Introduction

US indices continue to move higher in an absence of negative news. Today's action was largely unhindered by news; no earnings reports, no political scandal and no economic data were released. The two headlines that did impact trading, Mark Fields getting fired from Ford and Trump in Israel, did little to inspire buying but at least did not inspire much selling either. Trading volumes were on the light side but breadth was decent, advancing stocks outnumbered decliners by a little more than 2 to 1.

International indices were largely cautious in the wake of last week's sell-off and The Donald's International Tour. Asian indices closed with small gains in the range of 0.5% but lagged by the Shang Hai with a loss near -0.5%. Another missile test in North Korea induced some volatility but was otherwise shrugged off. European indices were less buoyant, most closing with small losses in the range of -0.10%.

Market Statistics

Futures trading was flat to positive all morning. The SPX was indicated to open with a gain of 3 to 4 points and this held fairly steady into the opening bell. Trading after the open was calm but positive. The indices crept steadily higher for the first 15 minutes, putting on about 0.4%, before hitting an early top. This top held for the better part of the morning until being broken shortly after 12 noon. At that point the indices crept up to set a new intraday high before entering another trading range with the new high as resistance and the early high as support. This range held most of the rest of the day, up to the last 20 minutes, when the SPX moved up to set another intraday high near which the index closed for the day.

Economic Calendar

The Economy

No official economic data today and very little this week. Tomorrow look out for new home sales and then existing home sales the FOMC minutes on Wednesday. Thursday is jobless claims and then Friday is GDP, Durable Goods and Michigan Sentiment.

Moody's Survey of Business Confidence gained another 0.4% in the last week. The index is now sitting at 35.00% and a new 18 month high. Mr. Zandi says global business confidence is solid and growing at a pace above potential. He also notes that responses in Europe have shown improvement over the past few weeks. Regulatory and legal hurdles remain the biggest concern for business.


Earnings season continues to wind down. To date a little more than 95% of the S&P 500 has reported with another 17 (3.4%) scheduled to report this week. The results this quarter are good, much better than expected, but may be due more to low expectations than to actual strength in business. To date the blended rate of earnings growth for the quarter is 13.9%, up 0.3% from last week and nearly 5% from the beginning of the reporting season.


Looking forward growth remains in the forecast, this week all estimates held steady at last week's levels. Growth will slow to 6.3% next quarter but is expected to expand from there. Growth expectation expands to 7.5% in the 3rd quarter and then to 12.4% in the fourth. Full year 2017 growth should come in around 9.9% and then grow to 11.7% in 2018.


The Dollar Index

The Dollar Index continues to slip. A combination of diminished FOMC rate hike expectations and increasingly hawkish ECB expectation has the index moving lower. The ECB is not expected to do any actual tightening but it is expected to increase tapering and perhaps sound more hawkish in the statements and comments. Such a move would put the ECB on the same track as the FOMC and with data suggesting the FOMC will back off from aggressive rate hiking give the euro a chance to appreciate versus the dollar. Today's move in the Dollar Index took it to a 6 month low and to levels not seen since before the Trump election. The move also broke support at the 61.80% retracement level and looks like it is headed lower. The indicators are bearish and showing weakness, consistent with a test of support and/or lower prices. Next downside target is near $96.


The Gold Index

Gold prices moved higher today. Spot gold gained nearly $8 to trade above $1,260 and is supported by a weakening dollar. This move may continue higher into the near-term should FOMC outlook remain weakened and/or the ECB outlook should strengthen. This week the FOMC minutes, housing data or GDP revision could be a catalyst. Spot price looks like it is gearing up for a move higher, consolidating just below near term resistance, and could shoot up to $1,300 on political risk and/or tepid FOMC outlook.

The Gold Miners ETF GDX gained about 0.5% in today's session and created a small green bodied candle. Gains were capped at my down trend line leaving prices trapped within a narrowing range focused on the ECB/FOMC meetings 3 weeks away. The indicators are bullish and pointing higher, suggestive of higher prices, but weak and generally consistent with range bound trading in the short to long-term. Resistance at the down trend line is coincident with an important Fibonacci Retracement level and may be strong. A break above this level, near $23.50, would be bullish with upside target near $24.50. Support is at the bottom of the range near $21.


The Oil Index

Oil prices rose today after Saudi Arabia and Iraq reached agreement on extending OPEC production caps. WTI gained a little more than $0.40 or 0.8% to trade near $50.80 and a new one month high. Prices are being supported by anticipation for the deal which should be struck Thursday at the Vienna OPEC meeting. Unless the cuts are deeper or longer than expected it is possible this could be a buy-the-rumor-sell-the-news type of event as it has been expected for some time. Until then near-term outlook for oil is bullish with recent highs near $54 as target.

