Fed? What Fed? The market jumped on rising oil prices and positive earnings.


The market jumped today on rising oil prices but don't get your hopes up to soon, the catalyst may be nothing more than the same rhetoric we've been hearing the last 12 months. WTI got a 5% pop on news that there was going to be a meeting of oil ministers. Soon after that Russia made a statement that Saudi Arabia was calling for a 5% production cut and then not too long after that the Saudis denied the call saying there were, as always, willing to discuss such a cut should other nations meet them at the negotiating table.

This time a deal to cut support global oil prices could happen but nothing concrete happened today, except a rumor driven gain in oil prices. The conspiracy theorist in me wonders if Russia and Saudi Arabia didn't orchestrate this little rumor, $1 a barrel price difference is a lot of money for a country pumping 100's of thousands of barrels per day. The Russians and Saudis are both pumping at or near record levels, more than 10 million barrels per month each.

Market Statistics

Global markets were mixed. Most Asian indices closed lower, well before the oil news, led by the mainland Shang Hai. It fell -2.85%. In Europe the indices started the day with small losses, then moved into positive territory, and then sold off on weaker than expected earnings among EU businesses. The DAX led with a loss of -2.44%.

Futures trading on the US indices indicated a flat to positive opening for most of the early session. This strengthened a little after the 8:30AM data and a host of better than expected earnings reports but did not get really strong until nearly 9AM, just after the Russia/Saudi rumors began to swirl. At that point the futures jumped nearly a full percent and held those levels going into the opening bell.

The open was strong, the indices opened as expected, the SPX making gains near 0.80% in the first minute and rising as high as 1.05% before hitting the intraday high. The high was hit during the opening rush, about 5 minutes after the open, and held until late in the day. In between, the indices retreat to test support at yesterday's close before lunch, bounced during lunch, built a bottom in early afternoon and were approaching the early high by 2:30PM. The late day rally did not quite reach the high set earlier in the day but it did recover most of the early gains and left the indices near the highs of the day.

Economic Calendar

The Economy

There were two releases other than the jobless claims data this week, Durable Goods and Pending Homes Sales. Durable Goods Orders, released at 8:30AM, came in at a disappointing -5.1%, more than 4% lower than the expected -1%. Within the report ex-transportation durable goods orders fell only -1.2%. Shipments and unfilled orders both fell, inventories rose slightly by 0.5%.

Initial claims for unemployment fell -16,000 from an upward revision of +1,000 to hit 278,000. The four week moving average of initial claims also fell, losing -2250 to hit 283,000. On a not adjusted basis claims fell by -21.6%, well ahead of the expected drop of -17.1%. At face value the decline is good, in line with trends and consistent with ongoing labor market health but there is a red flag popping up; not adjusted claims are now higher than at this same time last year, the first time this has happened in several years. It may be nothing, just part of seasonal flux, but worth noting.

Continuing claims gained 49,000 from an upward revision of 11,000 to reach 2.268 million. The four week moving average of continuing claims also rose, gaining 15,750 to hit 2.246 million. This is a new 6 month high but not yet alarming, continuing claims remain low relative to trend and consistent with labor market health. If this metric continues to rise, and spill through into the total claims is noticeable, then we may have a problem.

Total claims fell by -122,445 from the peak set last week. This total number of Americans receiving unemployment benefits is now 2.729 million. The drop seen this week was predicted by historical data, if the data holds true then initial, continuing and total claims should begin to trend lower over the next 4 to 6 weeks and then into the summer months. On a year over year basis the total number of claims is down -7.9% and consistent with ongoing labor market recovery.

Pending Home Sales rose by a meager 0.1% in December and the November data was revised lower by a -0.1% so that gain is a wash. On a year over year basis signed contracts for new homes are up 4.2% in December, the 16th consecutive month of increase. Lawrence Yen, chief economist for the National Association of Realtors, says that difficulty in finding affordable homes is being offset by strengthening labor markets. Demand is expected to continue into 2016 but may see some dampening. Existing Home Sales are forecast to rise by 1.5% in 2016.

Tomorrow look out for Chicago PMI, Michigan Sentiment, the Employment Cost Index and the 1st estimate for 4th quarter GDP. Expectation is for growth to temper from 2% in the 3rd quarter to about 1% in the 4th.

The Oil Index

Oil prices spiked on rumor in today's session. WTI jumped by more than 7% at one time but tempered that gain going into the close. By end of day WTI and Brent were both up by more than 3.5% but well off the early highs. In my view this move is reactionary and without substance; the rumor is just that, a rumor. There is no change to fundamentals at this time so today's spike is most likely another shorting opportunity for oil bears. If a meeting of ministers does take place, and they do reach an agreement, prices may rise again but until there is a substantive change in the supply/demand picture I expect prices to remain low.

The oil sector got a boost from today's pop in oil prices that drove the Oil Index up by nearly 3%. Today's action created a gap to the upside that opened the session just below resistance, and then sold off from there. Resistance is at the short term moving average, just below the 1,000 level, and may prove strong. A failure to break above could result in a move back to support levels near 900. If oil prices fall back from today's peak the move to support could be swift.

The Gold Index

Gold prices have held steady over the past 24 hours, in the wake of the FOMC meeting and policy announcement. The Fed statement did not make any reference to when, if or how interest rates would be raised, weakening the dollar and leaving the market open for another 6 weeks of data driven speculation. Today, gold prices held flat near $1115, supported by a weaker dollar, but well below resistance targets and yesterday's high near $1125. Prices may remain at this level, within a range, until data or central bank activity provide a clearer outlook.

