Introduction

Global indices held steady in the wake of Wednesday's dive in oil prices. US indices were able to tick higher, led by the health care sector, as the Senate unveils their version of the Obamacare Repeal/Replacement bill. The bill, as expected, was released to a barrage of criticism. The bills passage is questionable, there are more than enough GOP opponents to block the bill at next week's vote.

International indices were flat in today's action. Asian indices were mostly lower but losses were minimal, Australia being the standout with a gain of 0.7%. Chinese stocks received little support from MSCI's decision to include them in the Emerging Markets Index. European indices fared little better, about half closed with losses and half with gains, as a 2 day meeting of the EU Governing Council gets underway. The meeting is expected to generate headlines in the areas of strengthening the EU and protecting its citizens from terrorism.

Market Statistics

Futures trading was flat all morning. The indices were expected to open with gains less than 0.05% and that held true through the release of economic data and into the open of the session. The indices did indeed open higher, about 1.5 points for the SPX, and quickly moved down to test support just below yesterday's close. This level held, a bottom formed and the indices were able to move back up to test and break the early high. Between 11AM and 1PM the indices drift higher, the SPX moving up to +5, and held those levels most of the afternoon. The release of FOMC bank stress tests, due out at 4:30, put a damper on the days gains. As the close approached indices moved lower to close almost exactly flat for the day.

Results for the first part of the stress test reveal that America's 34 top banks appear to have enough cash to return some to shareholders.

Economic Calendar

The Economy

Economic data was fairly light today, jobless claims and Leading Indicators. Initial jobless claims rose 3,000 from last week's upward revision of 1,000 to hit 241,000. The four week moving average of claims gained 1,500 to hit 244,750. On a not adjusted basis claims fell -2.4% versus an expectation for -3.8% and are down -7.8% on a year over year basis. Despite the rise claims remain low relative to the recovery and historic levels, consistent with labor market health.


Continuing claims rose by 8,000 on top of an upward revision of 1,000 to hit 1.949 million. The four week moving average of claims rose by 5,000 to hit 1.932 million. This figure has been creeping up since hitting its 44 year low about a month ago but remains low relative the long-term recovery, below the 2.00 million mark and is consistent with ongoing labor market health and tightening.

The total number of Americans receiving unemployment benefits rose by 30,993 to hit 1.816 million. This gain is as expected and is coming off a record seasonal low. On a year over year basis claims are -10.25% and have been running at a double digit deficit to last year for some time now. We can expect to see total claims trend higher over the next 5 to 6 weeks with a peak in early to mid July near the 2.0 million mark. Long-term, claims remain in down trend and consistent with ongoing improvement in employment levels and labor market tightening.


The Index of Leading Indicators was released at 10AM. The index rose 0.3% in May, the 9th consecutive month of expansion, following a 0.2% increase (revised) in April and a 0.4% (revised) increase in March. Conference Board economists say the increase shows expansion expected through the end of 2017 in the range of 2% and maybe faster. The Coincident and Lagging Indices also rose, by 0.1% and 0.1% respectively.


The Dollar Index

The Dollar Index slipped a bit in today's action but was able to regain the loss and close with a gain near 0.05%. The index created a small doji candle sitting on support at the short-term moving average near $97.50. This is significant in other ways as well, the $97.50 level also represents near-term resistance, resistance which was broken in confirmation of an apparent price reversal earlier this week. The indicators are bullish and showing strength although they are also consistent with a peak and pull-back to support. A confirmation of support at $97.50 would be bullish, a break back below would be bearish.


The Gold Index

Gold prices were also steady in today's trade, gaining about a half percent intraday to trade above $1,250. The gains did not hold though, prices slipped back below $1,250 to close with a gain near 0.25%. Today's action is not definitive but bears the look of a test and confirmation of resistance. If gold prices fail to regain upward momentum a deeper fall is likely. With so little data coming out over the next week there is little to move gold directly other than risk-on/risk-off sentiment, political news and Fedspeak. Downside targets are near $1,235 and $1,220 should prices confirm resistance.

The Gold Miners ETF GDX was able to extend its bounce from support today but, at best, remains range bound within its ever narrowing trading range. The ETF gained 0.30% to trade at the resistance of the long-term moving average with indicators that continue to flounder within their respective ranges. Momentum is bearish but weak and trending near the zero line over the past 6 weeks, stochastic is showing some weakness as %D reaches the lower signal line but also signs of support with %K's bounce and bullish crossover. Bottom line, the FOMC meeting did not result in a definitive move for the gold miners. The sector remains range bound and looks like it will be so into the near-term. Support is along the $22 level, resistance is just above the current level in a range between $22.50 and $23.