The Oil Index moved higher in early trading but gave up most of the gains by closing time. The index managed to remain positive at 0.03% and above the short-term moving average but created a red candle at resistance. The indicators are moving higher in support of rising prices but have not confirmed a strong bounce as yet. A break above resistance at 1,170 would be bullish in the near-term with short and long-term possibilities. Upside target would be just shy of 1,200 and, if reached, help confirm reversal from support levels. My long-term outlook remains bullish, near to short-term is starting to look good too but I am still wary of the OPEC deal and what may happen in the aftermath. Support is in the range of 1,120 to 1,150.


In The News, Story Stocks and Earnings

Ford was the talk of the day after the family dominated board voted to oust CEO Mark Fields. Fields took the helm only 3 years ago and tasked with growing the brand globally. In that time the company has seen record setting revenue and earnings, and a stock price down by roughly 40%. One reason for the decision is that the Ford family net worth is tied up in the company and has suffered greatly in the past years. Jim Hackett is confirmed as the new CEO and comes with glowing approval from the board. Shares of the stock jumped on the news gaining nearly 2% in premarket trading and confirming support at a 14 month low.


Defense stocks got a big boost from Trump's trip abroad. The Saudi stop included a new arms deal worth $110 billion to US companies. The Aerospace and Defense ETF ITA gained more than 2% on the news to set a new all-time intraday high. The high attracted profit takers who drove price below the previous all-time high but not low enough to reverse all of today's gains. The ETF closed with a gain near 1% and could easily keep rising. The sector was already supported by Trump and defense spending, this new deal will only add tailwinds to an already bullish sector.


The Volatility Index fell nearly -10% today and looks like it will return to recent lows. Today's action is the the second of two long red candles following last week's spike and bearish for the index. The indicators are rolling over, consistent with range bound trading and a move toward the bottom of the range. Support kicked in today at the $11 level consistent with the previous long-term low, a break below which would be bearish with target at the current long-term low below $10. Outlook for the SPX is bullish based on this read.


The Indices

The indices are moving higher after a bounce from support, in line with prevailing trends. Today's leader is the Dow Jones Transportation Average with a gain of 1.06%. The index created a medium sized green candle breaking through and closing above the long-term moving average. This move confirms support at the moving average and is bullish. The indicators are in support but mixed in confirmation. Stochastic is confirming with a weak bullish crossover (%D is moving lower) while MACD is bearish but showing evidence of support at current levels. A move higher would be bullish and trend following but face additional resistance at the short-term moving average just above today's close.


The NASDAQ Composite gained 0.82% in today's action and closed at the high of the day. Today's candle is a medium green candle with shaven top moving up following a bounce from support, in line with the underlying trend and closing just 30 points below the current all-time high. The indicators have yet to confirm the move but are beginning to roll over and consistent with a trend following bounce. A move higher may find resistance at the all-time high, a break above that would be bullish. Support is at 6,000.


The S&P 500 is 3rd today with a gain of 0.52%. The broad market index created a small bodied green candle moving up from the short-term moving average and extending the bounce from support began last week. Today's action was capped at the resistance of a long-term up trend line which was broken last week. The indicators are consistent with a trend following bounce but have yet to confirm the move, a break above the trend line would go a long way toward doing that. Resistance is 2,400, support is 2,350.


The Dow Jones Industrial Average brings up the rear with a gain of 0.43%. The blue chips created a small green bodied candle closing just below the daily high, and above the short-term moving average. Today's move extends the bounce from support begun last week but is showing signs the move is slowing. The indicators are consistent with a bounce from support but have not yet confirmed the move. Upside target is 21,000, about 105 points above today's close. A break above that would be bullish and take the index to new all-time highs. A failure to break will keep it range bound near-term.


The indices are moving higher and look like they will continue, at least enough to retest the most recently set all-time highs. A break above that would be bullish but whether or not it will happen now is questionable. Long-term outlook is for earnings growth so I am firmly bullish in that time frame. In the near-term growth will slow by half before it resumes an expansionary trajectory, an event that may give traders reason to pause. This, along with political risk and the sell-in-May attitude, could easily give traders an excuse to pause and send the indices into short-term trading ranges which makes me cautious in the near to short-term.

Until then, remember the trend!

Thomas Hughes