The markets continue to drift higher, quietly making new highs as merger news hits the market. Last week there were hints of a possibly Broadcom/Qualcomm deal, those hints were confirmed. Broadcom
has made an unsolicited offer for its smaller rival. Today we hear of a possible sale of 21st Century Fox to Disney. The deal is as yet unconfirmed, merely news that talks were held, but would end up with Disney owning most of but not all of the company and specifically movie studios, what would be left is a Fox narrowly focused on news and sports.
Global indices were mostly flat. In Asia trading was muted as President Trump's multi-nation tour gets underway in true Trump fashion. The president is quoted both praising and criticizing the very leaders he is set to meet. The Shang Hai Composite led with a gain just over 0.5% while the Nikkei and Heng Seng each closed with a bare minimum of movement. In Europe markets were flat as well with indices evenly split between gainers and losers. Earnings were in focus, as was the rising price of oil.
Futures trading was flat to negative for most of the early morning but gained a little going into the open. The open was calm and quiet; the SPX opened with a marginal gain, moved down to test support just below Friday's close and then bounced from there. The index crept higher throughout the morning and into late afternoon setting new all time highs along the way. The days action was light, moves were small and the indices ended the day closing with marginal gains.
There was no economic data today and very little this week. Tomorrow is the NFIB survey, JOLTs and Consumer Credit, Thursday is jobless claims and Wholesale Inventories and then on Friday Consumer Confidence.
Moody's Survey of Business Confidence gained a half percent to hit 28.3 but remain low relative to the last year. Mr. Zandi takes note of recent weakness citing downturns in sales, hiring and investment that appear to be heaviest in the US. Despite this the index remains high relative to historic levels with a significant number of respondents optimistic about the next 6 months.
With 81% of the S&P 500 reporting the blended rate of earnings growth is now 5.9%. Of those who have reported 74% are beating on EPS and 66% are beating on the revenue end, both above average. To date there are 6 sectors producing growth, led by the energy sector, while 7 sectors have higher growth rates today than they were expected to have.
Looking forward double digit growth is still expected to return next quarter and persist through the end of 2018. Next quarter estimate has fallen a bit, to 10.4%, but full year 2017 estimate is rising on this quarters results. The first quarter estimate for next year edged up to 10.6% while the 2nd edged down to 10.2%. Full year 2018 estimate also edged down but remains strong at 11.0%.
The Dollar Index
The Dollar Index gave up some of its gains today but remains above the $94 support target and well above the recent lows. The index appears to be in reversal following the break of a head&shoulders reversal and is indicated higher. This reversal is driven by firming of FOMC outlook coupled with softened ECB, BOJ and BOE outlook that will likely persist into the next round of central bank policy meetings if not longer. New resistance is now at $95, a break of which would confirm continuation of the reversal with next upside target near $96.25. A fall back below $94 would be bearish in the near term and likely keep the index range bound in the near to short term.
The Gold Index
Gold prices firmed today as the dollar consolidated its gains. Spot price moved up a little more than 1% to move above $1,280. This move is potentially bullish but does still face multiple resistance targets on the way up to $1,300. The caveat is that there is little to support the move other than today's fall in the dollar, unless Trump's Asia tour or the Saudi corruption purge has put the market on edge.
The Gold Miners ETF GDX moved higher in today's action, gaining a half percent in a move up from the $22.50 support target. This move confirms support at the midpoint of the long term trading range and is confirmed by the indicators. The caveat is that today's move also met resistance at the moving averages which happen to be forming a bearish crossover. A move above the moving averages would be bullish but leave the index within its trading range, a failure to move above and/or fall below current support would be bearish.
The Oil Index
Bullish oil traders struck black gold today. The price of WTI and Brent both surged more than 3% to close at multi-year highs. WTI gained $1.74 to close near $57.50 and may continue higher on momentum alone. The move was set up by signs of market tightening and hopes of OPEC's extension of production caps. It was set off by this weekends crackdown in Saudi Arabia which has sparked some worry over possibly supply disruption.
