Introduction

A holiday shortened week resulted in a massive data dump today, and the news is good. Not only that, good news turned out to be good news and the market moved up to set new all-time highs.

International indices were a bit mixed on weak data from China. The non-official Caixin PMI came in at a contractionary 49.6 raising fear of economic slow-down in the worlds 2nd largest economy. Economist had been expecting a number closer to 50.5, the actual reading is an 11 month low. The Nikkei led the region with a gain of more than 1%, Chinese indices closed mixed and near the flat on the day. European indices were firmly positive if cautious on political and economic optimism. News of the day is a significant upward revision to Italy's 1st quarter growth which has added to expectations the ECB will begin discussing additional tapering measures next week.

Market Statistics

Futures were flat for most of the early electronic session but began to lift as we approached the release of economic data. Data was released throughout the morning beginning with the Challenger report at 7:30 and ending with ISM at 10AM, each providing indication of health in the economy. The open saw a bit of action that caused some volatility but resulted in a slightly higher open, an hour of consolidation and then a steady march to new highs. Gains were broad if volume was light, market breadth was in the range of 5 to 1 advancers to decliners.

Anticipation of Trump's withdrawal from the Paris Accord cast a shadow over trading but did not hinder it. Gains were capped late afternoon while waiting for the official press conference but upward momentum resumed once it began. Trump withdrew as expected with the addendum negotiation for reentry were already underway.

Economic Calendar

The Economy

Lots of data today, beginning with the 7:30AM release of the Challenger Gray & Christmas report on planned lay-offs. The number of planned lay-offs surged by 41% in April and 71% YOY but there are several mitigating factors. First, most of the gains were due to Ford which just announced a massive job cutting program. Second, the next largest contributor of gains was the retail sector which has been shedding jobs all year. Third, the year to date number of job cuts is still below last year, down -28% with this month's data. Fourth, Ford refuted Challenger's numbers saying they were cutting less than a tenth of the jobs as stated in the report. The part of this report that I really like is the plans for hiring. Plans for hiring are up 25% for the month, 215% over the same month last year and +500% for the year-to-date period.


Initial claims for unemployment gained 13,000, a little more than expected, to hit 248,000. This is on top of an upward revision of 1,000 to last week's data. The 4 week moving average of claims gained 2,500 to hit 238,000 and is just off a long-term 44 year low. On a not adjusted basis claims rose 7.5% versus an expected 1.5% but remain down by -8.6% on a year over year basis. These figures remain consistent with labor market health.


Continuing claims for unemployment fell by -9,000 to 1.915 million from last week's upwardly revised figure. Last week's figure was revised higher by 1,000. The four week moving average of claims fell by 16,000 to hit 1.914 million, a new low dating back to January 12, 1974. These figures remain in downtrend, consistent with labor market health and improvement.

The total number of claims for unemployment rose by 3,244 to hit 1,822. This week's rise in claims could signal the expected seasonal bottom and right on schedule. There may be another week or so of decline before moving higher but we can expect to see it begin to creep up before the end of June. Regardless, this week's figure is -11% below last year's figure and consistent with ongoing labor market health and improvement.


ADP data was released today and was much better than expected. The headline number is 253,000 new jobs in May versus an expected 180,000. The gains were led by services with just over 205,000 jobs, and by small and medium sized business. This is the 3rd highest level of the year, the 4th highest in the past 12 months and nearly 500% above this same month last year. This figure is also consistent with labor market health and improvement.


Construction spending figures were released at 10AM and paint a mixed picture. The headline figure shows a -1.4% decline in the March to April period versus an expected increase, the year-over-year comparison shows spending up 6.7% from last year. Residential spending fell -0.9% for the month but is up 15.6% over the same month last year.

ISM Manufacturing came in at 54.9 for May, a gain of 0.1% from the previous month and better than expected. Within the report all segments show expansion and acceleration. New Orders are up 2% to 59.5%, production is up 1.5% to 57.1%, employment is up 1.5% to 53.5% and inventory is up 0.5% to 51.5%. This is the 96th month manufacturing PMI has been positive.

Auto sales were released throughout the day on a manufacturer by manufacturer basis. Early indications were mixed but generally better than expected; Ford beat with +2.2% versus -1.2%, GM missed with -1.3% versus up 3.1% and Fiat-Chrysler beat with -1% versus -4%. The official May sales rate is 16.6 million.

The Dollar Index

The dollar got a boost from today's economic data. The Dollar Index gained 0.35% in a move confirming support at the $97 level. The $97 level is emerging as a near-term support level and showing signs of strength ahead of the NFP tomorrow, the ECB next week and the FOMC the week after. At this time FOMC rate hike expectations are firming which should lift the index, but so are ECB tapering expectations which is keeping the index from moving higher. I expect to see volatility over the next 2 weeks but any move higher or lower will likely be short-lived until after the FOMC meeting.


