Introduction

As often as it's been happening it's still not old saying it. The market has hit new all time highs. The buzz on the street now is melt-up, as in the opposite of melt-down. The move is unexpected in the sense that September is quite often a volatile and directionless month, it is not unexpected in the sense that economic data, earnings and technical signals have been leading us here for some time. Among today's headlines is plug for tax reform from Philadelphia Federal Reserve President Patrick Harker and the first positive step toward achievement. He said in early morning statements we'll be stuck at 2% growth until tax reform happens, later in the day the House passed Trump's $4.1 million dollar budget.

Asian trading was a bit muted as holidays in China, South Korea and Hong Kong have some markets closed. The Nikkei closed with nearly no movement at +0.01% while the Australian ASX fell -0.01% on a surprise decline in retail sales. European indices were muted as well on developments out of Catalonia. The region continues to buck Spanish sovereignty and is planning to declare independence on Monday. The DAX shed -0.02% while most other indices gained in the range of 0.25% to 0.50%

Market Statistics

Futures trading was slightly negative in the wee hours of the early session but later gained strength on economic data. The open was slightly positive and without incident leading to a slow and steady rally lasting most of the day. By 12:30 some resistance was hit, near 0.05% for the SPX, but it was caused by profit taking and turnover, not major selling. The next few hours saw the indices trend sideways just below the new high and testing it several times along the way. By late afternoon it was clear the market wanted to move higher and it did, breaking through resistance to set new all time highs by the close.

Economic Calendar

The Economy

Today's data starts off with the Challenger Gray & Christmas report on planned lay-offs and from what I see the data is good. According to them the number of planned lay-off's fell -4.4% from the previous month to 32,346 (this includes storm affects). On a year over year basis the September read is down -27% from September of 2016. The September addition leaves the 3rd quarter total down -6.2% from the 2nd quarter of this year and -22.5% from the 3rd quarter of last year. Finally, the year-to-date total for 2017 is down -26.7% from last year showing a sharp decline in job cuts as employers seek to hang on to those they have. The best part of the report though is the number of planned hirings. According to Challenger data the number of planned hirings year-to-date is up nearly 70% over last year at this time and already exceeds 2016 full year hiring.


Initial jobless claims fell -12,000 to 260,000 from last weeks unrevised figure. The four week moving average of claims fell -9,500 to 268,250. On a not adjusted basis claims fell -3.9% versus an expected gain of 0.5% but are still up by 3% YOY. This week's data is still elevated from the impacts of 3 recent storms but quickly falling back to normalized levels. Looking forward I would expect to see this figure continue to fall into the coming weeks.


Continuing claims rose a modest 2,000 to hit 1.938 million and has yet to show any real impact from the hurricanes, if it ever will. The four week moving average of continuing claims fell -3,250 to 1.947 million and is also not showing affects from storm caused work interruptions.

The total number of claims for unemployment assistance fell -90,765 to 1.674 million. This is a new seasonal and long term low, in line with prevailing trend. It also shows little to no long term impact from the hurricanes although it'll be a few more week's before I can say that definitively. On a year over year basis claims are down -6.7% and well on the way toward reaching my target near 1.500 million.


The ISM Services PMI shows continued expansion following last month's surprise gains. It also echoes signs of upward inflationary pressures adding to expectations of a December rate hike. The headline index came in at 59.8, up 4.5% from the previous month with all sub indices showing gains. The activity index rose to 61.3, new orders to 63 and employment to 56.8 while prices paid jumped 8.4% to hit 66.3% and the highest level since February 2012. The data is good, not too hot, but does indicate inflation creeping into the economy.


The Dollar Index

The Dollar Index gained another half percent today on signs of economic health and growing chances of a December rate hike. The CME's Fed Watch Tool now shows an 88% chance for at least 1 hike in December. Today's action created a medium sized green bodied candle moving up from a resistance-turned-support line to break through my down trend line. The indicators are bullish in confirmation of this move and suggest higher prices to come. The break is bullish but may indicate a new trading range rather than full reversal. The next target for resistance is near $94.


The Gold Index

Gold prices tried to move higher in early trading but were later weighed down by economic data, FOMC outlook and the dollar. With no geopolitical news to support it prices had no choice but to fall. Spot prices fell roughly -0.50% to trade near $1,270 and look like they will continue to fall. Tomorrow's NFP is more likely to support the idea of economic stability than deterioration even if job gains are curbed by the storms. The expected increase in average hourly earnings is 0.3% and enough to support the idea of tight labor markets and at least the possibility of rising inflation. A break below $1,270 will be bearish for the near term with targets near $1,250 and $1,260.

The Gold Miners ETF GDX fell in response to golds decline, shedding about a half percent in the process. The ETF moved down to sit on support at the long term moving average, pressured lower by resistance at the short term moving average. The indicators are iffy, suggestive of support within a trading range but also set up to fire a bearish signal should support break. A move below the long term moving average, near $23.20, would be bearish while a bounce would be bullish. Short to long term the ETF remains within a range with little hope of breaking out.


