Introduction

The market held steady awaiting Trumps nomination for FOMC chair and was not surprised when Mr. Powell walked out with the President. Powell has been a member of the committee since 2012 and largely expected to continue the works of the Yellen Fed. In terms of policy he is viewed as slightly dovish. In other news the Trump Tax Plan was finally revealed to mixed applause, and earnings keep rolling in. There is not expected to be major opposition to his confirmation.

Asian indices closed the day mixed. The Nikkei led with a gain near 0.5% while most other indices fell to close with losses in the range of -0.10% to -0.40%. Trading was affected by yesterday's FOMC policy statement, earnings and anticipation for today's BOE meeting and expectations for news on US tax reform and Trumps FOMC pick. European indices were much the same. Most indices closed with modest losses with one standout, the FTSE, posting gains. The FTSE rose on the BOE decision to raise rates for the first time in 10 years. Within the report comments led traders to believe future rate hikes would be gradual and likely at a pace below previous expectations.

Market Statistics

Futures trading was flat and mixed all through the early session. The SPX opened flat and then traded sideways for a few minutes before making a sharp move lower. This move took the index down to the daily low, near 2,566 and -12 from yesterday's close, before bouncing back to near break even by 12/30. The market trend sideways from there up to and into the final 20 minutes of trading when a late day rally spurred the index up to close with no gain and no loss.

Economic Calendar

The Economy

Challenger, Gray & Christmas released the monthly report on lay offs this morning. The read came in at 29,831 and down -10.5% from last month. This read is down -3% from last year, the year to date read is down -25% from the same period last year and at a 20 low. Health and Services led with cuts, the primary reason given was cost cutting which accounts for more than 62% of total cuts this year. The hires figure came in well below expectations at 37,387 but remains strong on a year to date and full yea basis. Year to date hires are up 25% over last year in the same period and up 20% versus the full year 2017 with two months left to go.


Initial claims fell -5,000 to 229,000, the last week's figure was revised higher by 1,000. The four week moving average fell -7,250 to another new 44 year low. On a not adjusted basis claims rose 0.4% versus an expected 2.1% and are down -12% YOY. There is special note in the report this week. Backlogs of claims in Puerto Rico and the Virgin Islands are now being processed and will negatively impact the data over the next few weeks. Regardless, this week's figures are in line with long running trends and consistent with labor market health.


Continuing claims fell -15,000 to hit 1.884 million and a new 44 year low. The four week moving average of claims also fell to hit 1.895 million and a new 44 year low. Not much to say about that other than it's in line with long running trends and consistent with labor market health.

The total number of claims rose 35,318 to hit 1.632 million. This gain is as expected and in line with seasonal trends. Looking forward we can expect this figure to move higher into the end of the year as seasonal hires are laid off and business address labor oriented budgetary issues. If seasonal trends remain intact the peak should come in around 2.5 million and in the first week of the new year.


Productivity and Labor Cost data was released at 8:30AM alongside the jobless claims. Productivity rose by 3%, a tenth hotter than expected and the strongest gains in 3 years. The gains were made on a 3.8% increase in output, a 0.8% increase in hours worked and a 3.5% gain in wages. Labor costs rose in relation to productivity by 0.5% but remains down on a year over year basis.

The Dollar Index

The Dollar Index held steady in today's trade. In the early part of the session traders were waiting for Trump's FOMC pick, in late day trading market participants breathed a sigh of relief his pick is not expected to rock the boat. Today's action did test support at the $94 resistance-turned-support and confirm it, if on light volume and tepid action. The indicators remain bullish and suggestive of higher prices. With the ECB, BOJ and BOE all backing down from inflation targets and the FOMC on track to raise rates in December divergence as returned to the market. This could continue to drive a wedge between the dollar and the basket of world currencies, and drive the Dollar Index higher with it. Upside target is near $96.50 in the near to short term.


The Gold Index

Gold prices also held steady in today's action, posting a loss of -0.02%. The metal remains below resistance at $1,280 and poised to move lower on a strengthening dollar. Tomorrow's NFP could be the data to do it. It is expected to be strong at 325,000 new jobs. Downside targets remain near $1,265 and $1,250.

The Gold Miners ETF GDX moved up to close with a gain near 0.44% but price action was tepid and sideways on the week. The ETF is consolidating above a potential support level while in a near term down trend within the greater long term trading range. The ETF is also below resistance targets but with mixed indications from MACD and stochastic. MACD momentum is bearish but weakening while stochastic has fired a bullish crossover, both consistent with support. The caveat is that the prevailing trend is down, albeit within a trading range, and the indicators are set up to fire a bearish crossover. A move below $22.25 would be bearish for the near to short term with target near $21. A move up and above $22.85 could be bullish but would face resistance at both the short and long term moving averages.


