Introduction

Weak trade data led economists to cut 2nd quarter GDP estimates and the broad market moved up to a new all-time high. Leading the move was big tech; the FANG stocks putting on an average 2% each, led by Netflix 3.6% advance. The streaming movie giant was boosted by positive comments from Piper Jaffray analysts issued a report suggesting 2020 EPS has been underestimated by 50%.

International indices were mixed. Asian markets rose in response to the FOMC minutes and rally in US stocks, led by the Shang Hai's 1.43% increase. European indices closed mostly flat with a few in negative territory after the OPEC failed to impress traders and sent oil prices diving.

Market Statistics

Futures were up all morning with barely a flicker when OPEC announced it would in fact extend production caps. Economic data was a bit mixed but also did little to move early trading. The open was positive, as expected, with the SPX gaining close to 6 points from the get-go and setting a new all-time high. The index dipped from there but only briefly, and then proceeded to advance until just after 11AM. The early intra-day high was hit at 11:10AM, just shy of +12 for the SPX. This high held until late afternoon when it was tested and breached. The new high did not hold, prices pulled back from it slightly, but the index was able to close with a new all-time high and near the high of the day.

Economic Calendar

The Economy

Two major economic reports today and giving conflicting view on the economy. The jobless figures show continued improvement in labor, the advance trade report for April was weaker than expected and led to a downgrade of 2nd quarter GDP expectation.

Initial jobless claims gained 1,000 on top of an upward revision to last week of 1,000 to hit 234,000. The 4 week moving average of initial claims fell -5,750 to 235,250 and a new 44 year low. On a not adjusted basis claims rose 1.4% versus an expected 0.8% and are down -12.8% year over year. These figures are consistent with ongoing labor market health and show further improvement in conditions. I expect next week's Challenger report will show low levels of job cuts.


Continuing claims for unemployment rose by 24,000 to hit 1.932 million, last week's figure was revised higher by 1,000. The four week moving average of claims fell by -16,000 to hit a new 44 year low, consistent with improvements in hiring/job creation and demand for employees. Based on this I expect to see strong hiring numbers from Challenger and steady to strong NFP figures.

The total number of Americans receiving unemployment benefits fell by -71,968 to hit 1.819 and a new seasonal low. This low is below my target and shows a deeper draw-down of the unemployed population than at this same time in years past, consistent with ongoing improvement in the labor market and a decline in overall unemployment. Based on this figure it is very possible we will see next week's unemployment rate come in at historically low levels. The only offsetting factor I can think would be an increase in the participation rate which in itself would be another positive for the economy.


The Advance Report for April trade data was weaker than expected but some data points showing positive improvement on a YOY basis. The trade deficit grew by 3.8% in April, widening to -$67.6 billion dollars. Wholesale Inventories declined by -0.3% after advancing by 0.1% in March, the March data revised down from 0.2%, but up 1.8% YOY. Retail Inventories also fell by -0.3% in April following gains in the previous month. March retail inventories was revised down to 0.3% from 0.5% but remain up 3% on a YOY basis.

The Dollar Index

The Fed Minutes and today's economic data suggest the economy is not growing quite as strongly as first thought but neither caused the dollar to plummet. In fact, it looks as if the Dollar Index could swing higher and next week's round of monthly macro-data could do it. Today the index tested support at the $97 again and moved up off of it again, ending the day with a small gain and creating a green bodied candle. The indicators are a bit mixed but consistent with such a possibility. MACD is still bearish but rolling over at a support level and stochastic is forming a strong bullish crossover deep in oversold territory, both consistent with support levels and a possibly swing in momentum.

The risk is two-fold. First is that an upswing may be short-lived, upside target is near $98.75 and a zone of potentially strong resistance, and may end up becoming a selling opportunity ahead of the FOMC meeting. The second is that tomorrow's GDP and economic releases, data from abroad, Trump antics or Fed-speak could send the index crashing through support at $97 in a continuation of the near-term down trend. Downside target on that move is near $95.


The Gold Index

Spot gold held steady near $1255 in today's trade as political fear and dollar value kept trading in check. Gold has been trending sideways in an increasingly narrow range for 7 days now and looks like it is winding up for another big move. Strong data could strengthen the dollar and send gold back to retest the lows, weak data the opposite. At the same time political risk is still a concern; if fear increases gold will likely move up, if it diminishes the reverse. A break in either direction could take gold as much as $45 in the near term, upside target is $1300 downside $1,215.