The Oil Index gained more than 2% on the move in oil, creating a large green maribozu candle. This is a strong candle consistent with the underlying trend, current earnings, forward earnings outlook, rising oil prices and a shifting fundamental outlook. The indicators are both in support of the move as well as indicative of strength. MACD is moving higher following a bullish crossover while stochastic is doing the same and also showing strength with a bullish crossover of the upper signal line. Upside target is 1,300. The caveat is that this candle may also signal a euphoric top to the market, I would be cautious with new and current positions.
In The News, Story Stocks and Earnings
Broadcom officially offered to buy Qualcom for $70 a share in cash and stock. Holders of QCOM would get $60 per share and $10 in stock which was a 20%+ premium to the price just before the rumors hit the market last week. There is yet no response from QCOM but one is expected soon. Shares of the stock gapped up at the open and hit the $65 level before falling back from resistance.
Disney and 21st Fox are in talk that could lead to Disney owning most of Fox's studios, production facilities and content. The deal is seen as a big bonus for Disney as it would increase its production capabilities, bring a host of new content under its wings and eradicate a source of competition. So far now comments from either company. Shares of Disney gained more than 2% on the news and broke above the short term moving average.
Online auto dealer Truecar reported after the bell and disappointed the market. The company was able to deliver a 10% gain in YOY revenue but missed expectations. Adjusted EPS of $0.02 beat by a penny but was offset by weak forward guidance. Shares of the stock fell more than -13% in after hours trading.
Avis Budget reported after the bell and missed on the top and bottom lines. The company also gave weak forward guidance which drove prices lower in after hours trading.
AMC Entertainment beat on the top and bottom lines sending the stock higher immediately after the release. A few minutes later, after traders had a chance to read down and see weak forward guidance, shares fell close to -5%.
Weight Watchers beat on both the top and bottom lines with EPS beating smartly. On top of this forward guidance for the full year was raised to the high end of the previous range. Shares of the stock jumped more than 8% on the news.
note-I've redrawn trend, support and resistance lines.
Today's action was not robust, the market did not surge higher but it did move higher and set new all time highs. With one exception, the Dow Jones Transportation Average. The transports fell more than -0.20% to create a small spinning top doji just above current support. The index has been drifting lower over the near term and is now in danger of making a deep/deeper decline. The index show small sign of support at this level but remain bearish and suggestive of lower prices. Additionally, the short term moving average is beginning to roll over and will act as resistance on any move higher. If resistance is confirmed the index could go as low as 9,500 and the long term moving average in the near to short term.
Today's leader was the NASDAQ Composite. The tech heavy index gained 0.32% to set a new all time high. Today's candle is small and green, edging up from last week's close, and is supported by the indicators. Both MACD and Stochastic are rising following bullish crossovers and suggestive of higher prices. Stochastic is showing some strength as well with a cross of the upper signal line by %D. Upside targets are 6,800 and 7,000.
The S&P 500 made the second largest gain, a modest 0.12%. The broad market created a small spinning top type candle but set a new all time high while doing so. The move was not strong but is supported by the indicators. Stochastic has already fired a bullish crossover and moved higher with today's action, MACD confirmed today with a crossover of its own. Upside targets are 2,600 and 2,660.
The Dow Jones Industrial Average posted the smallest gain, only 0.03%, and created a very small spinning top doji. It also set a new all time high. The index is drifting higher in line with underlying trends and supported by the indicators. MACD is showing a bit of weakness in the near term but strongly bullish in the long while stochastic is confirming trend with a bullish crossover above the upper signal line. Market action may not be vigorous but the signs all point to higher prices. Upside target is 24,000.
Today's action wasn't strong but it was bullish and set new all time highs for most of the market. That being said there is something troubling me. The transports persist in drifting lower and appear set to correct back to the long term moving average. This isn't a definite signal but it does suggest the broader market could correct as well. Considering that we are nearing the end of the earnings cycle there is a chance the market could enter a period of consolidation, rotation and/or correction in the lull between seasons. The good news is that such a consolidation is yet to materialize. I remain cautiously bullish for the near term, firmly bullish for the short and long term.
Until then, remember the trend!
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