Introduction

The market was hit with a powerhouse of events that induced volatility but did not spark correction. The surprise news of the morning was apparent consensus on healthcare reform and vote planned for today, the house passed with a single vote to spare. This is of course on top of yesterday's FOMC meeting, their policy did not change but the tone did. The committee has rounded the corner from iffy on the economy to hawkish saying first quarter weakness was transitory and unlikely to sway decisions.

Asian indices were flattish, led by a 0.70% gain in the Nikkei, as traders digested the FOMC news. Also impacting sentiment was a surprise jump in Chinese copper inventories which raised speculation of economic sluggishness. European indices were much more positive. Indices across the region were lifted on earnings and the results of debate between Macron and Le Pen. Macron, who was not characterized as a good debater, came out looking fine reinforcing his lead in the polls. The DAX gained nearly a full percent and closed at a new all-time high, the FTSE MIB gained nearly 2%.

Market Statistics

Futures trading indicated a positive open all morning. Indications for a gain near 6 points on the SPX held steady through the releases of economic data and earnings and into the opening bell. The open was as expected only the gains did not last more than a few minutes. Selling took over right from the start, sending the indices down to break-even levels within the first half hour of trading. Stocks held in a tight range between the open and early low for the first half of the day but broke to the downside just before lunch. At this point selling picked up momentum, the index hit a low about -5 points from yesterday's close and then bounced right back up to near break-even where it remained into the close of the day.

Economic Calendar

The Economy

The calendar was full today but much of the data is rear looking. First up is the Challenger, Grey & Christmas report on planned lay-offs. The March total of planned lay-offs fell -15% month-to-month to 36,602 and is down more than -43% from March of last year. The retail sector led with the most planned lay-off's due to the ongoing shift from brick-and-mortar to online sales. The energy sector, which led job losses last year, reported 87% less cuts this month over the same time last year. On a year-to-date basis job cuts are down -35% from last year, the lowest 1st quarter since 2014. Adding to the bullish spin, hiring in March and the first four months of the year is the strongest its been in at least 5 years.


Initial claims for unemployment echoes the signal sent by the Challenger report, job losses and unemployment are trending lower. First time claims fell -19,000 to hit 238,000, well ahead of expectations and consistent with declining lay-offs. The four week moving average of claims rose by 750 to hit 243,000, last week's data was not revised. On a not-adjusted basis claims fell -12.6% versus an expected -5.5% and are down -13% YOY. There has been some volatility in the data over the past couple of months but the figures remain low and in-line with ongoing labor market improvement.


Continuing claims fell -23,000 to 1.964 million, a new low dating back to April, 2000. The four week moving average of continuing claims fell -1,750 to 1.989 million, a new low dating back to November of 1988. Not much more to say other than these numbers are bullish for the economy, consistent with labor market health and a continuation of ongoing labor market improvement.

The total number of Americans receiving unemployment fell -29,047 to hit 2.052 million. This is consistent with seasonal expectations and long-term labor market trends, and the lowest level since the first week of December 2016.


Productivity and Unit Labor Costs were released alongside jobless claims but come with a caveat; this is 1st quarter data and is of little importance now. Productivity fell -0.6% in the 1st quarter as hours worked outpaced output. Output increased by 1.0%, hours worked rose by 1.6%. Despite this productivity is up on a YOY basis, 1.1%. Unit labor costs also rose and came in a bit hotter than expected at 3.0% driven by a 2.4% increase in wages. The increase in wages is good for the consumer and hints at increasing upward pressure within the labor force, and the specter of rising inflation. PPI and CPI data come out next week. Tomorrow's NFP may not be strong but I still don't think it matters. All the other labor data shows high levels of job openings, declining job losses, increased hiring, rising wages and healthy labor markets.


Factory Orders for March was released at 10AM and is another bit of rear looking data. Orders rose 0.2%, half of the consensus expectations. Orders have been up 9 of the past 12 months. Shipments fell for the first time in 8 months, -0.1%, while unfilled orders rose 0.3% the third month of increases. New orders for durable goods rose 0.9% and have been growing for 9 months.

The Dollar Index

The Dollar Index saw some volatility today as well. The index was first up on the hawkish FOMC tone and then later down as the the Euro gained strength from Macron's debate win. The index fell -0.35% in today's action creating a long black candle but doing little more than extending the near-term congestion band to an 8th day. The index is sitting on support at the $99 level and balanced on a fine point between FOMC expectations and ECB expectations. Tomorrow's NFP is the next bit of data that may sway the balance. Strong NFP or other indications the FOMC will move forward with rate hiking would help strengthen the dollar. A bounce from this level will be bullish in the near-term with upside target near $100 and then $101. A break below $99 would be bearish in the near-term with downside target near $98.


The Gold Index

Gold moved lower today regardless the dollar's mid-day reversal. Spot gold fell more than -1.5% on a combination of hawkish FOMC and deflating geopolitical tensions. Gold is now trading at a 6 week low below $1230 with a chance of moving lower. Current levels are a support target, if it fails the next target is near $1220 with a chance of moving down to $1,200.

