Introduction

The political sideshow rages on and the market set a new all-time high. Either the market is not taking politics seriously enough or it just doesn't care anymore. I lean toward the latter. Not to say that it doesn't matter because it does, it just doesn't matter too much until something fundamental actually changes and so far it hasn't.

Before Trump the economy and earnings were on track for slow, steady continued growth, after Trump nothing changed to alter that outlook negatively. . . and there is still the possibility he could effect positive reform to the system. If nothing gets changes he is, at the very least, pro-growth and pro-business. All attitudes which have helped to brighten sentiment, spur activity and reassure the market.

International indices were optimistic but cautious. Stocks mostly gained ground on a surge in oil prices despite escalating threats from North Korea. In Asia the Nikkei lagged with a loss of -0.07% while the Hang Send led with a gain near 0.90%. European indices were more more uniformly positive with gains in the range of 0.25% to 0.5%. Earlier weakness in the European markets was reversed on bullish activity in the US and sent the DAX up to set a new all-time high.

Market Statistics

Futures trading indicated a positive open all morning with some strength showing as we approached the opening bell. The indices opened with small gains and then quietly marched higher to set new highs, all-time highs in some cases, which were held into the close of the day.

Economic Calendar

The Economy

Two pieces of the economic puzzle were released today, one before the opening bell and one after. The Empire State Manufacturing Survey was released before the open and showed the first contraction in growth since last October. The headline figure fell -6 points to -1 and just below stable levels. Within the report New Order fell to -4.4 while shipments fell to 10.6, both showing a slowdown in activity. On the plus side both employment levels and hours worked were positive and show continued expansion on the front. Employment edged down to 11.9, hours worked held steady at 7.5.


The NAHB Home Builders Index shows sentiment among the builders is improving. The index gained 2 points to hit 70, the second highest level in the past 12 months and up 12 points from this same month last year. Sales of single family homes rose by 2 points to 76 and the highest level in over 12 months. The 6 month outlook gained 4 points to hit 79 and another +12 month high. The only indicator to fall is traffic which shed a point to hit 51. Regardless, these numbers look good and indicate a long anticipated pick up in builder activity may be coming.


Moody's weekly Survey Of Business Confidence gained 0.7% in the past week to hit 34.6% and a new 18 month high. Mr. Zandi says the results indicate rock solid sentiment among global businesses, led by the US. The biggest concerns among businesses remains legal/regulatory and the cost of labor. Forward outlook is also positive.


The first quarter 2017 earnings cycle is coming to a close. A little more than 90% of the S&P 500 have reported with another 3.6% expected to report this week. Of those who have reported the results are above average despite the blood-bath in retail we saw last week. More than 75% have beaten EPS estimates and 64% revenue estimates making this the best quarter in terms of out-performance in over a year. The blended rate of earnings growth ticked up by a tenth and is now 13.6% and the fastest pace of growth since the Q3 2011.


Looking forward the outlook remains positive and expansionary long-term although near-term growth is expected to slow and estimates have been deteriorating. Second quarter 2017 has fallen from 10.7% to 6.8% in the latest reports with similar declines in 3rd quarter estimates. Growth is expected to expand to 7.5% in the 3rd quarter and then again in the 4th quarter to near 12.5%. Full year 2017 remains strong at 9.9% but ticked lower by a tenth. Growth remains in the forecast until the end of 2018, forecasts have been holding relatively steady around 11.7%


The Dollar Index

The Dollar Index fell a little more than -0.25% today as diverging policy expectation for the ECB and BOJ, along with last week's tepid CPI data/retail sales data, keep the dollar trading near $99. Today the index fell to $99 and moved briefly below it. This level has emerged as an important level of support and/or pivot point and may continue to be so into the near term. The next round of central bank meetings is about 4 week's away so a likely target for the focus of current trading activity. The FOMC is providing support but that support is weakening. After last week's data they are expected to raise rates in June and if not then July but the longer term outlook has fallen from 3-maybe-4 hikes in 2017 to 2-maybe-3. Adding downward pressure is rising expectation for the ECB to tighten in some form, probably additional tapering, which would be seen as hawkish and strong for the euro. Counter balancing this is the BOJ which is not expected to tighten, has left additional easing on the table and weakened the yen. Needless to say economic data will be important over the next month and likely to cause a lot of volatility as outlook for not one but three central banks is affected. A break below $99 would be bearish, a bounce bullish but either move likely short lived without major catalyst.


The Gold Index

Gold prices rose in today's session but only by 0.03%. Spot gold is now trading just above $1230 and bouncing from support. Support is at $1220, possible resistance targets are $1235 and $1250. With the dollar in limbo gold is likely to remain range bound with economic data and geopolitics driving day to day volatility until the next round of central bank meetings.

