Introduction

Today's session was bogged down by geopolitical concern but the indices were able to hold their highs. The latest round of terror attacks in England have the world on edge and, surprisingly enough, a bloc of Arab nations have banded together in protest of Qatar, a country known to harbor terrorists. Along with this are mounting political concerns in the EU and ongoing issues faced by the Trump administration. Elections in both the UK and Italy are drawing near and causing jitters among investors, add to this an ECB meeting on Thursday and there is cause enough for cautious, quiet trading and I've not even mentioned former FBI director Comey's testimony to congress.

International indices were mostly down following the London attacks. Asian markets fell -0.25% to -0.5% in quiet trading. European indices were more firmly lower with losses in a range roughly double that of Asia. Weaker than expected PMI helped push indices and the euro lower as ECB expectations began to cool off. The ECB meets Wednesday/Thursday and is expected to to say or do something along the lines of increased tapering.

Market Statistics

Futures trading was flat all morning. Today's economic data was positive but rear-looking or showed slowing growth so not the catalyst it could have been. The open was quiet, the S&P shed 4 points in the first minutes and then regained them to trade near the flat-line for the remainder of the day. Not even Trump's speech on infrastructure and privatizing air-traffic control was able to move the market.

Economic Calendar

The Economy

There was a fair amount of data for a Monday including revisions to Productivity and Factory Orders. Productivity was revised up for the first quarter from the previously released -0.6% to UNCH and is up 1.6% over the same period last year. This led to a downward revision in Labor Cost which are now up only 2.2% from the previous quarter and 1.1% on a TTM basis.


Factory Orders fell -0.2% in April after rising the previous 4 months and a full percent the month of March. Shipments was unchanged, unfilled orders rose by 0.2% and inventories rose 0.1%.


The ISM Services index fell -0.6% to 56.9%. This shows growth but slower growth than last month and is the 89th month the index has been positive. Activity fell -0.7% to 60.7 and remains high. New Orders is also firmly positive at 57.7 but down -5.5% in the last month. Employment increased adding 6.4% to hit 57.8% and is the strongest level in over 6 months.


Moody's Survey of Business Confidence gained 0.6% to hit 36.2. This is the highest level in nearly 20 months. Mr. Zandi says that confidence is remarkably strong and stable, supported by buoyant global financial markets. He notes that there are no blemishes on survey results, that recently soft outlook for present-conditions has firmed and forward outlook remains positive. Looking at the chart it is easy to see that confidence has been building since late summer last year. Now that it has broken out above 35 it could easily continue up to test the highs set in 2015.


The 1st quarter earnings cycle is just about played out. Just over 99% of the S&P 500 has reported for the quarter with the final 2 or 3 scheduled this week and next. The final rate of growth for the index is 14% and much better than expected. A total of 9 sectors outperformed expectations in part to low estimates but also in part to improvements to business


Looking forward growth remains in the forecast. Assuming that estimates do not fall further and that the final rate for each quarter will improve an average of 4% by the end of the respective reporting season we could easily see double digit growth all year. The 2nd quarter estimate has stabilized at 6.6% over the past few weeks, add in the average amount of increase seen in the final rate over the past 2 years and that could easily grow to 10% by the time the next cycle is over. Looking forward 3rd quarter growth is estimated at 7.5% and 4th quarter at 12.5% which equate to 11.5% and 16.5% in my scenario. If I'm even half right this means the full year 2017 estimate of 9.9% earnings growth is off by nearly 2%.


The Dollar Index

The Dollar Index moved up in today's trade but only about 0.1% and not enough to regain support levels broken on Friday. The weak jobs numbers have further weakened FOMC outlook and the dollar which caused Friday's dip to new lows, today's move was sparked by weak EU data that have put a damper on ECB expectations. The index is now trading below the $97 level and possibly at a bearish extreme. This low is driven on central bank expectations that are likely to be left 1) unfulfilled 2) not as fulfilled as expected or 3) only as fulfilled as expected and, to varying degrees of strength, sell-the-news types of events. This week we have the ECB and expectation they will at least talk about more tapering, next week the FOMC and a 96% of a 25 bps interest rate increase so expect some volatility no matter what happens. A continuation of the down trend has a target near $95, a reversal may go to $100 before hitting significant resistance.