The Oil Index

Oil prices moved up again as a slowly tightening oil market is support by OPEC compliance with current production cuts and hopes the cartel will expand and extend those cuts. WTI rose by 0.85% to close near $54.75 and a new long term high. Prices are likely to continue creeping higher into the near term, a break above $55 would be bullish and could lead to a sharp increase on speculative positioning.

The Oil Index continues to rise supported by rising oil prices, forward earnings outlook and improvement in forward earnings outlook due to rising oil prices. The index gained another 0.87% today and looks like it will easily hit my target near 1,300. The indicators are now both bullish, showing bullish crossovers, and in confirmation of the continuation.


In The News, Story Stocks and Earnings

Details for the Trump Tax Plan were released today to mixed applause. For the most part market participants view the cuts as a positive with some minor grumblings about detail from proponents. Opponents are primarily democrats. In a nutshell the plan proposed to make the corporate tax rate 20%, immediately and permanently. It also proposes to allow repatriation of offshore earnings at the rate of 12% (cash) and 5% (other assets). The child tax credit is raised to $1,600 from $1,000, the estate tax exemption is doubled, property taxes are deductible up to $10,000, 401(k) and IRA deductions remain and tax brackets are reduced to 4. In the press conference several proponents alluded to the possibility most Americans would be now be able to file taxes on a card the size of a post-card. Shares of H&R Block fell hard on the news.


Starbucks reported after the bell and fell short of expectations. The company missed on both revenue and earnings (EPS was in line but the market was surely expecting a beat) leaving investors feeling cold. The company also reported it would be selling its Tazo Tea brand to Unilever in efforts to focus on a single tea strategy utilizing the flagship Teavana brand. Other metrics falling short of expectations are global comps and US comps, all of which leading to a -5% decline in after hours trading.


Apple also reported after the bell and they beat on the top and bottom lines and smartly. The company reported revenue of $52.6 billion, up 12.3% from the previous year and more than $1.8billion above expectations. EPS of $2.07 beat by $0.20 and helped alleviate concerns of slower iPhone sales. Shares of the stock jumped 3% to set a new all time high.


Late in the after-hours a WSJ report reveals that stalled Sprint/T-Mobile merger talks were back on, sparking a rally in shares of Sprint.

The Indices

The indices wobbled a little in early trading, regained their footing ahead of Trump's FOMC pick and then rallied into the close. Most indices closed with marginal moves with one stand out. The Dow Jones Industrial Average closed with a gain of 0.34% and set a new all time high. The index is moving up on earnings, economics and earnings expectations; today's move is supported by the indicators. Upside targets are 24,000 and 24,500 in the near to short term.


The S&P 500 also closed with a gain but did not set a new all time high. The index created a small hanging man type doji to the side of yesterday's candle and hanging just below the current all time high. Price action looks a little iffy but generally bullish, as do the indicators. Momentum persists in bearishness but is very weak and consistent with market consolidation while stochastic is firing a trend following bullish crossover. Upside target of 2,580 has been reached, next targets are near 2,600 and 2,660.


The NASDAQ Composite posted the smallest decline, -0.02%. The index created a small bodied green candle with visible lower shadow suggestive of support at current levels. Price action over the past couple of days is a bit mixed but holding at/near the all time high and supported by the indicators. Both MACD and stochastic are moving higher following bullish trend following crossovers and indicative of rising prices. Upside targets are 6,800 and 7,000 in the near to short term.


The Dow Jones Transportation Average brings up the rear in today's action with a loss of -0.05%. The transports created a medium sized hammer doji just below the short term moving average in evidence of support at this level. The indicators persist in bearishness and are convergent with this low, however weak, and suggest support will be tested again. Support is near 9,700, a break below there would be bearish with target near the long term moving average.


Price action was a bit mixed today, as it has been over the past two weeks, but is still generally bullish and hanging at/near all time highs. Now that we've seen the details for Trump's Tax Plan the next hurdle(s) will be getting it through the House and Senate, no small feat. Until then the market will continue to focus on earnings, the economy and forward earnings expectations, all of which are positive and trending higher. I remain bullish and looking for higher prices in the near to short term.

Until then, remember the trend!

Thomas Hughes