The Gold Miners ETF GDX held steady in today's trading, very near the middle of it's short-term trading range and wedged between the short and long-term moving averages. The indicators are rolling over in confirmation of resistance at the declining resistance line, near $23 at this time. Stochastic is already firing a sell with MACD close to confirming, consistent with range bound trading a possible move to the bottom of the range near $21.


The Oil Index

OPEC met, they decided to extend production caps and the price of oil fell. WTI fell more than -5.25% on a deal that was nothing more than the market expected. The extension is for 9 months, taking the cap out to March of next year, and far less than what the market really wanted which was a deeper cut to help rebalance the market. The first 6 months of capped production didn't do much to help, the next 9 month's isn't likely to do much either unless global demand also picks up. WTI is now trading below $49 and could easily drop back to $45.

The Oil Index fell -1.5% on the news and created a long red candle. The index is moving lower from resistance at the top of last years trading range and both the short and long-term moving averages. The index looks set to move down to the bottom of last years trading range and recent support near 1,125. Stochastic confirms this move with a strong sell signal yet to be confirmed by MACD. MACD momentum remains bullish at this time but rolling over, and has been generally weak for the past month or so. Down side target is 1,125, a break below which would be bearish. Longer term I remain bullish and the 1,125 level is beginning to show potential as a bottom.


In The News, Story Stocks and Earnings

GM made headlines today when Bloomberg reported the company used emissions test beating devices in some of its trucks. Bloomberg became aware of the story when a class action lawsuit was filed against the company. The suit alleges GM's trucks "spew" more than double the allowed amount of emissions. GM responded saying the accusations were baseless and would be fought. Shares of the stock fell more than -2% to test support at the 6 month low of $32.


Netflix surged 3.5% on an upgrade from Piper Jaffray. The firm upped their target to $190, +16.5% to today's close, based on forward earnings potential. They say that 2020 EPS is undervalued based on expected US and international subscription levels. The stock is now trading at an all time with bullish indications on both the weekly and daily charts.


Abercrombie & Fitch reported earnings before the bell and, despite a less than positive report, shares moved up by nearly 10%. The company reported a big miss on EPS due to decreased leverage in retail prices but was able to beat revenue and margin expectations. The caveat is that sales were down YOY, the beat is nice but only terms of not being as bad as expected. Shares are moving higher on news there could be a bidding war for the brand between a pair of top investment firms.


After hours action was busy, multiple earnings reports were released and many were much better than expected. Costco beat on the top and bottom line sending the stock up by more than 2%. Ulta Cosmetics rose more than 5% after it beat EPS estimates by 14%. The mall based retailer says comp store sales rose 14.3% beating expectations for 11%. Deckers Outdoors gained 11% after reporting a profit when analysts had been expecting a loss.

The Indices

The indices all moved higher today, led by the Dow Jones Transportation Average which is the only to not be trading at all-time high levels. The transports gained 1.57% today, creating a long green candle moving up from the short-term moving average. The index appears to be moving up toward resistance targets at 9,320 in line with the underlying long-term trends. The indicators confirm this move with bullish crossovers, MACD forming its crossover today. A break above 9,320 would be bullish with a target at the current all-time high.


The NASDAQ Composite made the 2nd largest gain today but still less than half the move seen in the more volatile transportation average. The tech heavy NASDAQ gained 0.69% in move creating a small green bodied candle and setting a new all-time high. The index continues to drift higher in line with prevailing trends and looks like it could keep doing so into the nearer term. The indicators are both consistent with trend following entry with upside target near 6,400.


The S&P 500 made the third largest gain in today's trading, 0.44%. The broad market average created a small green bodied candle moving up from a long-term trend line in line with the prevailing bull market. The indicators both confirm this move and suggest higher prices are on the way. Stochastic has rolled over and pointing higher following a bullish crossover earlier in the week and this has been confirmed today by a bullish crossover in the MACD. Upside target is 2,480 in the near-term.


The Dow Jones Industrial Average is today's laggard with a gain of only 0.34%. The blue chips created a very small green bodied candle, almost a doji, and spinning top just beneath resistance at the current all-time high. Today's action was able to break above the long-term up trend line and is confirmed by the indicators suggesting resistance will at least be tested again. Both indicators are forming bullish crossovers, MACD confirms today, with upside target near 21,500.


The indices are drifting higher and look like they want to go higher. All four major indices I track are showing signs of bullishness if not strength that could carry them up to new all-time highs in the near-term. Long-term outlook remains bullish but I remain cautious for new near and short-term trades due to expected slow-down in corporate earnings growth for the 2nd quarter cycle and a lack of real strength in the signals being fired. A correction may not come but I think it's better to keep trades small now, you can always add more later when the signals get stronger.

Until then, remember the trend!

Thomas Hughes