The Gold Miners ETF GDX fell from yesterday's peak but remains above the short term moving average. Today's candle is a small spinning top but one with bullish overtones. Today's action helps confirm near term support at the moving average and an upward trend within the 7 month trading range. The indicators are pointing higher, confirming the recent break above the moving average, and pointing toward the upper end of the range. First target is near $15 with additional targets near $16 and $17 should gold prices move higher as well.

In The News, Story Stocks and Earnings

The Dollar Index fell a little more than -0.30% in today's session. The FOMC's apparent dovishness has weakened the dollar and sent the index down to test support near $98.25. The downward move in dollar value could continue if global financial turmoil and/or weak US data persists. The indicators have confirmed the downside move with bearish crossovers but are otherwise consistent with a range bound index. At this time the most likely catalysts for the dollar are the ECB and BOJ which have both indicated a willingness to increase QE; the Fed is monitoring the situation.

Earnings. Today was one of the biggest days of the season, both in terms of sheer numbers and numbers of big name companies. Based on my calendar it looks like there were at least 175 major reports with names like Amazon, Microsoft, Pulte, Time Warner, JetBlue, Ford, Harley Davidson and many others. All in all the reports were good, there are isolated misses but in general earnings and revenues are coming in better than expected.

Names reporting before the bell:

Pulte Homes-Beat on the top and bottom line. Sales prices are up 6% over last year. Company CEO says they are benefiting from a favorable demand environment. Back logs are up 26% year over year.

Time Warner-Beat expectations although earnings fell -11% from last year.

Harley Davidson- Beat EPS and revenue expectations but edged down from last year. Revenue of $1.18 billion is down from last year's $1.20 billion but well ahead of the expected $1.02 billion projected by analysts. Shares of HOG jumped more than 5% at the open but sold off from there.

Ford-Beat on top and bottom line, reports first profits in Europe since 2011.

Caterpillar- Revenues miss, earnings beat (smaller than expected loss) and guidance is better than expected. Company CEO says the coming year is going to be tough.

UnderArmor- The star of the morning may have been UnderArmor. The company reported better than expected revenue, earnings and guidance driven on strong demand. The news helped to drive the stock up by more than 20% and left it near the high of the day.

After hours action included names like Microsoft, Amazon, Visa and Electronic Arts, all of which beat expectations, except for Amazon. Amazon reported revenues that more than doubled last years results for the same period but earnings were much weaker than expected. The street was calling for near $1.50 in earnings, reported adjusted earnings were $1. Shares of the stock had been trading up as much as 10% during the open session, but fell by an equal or greater amount after the earnings report hit the market.

Microsoft jumped by more than 3% in after hours trading, driven by better than expected earnings. The stock moved up above the short term moving average and looks like it is heading up to retest the recently set high.

The Indices

The indices tried to rally today but the signals are mixed. Most of them were able to make gains and hold them, if capped by resistance, but not all. The Dow Jones Transportation Average was the only of the four major indices to close with a loss, just over -0.80%. Today's action returns the index to support at the 6,700 level. The indicators are moving higher, confirming the bounce from support, but it looks like support will be tested again. If 6,700 fails, next target for support is 6,600.

Today's leader was the NASDAQ Composite, led by Amazon in the early hours so we'll see how if it retains leadership tomorrow. In any event, today's action carried the tech heavy index up by more than 1% at the open only to lose some of those gains during the day, the index closed with a gain of 0.86% and created a bearish candle with long lower shadow. The indicators are mixed; momentum remains bearish although it is close to shifting to the upside, stochastic is pointing higher with both %K and %D. This set up could be a preamble to a bullish break above the 4,500 resistance line, or a drop down to retest support along 4,400, depending on market whim and the price of oil Friday morning.

The Dow Jones Industrial Average made the 2nd biggest gain in today's session, about 0.79%. The blue chips created a medium bodied white candle with long lower shadow, indicative of support just below yesterday's closing price and the bottom of a 5 day consolidation. The indicators are rolling into a bullish signal, MACD is crossing the zero line today in confirmation, so it looks like this one could continue rising up to test resistance at the short term moving average. Upside target is near 16,500 with 15,600 target for support should the index pullback.

The S&P 500 made the smallest gain in today's session, only about 0.55%. The broad market created a white bodied candle with upper and lower shadow, indicative of indecision, between a two potential support and resistance lines; support is near 1,860 with resistance near 1,900. The indicator are pointing higher, consistent with a bounce from support, MACD confirming today with a bullish crossover. Upside target, should resistance be crossed, is near 1,950 in the near term.

The market certainly looks like it is trying to bounce, although the indications remain mixed. With the FOMC out of the way for at least a couple of weeks market direction is going to come down to earnings and oil prices. Earnings are coming in better than expected, if weak, while oil prices remain questionable. Oil may cause a retest of support but I think earnings, and forward outlook, will help support to hold. Whether or not a rally develops is yet to be seen. I remain bullish in the long term, cautious in the near.

Tomorrow look out for after shocks from today's post-closing earnings reports, another onslaught of new reports and the first estimates for 4th quarter GDP.

Tomorrow is also the last trading day of January, this could bring additional volatility as money managers liquidate losers and scoop up bargains.

Until then, remember the trend!

Thomas Hughes