The Gold Miners ETF GDX fell to a four month low and moved below the bottom of the near-term trading range. The ETF is now trading near $21 with a chance of moving lower. The indicators are bearish and consistent with at least a test of support at this level, if not a break to new lows. This if of course dependent on gold prices, and the dollar, both of which could be moved by tomorrow's NFP and if not then, then next week with CPI and PPI data.


The Oil Index

Oil prices are slip sliding away to new 5 month lows. High levels of global production, rising US and global rig counts, record levels of US storage and the restart of Libyan fields has overcome the OPEC production cap and any hopes they may increase or prolong it. WTI fell more than -4.5% today and is now trading with a $45 handle. This level may prove to be support but I think it too soon to say for sure. If selling gains momentum a break to lower lows with a target near $40 is very possible.

The Oil Index fell in response to oil's fall and is testing my resolve. The index fell -1.75% and created a medium sized red candle deep inside my support zone. The support zone is the trading range of last year, a range that persisted for at least 7 months and was only broken when the OPEC production cap lifted oil prices. The indicators are consistent with a move lower in the near-term but persist with divergence in the long. Price action combined with support targets, the indicators and forward outlook for earnings growth make this chart look over-extended to the downside. That being said, I remain bullish on the sector for the long-term but cautious in the near and short.


In The News, Story Stocks and Earnings

The health care sector was surprisingly calm in the face of the health care reform vote. The Health Care SPDR XLV gained a half percent at the open and then moved a little higher from there. The ETF is hanging just below 1 year highs and looks as if it could move higher. Price action suggests a weak near-term uptrend with consolidation near the March highs. The indicators are both bullish and also beginning to show strength. Resistance is in the range of $76 to $77, a break above that would be bullish near-term. Support targets are $75 and $72.50 in the near-term.


Kellogg reported earnings this morning beating EPS but missing revenue estimates. EPS beat by 6.5%, revenue missed by less than 1% as the company weathers what the CEO called an unusually challenging environment for packaged foods. Despite the challenges the company says it is on track to meet 2017 goals as cost reduction initiatives offset weak comparable sales. Shares of the stock gained nearly 3% on the news, moving up from and confirming support at the 1 year low.


The VIX held steady during today's session, moving within a tight range and forming a doji candle. The fear index topped out at new near-term resistance of 11 and looks like it may continue to trend sideways from here. The indicators are both bearish and consistent with a touch to support, no indications of reversal are present just yet.


CBS reported after the bell beating on the top and bottom lines. Increases in revenue from retransmission and content licensing led strong performance across most operating segments. Shares of the stock gained 2% in after hours trading.

The Indices

The indices all closed within a few hundredths of point from 0.00% and almost all in the green. Starting with the Dow Jones Transportation Average, the index gained a little more than 0.05% to create a doji candle sitting on the short-term moving average. This candle is a sign of indecision but one with a positive bias in this instance. It is above the long and short-term moving averages within an uptrend with indicators in confirmation of support. The caveat is that the index is still trapped within a trading range with significant resistance just above today's close. Resistance is near 9,325, a break above here would be bullish.


The NASDAQ Composite closed with a gain of 0.04% creating the second of two small doji candles just below the recently set all-time high. The index looks like it may have crested a near-term peak and the indicators concur. Both MACD and stochastic have begun to roll over in confirmation of resistance but do not indicate correction or reversal. Near-term support is near 6,075 and then 6,000, a move below there could go as low as 5,900 before hitting next support.


The Dow Jones Industrial Average closed with a small loss, and created a small bodied candle with long lower shadow. The index has confirmed support at an up trend line, just above the short-term moving average and is confirmed by the indicators. Both MACD and stochastic are bullish and moving higher with room to run suggesting the index could continue to move higher as well. Resistance is at 21,000, a break above here would be bullish in the near and short-term with upside target near 21,600.


The S&P 500 closed with a gain of 0.06% and created a small doji candle. Today's action was not too strong but nonetheless tested and confirmed support along my up trend line and just above the short-term moving average. The index appears to be drifting higher with an eye toward new all-time highs although resistance is yet to be really tested. The indicators are consistent with higher prices, stochastic at least showing some strength by crossing above the upper signal line. A break above resistance at the current all-time high would be bullish with upside target near 2,475 and 2,550.


The indices have proven to be resilient once again. Today's action was rocked by the FOMC decision, politics in Europe, sluggish data and the health care vote but did not succumb to fear. The market looks like it wants to move higher and now that the FOMC has given the green light it can, providing the data and earnings outlook supports it. Earnings are so far doing their part, economic data not as much but tomorrow is a chance for that to change. I remain bullish in the long term and cautious for the near and short, waiting on the NFP.

Until then, remember the trend!

Thomas Hughes