The Oil Index

Oil prices bounced from the $50 support level in response to renewed hope of an extension to OPEC's production cap. The move was sparked by news that Russia and Saudi Arabia are expected to agree to the deal very soon. On the flipside, rising US production and the resumption of production at Libya's Sharara field continue to cap gains. In a sidebar, a Saudi minister has been quoted saying that Russia "breathed life back into OPEC", a statement that leads me to think the cartel was/is on even shakier footing than I thought. Regardless, prices are elevated on hopes the cut will be extended and continue to aid market rebalancing and this may continue in the near to short term.

The Oil Index added another 0.35% to its nearly 2 month rally. The index and sector are being driven higher on rising oil prices, forward earnings outlook and rising forward earnings outlook driven by rising oil prices and appears to be in full reversal. That being said the indicators continue to weaken even as price action begins to cool off, suggesting a pull back/correction may be forthcoming. If so I will view that as an entry for short and long term positions. First target for support on such a move is $1,220 or -1.66% from today's close. A move below that may go as low as the short term moving average near 1,175 or -4% from today's close.


In The News, Story Stocks and Earnings

Constellation Brands reported earnings before the opening bell and served up a treat for investors. The maker of adult beverages beat on the top and bottom lines on business that allowed management to raise full year guidance. Revenue of $2.08 billion beat by 3%, earnings of $2.47 beat by 14% as pricing, margins and volume combine to deliver bottom line results. Beer and wine are both up double digits, led by beer, while gross margin increases to near 51%. Shares of the stock jumped more than 5% in premarket trading to gap up at the open and trade at a new all time high.


Shares of both Fed Ex and UPS fell on news that Amazon is testing its own deliver service to rival the two shipping giants. I'm not surprised to hear this news, a little surprised that Amazon didn't choose to purchase existing infrastructure. I guess they think they can do things better. The plan, being tested now in high density areas, is intended to increase the number of items available for 2 day shipping by delivering direct from the warehouse. Shares of both Fed Ex and UPS were hit although UPS was hit hardest. The stock fell more than -1.5% in premarket trading to open with a gap lower, just below the short term moving average. This was seized as a buying opportunity by some, driving the price back up to close with a loss of only -0.67%.


Costco reported after the bell and beat on the top and bottom line. Revenue of $42.3 billion is up nearly 16% over last year and beat expectations by 1.8%. EPS came in $0.06 ahead of expectation or +3%. Sales for the full fiscal 2016 grew by 8.7% with the caveat that the 4th quarter and full year had one more week than the comparable period in 2016. Shares of the stock responded positively nonetheless rising more than 0.5% in the post market session.


The Indices

The indices marched higher today in steady action. The indices, save one, made new all time highs as well. The one laggard is the Dow Jones Transportation Average with a loss of -0.12%. The index extended a fall begun yesterday but confirmed near term support in the process. Today's candle is small but green bodied with visible lower shadow indicative of buyers. That being said both price action and the indicators suggest a peak has been reached with the possibility of consolidation and continuation. Near term support is near 9,850, a break of which could be bearish for the near term. A bounce from this level would be bullish and trend following with the caveat of resistance at the all time high.


The NASDAQ Composite posted the largest gain, 0.77%. The index created a medium sized green candle moving up and in line with prevailing trends. The move is supported by earnings and economic outlook along with bullish indicators. Both MACD and stochastic are moving higher following trend confirming bullish crossovers and suggestive of strengthening within the market. Upside targets are 6,600 and then 6,800.


The broad market S&P 500 made the 2nd largest gain, 0.56%, and created a medium sized green bodied candle moving up to a new all time high. This move is confirmed by the indicators which are both moving higher following bullish trend following crossovers. Today's move exceeds near term targets at 2,550 which brings the next target of 2,580 into play.


The Dow Jones Industrial Average brings up the rear in terms of gainers. The blue chips added 0.50% in today's action and created a medium sized green candle. The indicators are both bullish in confirmation of the move to new highs and suggest that more new highs may follow. Next target is 23,000 and may be reached before peak earnings season.


The indices are moving higher whether you want to call it a rally, a melt-up or whatever else you may want to name it. If there is a lack of sellers it's because we're still in a period of growth with positive forward expectations. Yes, there are still areas of weakness and underperformance within the economy and the market but the general trends are positive and strengthening. The jobs report tomorrow is likely to show some weakness as well but this due to the recent storms, there is as yet no signs of long term or long lasting damage to the economy and I do not expect there to be any. I am bullish in the near, short and long term and greatly anticipating earnings season. I sure hope it doesn't disappoint.

Until then, remember the trend!

Thomas Hughes