The Oil Index

Oil prices rebound from yesterday's deep declines but is more likely due to short-covering/profit-taking than anything else. WTI settled with a gain of 0.5%, trading at $47.74, with little to support it at this time. Although we can expect to see US production growth and rig counts slow there is still ample supply in the world and very little in the way of demand growth. I don't expect to see oil prices stage a significant gain until something along those lines changes, and it will take a lot more than OPEC's production cap to do it.

The Oil Index continues to ratchet lower, today's action saw it post small gains but not enough to recover previous support targets. The index gained about a half percent today to test the 1,100 level and that level was rejected. Today's candle is a small green bodied candle with long upper and lower shadows that is typically a sign of indecision. Today's candle comes after a long red candle and formed below the midpoint of that candle so also confirming a bearish harami which is usually a sign of weakness and possibly continuation. With oil prices falling the way they are I am giving up my bullish long-term outlook due to an expectation forward earnings growth outlook will start seeing major downgrades. Downside target is the bottom of last year's trading range near 1,080, I'll reassess at that time.


In The News, Story Stocks and Earnings

Oracle reported earnings after the bell yesterday and delivered stellar results. The company, which offers more software applications in more categories than any other firm, blew past estimates on revenue and profits driven by the cloud computing segment. The stock surged more than 10% in the pre-market session to hit a new all-time high. Profit takers were able to drive prices down from the high but left the stock with gains in the range of 8%.


Carnival cruise line reported before the bell and delivered a triple shot of good news. The company reported better than expected revenue and earnings on improving margins, and raised guidance due to forward booking ahead of last year and at higher prices. Shares of the stock fell marginally in the premarket, shot up during the session to set a new all-time high but fell back under the pressure of profit-taking.


The VIX fell -3.5% today in a move that confirms resistance at the short-term moving average. Toda's candle is medium and red moving down from the 11 level to close below 10.50. The fear index remains range bound at low levels with indicators that suggest more of the same with a possibility of moving lower. MACD has been trending flat for weeks with stochastic rolling into a bearish buy that suggests a move lower within current ranges downside target would be the recent lows near 10 and $9.50, consistent with ongoing market complacency.


The Indices

The indices tried to move higher but the threat of stress test results capped gains and left them flat for the day. The NASDAQ Composite posted a gain of 0.04% creating a small spinning top doji. Today's action is above support levels and near the current all-time high but indecisive and not supported by the indicators. Stochastic has formed a weak bullish crossover, trend following, but both %K and %D are pointing lower showing weakness in both time frames. This could change in as little as one day but until then this signal is very weak and highly questionable. MACD is in the same boat. Momentum is bearish but showing signs of rolling over into what could become a trend following signal. A move higher would be bullish in the near-term only and faces resistance at the all-time high. A break above there would be more firmly bullish.


The S&P 500 posted the smallest loss, only -0.04%. The broad market index created a small spinning top candle sitting on the long-term up trend line and looks like it will fall through. While price action is still above support, the indicators are persistent in bearishness and confirming a pull-back. Downside targets on a break of the uptrend line are the short-term moving average near 2,420, the round number of 2,400 and then on a deep pull-back 2,350 although I do not expect that at this time.


The Dow Jones Industrial Average posted a loss of -0.06% and created a small spinning top doji. Today's candle is sitting on support at the long-term up trend line and looks like prices will continue to test support into the near-term. The indicators have been rolling over into sell signals that confirmed today with a bearish crossover of MACD. Such signals are, within an uptrend, usually a precursor to trend following buy signals but it is too early to act on that assumption now. A break below the up trend line would be bearish near-term with downside targets near 21,180 and 21,000 respectively. A bounce from the trend line would be trend following a bullish but near-term only, resistance is only a few hundred points above today's close at the current all-time high.


The Dow Jones Transportation Average also closed with a loss of -0.06%. The transports created a small doji-like candle with green body sitting on support at the short-term moving average and below resistance at a former all-time high simultaneously. The index appears to be in a near-term correction, about halfway through it, and confirmed by the indicators. Stochastic has fired a sell-signal and is showing weakness confirmed today with a bearish MACD crossover. A break of the short-term moving average would be bearish with downside target near the long-term moving average just above the 9,000 level. A bounce from here would be bullish near-term with a target at the current all-time high.


The indices remain in uptrend although near-term direction is highly questionable. The indicators are throwing signals of weakness that could easily turn into the next trend following signal, or a deeper correction. With so little in the way of economic data or earnings over the next week or so there will not be much to drive the market higher so I am very very cautious in the near-term. If the market is able to hold these levels great, if not the dip will likely be a buying op and the next great long-term entry. Forward earnings growth remains positive and strong, so long as that remains true I am bullish for the long-term.

Until then, remember the trend!

Thomas Hughes


 

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