WTI has fallen below the $50 level and begun to move lower a deeper decline is likely with downside target near $45.

The Oil Index gained a little more than 1.25% despite the fall in oil prices. Today's move reconfirms support at the top end of last year's trading range but did not move high enough to escape potential resistance. The sector is being supported by forward earnings outlook which, despite this most recent fall in oil prices, remains robust. I remain bullish on the sector long-term, very very cautious in the near.


In The News, Story Stocks and Earnings

Hasbro reported after the bell and is not playing around. The toy maker blew away results reported last week by Mattel, beating on the top and bottom lines. Sales in NA were up 2% while international was flat, however, there was regional strength such as 16% growth in Latin American. Gaming revenue was strongest in terms of product segment, growing more than 43%. The news was well received and helped drive the stock up by more than 6%, as well as sparking speculation of when Hasbro may make a bid to take over Mattel.


T-Mobile reported after the closing bell delivering results hard to compare with last year, which led the exchange to halt trading long enough for the market to dig into the details. The company reported another year of +1 million in customer growth, record low churn in post-paid and pre-paid customers, total revenue growth in excess of 11% and service revenue growth of 11%. EPS of $0.80 per share is well above consensus of $0.35. The stock fell in after hours trading, marginally, but remains at a new all-time high.


The VIX fell a whopping -25.9% today, reversing the April increase and coming to rest just above the 11 level. Today's action reveals a major unwinding of “fear” in response to the French elections and may indicate the Trump Rally is back on. The indicators confirm today's move with a strong sell signal indicative of lower prices so I would not be surprised to see the VIX make a new low in the near to short-term.


Alcoa reported after the bell and crushed it, despite falling short in terms of revenue growth. Revenue growth came in at a stellar 24.99% YOY but fell short of consensus by -11%. EPS came in at $0.63; about 20% better than expected, a full $0.10 better than consenus and reversing last years loss of ($0.62). Shares surged on the news, adding another 2% to an already strong day.

Humana reported after the bell and beat top and bottom lines. The company was also able to raise full year guidance but there are caveats. Much of the quarter's gains can be attributed to strength in the consumer segment but fees accrued in the wake of the failed merger attempt played a role. Shares of the stock jumped 2% on the news.

The Indices

The indices were buoyant today. Relief Europe would not see increased turmoil paved the way for economic and earnings fundamentals to lead stocks higher. The day's leader was the Dow Jones Transportation Average with a gain near 1.75%. The transports gapped up from the short-term moving average and created a small white bodied candle just under potential resistance. This move breaks the baseline of a head&shoulders pattern formed along the moving average over the past month and reversing the near-term correction. The indicators confirm this move with a strong buy signal that was itself confirmed today by an up-tick in the stochastic. A break above 9,300 will be bullish in the near to short-term and trend following with upside target at the current all-time high.


The NASDAQ Composite also gapped up from the short-term moving average, closing with a gain near 1.30% and at a solid new all-time high. This move is confirmed by the indicators which are indicating a strong trend-following buy with upside targets near 6,400 in the short to long-term.


The S&P 500 made the third largest gain, just shy of 1.20%. The broad market gapped up to open above the long-term trend line that had been providing near-term resistance, moving up from the short-term moving average. The indicators confirm the move with a trend-following strong buy signal that fired today with stochastic's tic higher and MACD's zero-line crossover. Upside target is the current all-time high with the potential for additional new all-time to come.


The Dow Jones Industrial Average brings up the rear with a gain of only 1.10%. The blue chips were able to regain the upper side of a long-term up trend line in a trend-following move confirmed by the indicators. Both MACD and stochastic are both set-up for the strong trend-following entry with only MACD left to confirm, and confirm it will provided tomorrow's action is not a major reversal of today. Upside target is the current all-time high, just above 21,000, with the possibility of new all-time highs to come.


I think it a little too soon to declare the correction over and the Trump Rally back on. That being said, today's action was very promising and the market looks set to rally on, providing nothing too scary emerges over the next two weeks. The next two weeks are going to be action packed. There is a lot of data due out, a lot of earnings, a lot of central bank meetings and a lot of potential for Trump news; all potential market movers. I remain firmly bullish in the short to long-term, cautiously bullish in the near. As for this week, be wary of negative earnings surprises, the ECB meeting and economic data on Friday.

Until then, remember the trend!

Thomas Hughes