The Gold Index

Gold prices fell under pressure of stronger dollar but geopolitical concerns continue to add support. Spot gold fell nearly a full percent in today's session but rebound from the lows to close with a loss near half that. Spot price is hovering between $1,260 and $1,270 waiting for economic data, the effects of ECB/FOMC action on the dollar and of course geo-political events. The $1,270/$1,275 is emerging as resistance, a break above here would be bullish near-term with upside target at $1,300.

The gold miners continue to trend sideways within short-term trading ranges. The Gold Miners ETF GDX moved exactly sideways today, creating a small green candle completely within yesterday's range near the center of the narrowing short-term trading range. The ETF appears to be winding up within this range with a focus on the FOMC meeting. Support is $21, resistance near $23 but declining quickly. The indicators are consistent with a trading range and trending near the mid-points of their respective ranges, indicative of directionless trading. A break of this range is likely to influence price direction in the near to short-term at least; upside target is $25.50, downside target is $18.50.


The Oil Index

Oil prices were volatile today, surprise surprise. Inventory data showed a surprise draw-down in US crude stockpiles that initially had prices moving higher although the move did not last. The draw-down was a bit more than expected but seasonally consistent so not the bullish catalyst it could have been. This, along with doubts over OPEC's ability to support prices left the market vulnerable. WTI is trading near $48.25 and looks like it could go lower without something positive to support it. Tomorrow's rig count is not likely going to do it.

The Oil Index gained a little more than a half percent in today's session reconfirming support at 1,120. This is the mid-point of last year's trading range, today's bounce the second such since price retreat back to this level. I am watching this level for signs of reversal as it is a strong area of support and the sector still has robust forward earnings growth outlook, today's action is promising but not enough to trade on just yet. The indicators are bearish in the very near-term, pointing lower and suggesting a retest of support, but divergences exist which suggest there is support at this level. A bounce from this level would be bullish but need additional confirmation for bullish entry. A break would be bearish.


In The News, Story Stocks and Earnings

Conagra made headlines overnight on reports it had approached Pinnacle Foods as a takeover target. Conagra is a leading provider of packaged foods and has been working to focus on premium labels, Pinnacle is the power behind Birdseye, Duncan Hines and other national brands so the move is in line with their goals. Credit Suisse analysts see 'enormous synergies' in the deal and Conagra paying a significant premium for Pinnacle should the deal go through. The news had both stocks moving in premarket action and that continued throughout the day. Pinnacle gained nearly 4%, Conagra nearly 3.5%.


Dollar General reported earnings before the bell and beat on the top and bottom line. The discount store reported a 6.5% increase in revenue with a 0.7% increase in comp store sales that both came in ahead of expectations. Forward guidance was maintained with the caveat of it increasing should an expected store purchase move forward. Shares of the stock jumped nearly 6% to a 3 month high.


Lululemon reported after the bell. The maker of yoga pants beat on the top and bottom lines and was able to raise forward guidance. The company says revenue rose 5% YOY, reported EPS of $0.32 is 14% better than consensus estimates Gross margins were also better than expected, as was comp store sales which fell only -1% versus an expectation closer to -2%. Shares of the stock rallied on the news and gained 10% in after hours trading.


The Indices

The indices moved higher today and closed near the highs. The move was not strong but it was decisive and without hesitation. Today's leader was the Dow Jones Transportation Average which gained close to 1.25% creating a medium sized green candle. The index is moving up following a break of the short-term moving average and hit a potential resistance target today. Resistance is a previous all-time high near 9,300 and needs to be broken to maintain a bullish stance. A move above resistance would have a target at the current all-time high near 9,650.


The NASDAQ Composite closed with a gain near 0.80% and set a new all-time high. The tech heavy index created a small green bodied candle with indicators in support of higher prices. Both stochastic and MACD are pointing higher following bullish trend following signals and suggest prices will continue higher in the near-term. Upside target is 6,400.


The S&P 500 comes in third today with a gain near 0.75%. The broad market index created a small green bodied candle moving up from a long-term up trend line and set a new all-time high. The index is in up trend and supported by the indicators. Both stochastic and MACD have fired bullish trend following signals and are pointing higher in support of higher prices. Upside target is 2,480 in the near-term.


The Dow Jones Industrial Average gained a little more than 0.65% and set a new all-time closing high. The blue chips created a long green candle moving up from near-term support but capped at the underside of a long-term up trend line. The intersection of this line is coincident with the current all-time highs and may provide significant resistance. A break above this line would be bullish and trend following with upside target in new all-time high territory. The indicators are bullish if weak and consistent with higher prices.


Tomorrow's data could be a game changer although I do not expect it to be bad. Far from it in fact. The NFP could be strong, expectation is 185K, and based on today's ADP, the hiring portion of the Challenger report, the ISM employment component and just about every other employment indicator there is a chance it could be much stronger than expected.

The indices are moving up to new highs and the indicators support the move. The only thing I can is that the move, at this time, still looks a little weak so I have to remain cautious in my bullishness. This does not mean I'm out of the market, just that my positions are small while I wait on a stronger signal from the charts.

Until then, remember the trend!

Thomas Hughes