The Gold Miners ETF gapped up at the open on expected bullishness from the gold pits but traders were disappointed. Price opened at the long-term moving average, sold off from there and tested the short-term moving average before closing with nearly no movement on the day. Today's candle looks bearish but may not indicate reversal just yet. The index is moving up within a range and confirmed by both indicators so additional tests of resistance should be expected. Upside target is $23.75 in the near-term, support is along the bottom of the range near $21.


The Oil Index

Oil prices got a big boost today when Saudi Arabia and Russia Jointly announced agreement to a proposed production cut extension. The agreement is not a deal but expected to sway OPEC decision later this month and would add 9 months to production caps already in place. The news sent WTI up by more than 2% intraday to close just shy of $49. The news is bullish near-term and could lead to further upside, if the deal is extended highs near $55 could be retested.

The Oil Index gapped up at the open to begin trading just below the long-term moving average. The rest of the day saw it sell off to give up most of the early gains, create a red-bodied candle and close with a gain of only 0.5%. The longer term outlook for the sector is bullish but today's candle is tentative. Resistance is evident at this level, perhaps the market is wary of Saudi/Russia talk, and may contain prices near-term. Support is in the range of 1,125-1,150.


In The News, Story Stocks and Earnings

The ongoing Wannacry ransomware outbreak has cyber security stocks in vogue. The Cyber Security ETF HACK (ARCX:HACK) jumped more than 3% in today's action and likely going higher. The ETF has been in uptrend since hitting bottom more than a year ago and aiming to retest all-time highs. While it is hard to say which security company will come out on top the industry is set for long-term gains. Experts estimate there will be more than 50 billion connected devices by 2020, more than 6 per person, making Internet security a top priority for business and individuals alike.


Shares of Sears fell on news the company was in battle with the new owner of Craftsman brand tools. Sears sold the brand last year on condition that One World, a China based tool manufacturer, would continue to supply Sears with Craftsman tools. One World is trying to disrupt the flow of tools to Sears and effectively harming their ability to serve customers, a move the company says it won't allow. Shares of the stock fell more than -12% on the news.


The VIX continues to test resistance at the $11 level. Today the index moved up to resistance and then fell to create a red bodied candle and close with a loss of -1.15%. The indicators remain low in the range and are beginning to roll over in confirmation of resistance. A break above $11 would indicate a growing possibility for correction. Until then the index remains low and near long-term lows, consistent with bull market conditions and rally.


The Indices

Action was not overly strong but the indices managed to move higher, some of them setting new all-time highs. The day's leader is the Dow Jones Transportation Average with a gain of 0.73%. The index has begun to bounce from the long-term moving average and looks as if it will move higher in line with the prevailing trend. The indicators are still pointing lower but have begun to roll over in confirmation of support. A move higher would be bullish and trend following with upside target near 9320.


The next biggest gainer in today's session is the S&P 500. The broad market put on 0.47% at the end of the day creating a small green candle and setting new all-time intraday and closing highs. The index is bouncing from a long-term trend line with upside target near 2,480. The indicators are mixed in the nearer term but consistent with a test of support with a bull market. If the index continues higher tomorrow and the next day buy signals are likely to fire in both indicators, the caveat being they have not fired yet.


The NASDAQ Composite made the 3rd largest gain today, 0.46%. The tech heavy index created a small green bodied candle, closed near the high of the day and set a new all-time closing high. The index continues to drift higher with upside target near 6,400. The indicators remain bullish and have begun to reconfirm the uptrend; MACD began to tick higher today, equivalent to a zero-line crossover, stochastic is close behind.


The Dow Jones Industrial Average posted the smallest gain today, only 0.40%. The blue chips created a small green bodied candle moving up from support and looks like it could go higher. Support is a long-term up trend line confirmed by the short-term moving average and looks strong. The indicators are consistent with a test of support within an uptrend and set up to fire a trend-following entry should the index move higher. A move up to and through the current all-time high would be bullish and trend following with upside target near 21,500 in the near-term.


Today's action was light but bullish and promising. The market has been able to shrug off ongoing political drama in Washington in favor of fundamentals such as economic growth and earnings growth. The indices have begun to move higher in-line with that growth and could easily continue to move higher in the absence of negative news. The caveat is that we have entered a period of market doldrum, the time between earnings cycles and FOMC meetings coupled with the onset of summer holiday so volumes could decline and market direction erratic. I remain firmly bullish for the long term, cautious for the near and short but bullish and looking for more new highs.

Until then, remember the trend!

Thomas Hughes