The Gold Index

Spot gold crept higher on last week's NFP and renewed safe-haven demand. The metal is now trading just shy of $1,290, near the April highs and below resistance. The near-term trend is up and is supported by geo-political events along with a weakening dollar but there are risks to the rally. For one, geopolitical fear could evaporate at the drop of a Tweet. For another, the ECB or FOMC meetings could result in a stronger dollar and weaker gold. A break above $1,290 for gold would face next resistance at $1,300, a drop from this level may find first support near $1,260.

The Gold Miners ETF GDX continues to trade within its ever narrowing range, focused on the FOMC meeting next week. Today the ETF fell about -0.5% in near sideways trading after opening near resistance at the 150 day moving average and the down-sloping upper range boundary. The indicators remain neutral and consistent with range-bound trading. A break to either side of this range, below $21 or above $23, could produce a fairly strong near-term movement.


The Oil Index

Oil prices got a shake up this morning as Saudi Arabia, Egypt, the United Arab Emirates and Bahrain joined forces in cutting ties to Qatar in response to growing global terrorism. What the move means for spreading violence is unclear, as is its impact on oil prices. The first reaction was to drive prices higher on fear of supply disruption, the second reaction was to drive prices lower on fears the OPEC production cap extension would be broken and flood the market with more oil. WTI trade in a +2% range today and closed near $47.30 with a loss of -0.5%.

The Oil Index continues to struggle along with oil prices. It created a green bodied candle in today's action but closed with a gains less than 0.2% and below my support line at $1,120. The indicators persist in throwing mixed signals indicating near-term bearishness but divergent in the short-term, suggestive of support. Support may still be at the current level, my line may be off by a hair, but if downward pressure continues a move to the low end of last years trading range near $1,075 becomes a possibility. I am still bullish for the long-term due to forward earnings outlook, I think there's a bottom around here somewhere.


In The News, Story Stocks and Earnings

Apple is holding their developers conference and was all over the news today. The biggest headline came out this morning and was a downgrade by Pacific Crest. The advisory firm says iPhone sales will not live up to expectations. The firm reduced the stock from overweight to sector weight and caused a -1.0% decline in share value. On the flipside, Apple is holding their developers conference and unveiled a powerful new Mac OS, peer-to-peer payments and a host of other new updates. Shares of the stock are trading just off the latest set high and look poised to continue the upward trend. Price action is forming a bullish triangle confirmed by stochastic but not yet by MACD.


The VIX trade more or less sideways from yesterday's candle and within near-term ranges but tried to set a new low. The fear index shed a little more than -1% to move below $9.70 but did not hold the move, closing above $10. Regardless, the index is showing historic low prices for options and bull market conditions suggestive of continued rally. The indicators remains bearish and are pointing lower at this time with no indication of bottoming or reversal that I can see.


The Indices

The indices moved lower today, but not by very much. Today's leader is the Dow Jones Transportation Average with a loss of -0.26%. The transports created a small red bodied spinning top candle at the 9,300 resistance line. The indicators persist in bullishness and continue to rise so a move up from here looks very likely. Next resistance is the current all-time high near 9,650.


The NASDAQ Composite shed -0.16% in a move creating a small red candle falling from the current all-time high. The index is in up-trend and supported by the indicators which have begun to show a little bit of strength. Stochastic is moving above the upper signal line, consistent with a sustained upward movement within an up-trend, and suggestive of higher prices. Upside targets are 6,400 and 6,600.


The S&P 500 made the third largest decline today, -0.12%. The broad market created a small, spinning top doji candle falling from the current all-time high. Today's move is a natural pause in the near-term up-trend and not unexpected, a deeper move lower may prove otherwise. The indicators are both bullish and pointing higher in support of higher prices so it looks like the move will continue. Upside target is 2,480 in the near-term.


The Dow Jones Industrial Average is the today's winner with a loss of only -0.10%. The blue chips created a small spinning top doji just below the all-time high set Friday and looks like it will continue to drift higher. The indicators are both bullish and confirm the break to new highs, stochastic showing a bit of strength with a move above the upper signal line. Upside target is 21,500.


There is a bullish tide rolling into the market, how high it will go and when is the question as always. The charts are looking good for a continuation of near-term trends despite a growing wall of worries. These worries may eventually weigh the market down enough to cause correction but there is no sign of it now that I can see. Until there is I have to follow the signals as they come and the signals I see are bullish. I am still cautious for the near-term because we've two major central bank meetings at hand, but looking to see the indices set more new all-time highs over the summer.

Until then, remember the trend!

Thomas Hughes