The surprising sentiment in the FOMC minutes sent the dollar soaring, and just about everything else lower, but the market still isn't convinced a rate hike will happen in June. Based on the labor data, the leading indicators and CPI it certainly looks like the meeting will be a live one, even if the target rate isn't increased. FOMC voting member Dudley concurs with this sentiment, saying in statements today that June is definitely a live meeting. According to the CME's Fed Watch Tool the chance of a June hike is now 30%, up from 8% earlier this week.

International markets were affected by yesterday's new as well. Asian markets closed flat, perhaps waiting to see what happened during today's US session. European traders were not so cautious. Indices in that region fell more than -1% weighed down by interest rate fear and plunging commodity prices.

Market Statistics

Futures indicated a lower open all morning despite positive earnings results from Wal-Mart and Cisco. Early indications pointed to an opening decline of -0.25% and this held fairly steady going into the opening bell. At the bell stocks did indeed retreat, shedding that quarter point in the first minute, and then proceeded to move lower throughout the morning hours. An early low was hit at 10AM, and then another just before 11:15AM. Over the course of the next hour an intraday bottom was put in, resulting in a rebound from the low. The remainder of the day saw the indices move slowly higher, in fits and starts, but not enough to recover the days losses.

Economic Calendar

The Economy

Lots of data today, starting with jobless claims. Initial claims fell -16,000, reversing last week's gain, to hit 278,000 and has now been below 300K for 63 weeks. Last week's figure was not revised. The four week moving average of claims rose 7,500 to hit the highest level since early January. On a not adjusted basis claims fell -6.5% versus an expected -1.2% and remain above last years level by 0.5%. Despite the fact that not adjusted claims have been tracking above last years level for the past few weeks they and adjusted claims remain low relative to the long term trend and consistent with labor market health. On a state by state basis New York and Pennsylvania led with gains in new claims of +14,494 and +3,547 while Kansas and Ohio led with declines in new claims of -3216 and -2525.

Continuing claims also fell this week, shedding -13,000 to hit 2.152. Last week's figure was revised up by 4,000. The four week moving average of continuing claims rose by 4,250 reflecting last week's gains in claims. Even so, the 4 week average remains near the long term low and both it and the headline number are consistent with ongoing labor market health.

The total number of Americans continues to decline in line with seasonal and secular trends. This week the total number of claims fell -13,598 to hit 2.122 million. This is the lowest level of claims since mid-November of last year. Although the pace of decline slowed somewhat over the last week of data we can still expect to see this number decline over the next 3 to 4 weeks with an expected low near the 2 million mark. On a year over year basis total claims are down -3.5% from this same time last year and remain consistent with declining unemployment and labor market recovery.

The final read on the Philadelphia Federal Reserve Manufacturing Business Outlook Survey came in at -1.8. This is down from the advance read of -1.6, the 8th month of contraction and well below expectations for 2.7. Within the report the index for new orders fell from 0 to -1.9, the 2nd month of decline, shipments rose by 10 but remain negative, unfilled orders remains negative and inventories remain negative. The employment index did make a substantial gain from last month, up 15 points, but also remains negative, the 5th month of contraction within the sector. The only bright spot in the report is the 6 month forward outlook which is still positive although it too declined this month.

The Index of Leading Indicators was released at 10AM. It shows a 0.6% increase in the index for April, the largest increase in a year on a revised and adjusted basis. On a not revised basis it is equal to the headline initial release for October. The coincident index also rose, gaining 0.3% as did the lagging index, also 0.3%. According to commentary from the Conference Board economists the index shows moderate growth trends should continue into the end of the year. Areas of strength include the labor market, financial indicators and building permits.

Tomorrow the only release on tap is existing home sales. Sales are expected to run in the range of 5.40 million on an annualized basis, up slightly from last month. Next week is light on data but not void, look out for new home sales, the housing price index, pending home sales, durable orders, Michigan Sentiment and the 2nd read on 1st quarter GDP.

The Dollar Index

The Dollar Index got a big boost from yesterday's hawkish sounding FOMC minutes, and today's comments from Dudley. It appears that now the FOMC and the BOJ are back on diverging policy paths, the FOMC tightening and the BOJ loosening, but as yet this divergence is grounded in talk and not action. The BOJ may not have to act as they hinted due to the recent rebound in the dollar, and if they don't could easily wind up strengthening the yen, while likewise the likelihood of a June rate hike remains low in the eyes of the market. If the FOMC doesn't hike in June, or indicate the next hike is very very close, they could also weaken the dollar.

Today's action in the index shows some indecision, it moved up to touch next resistance at the $95.50 level and retreat from it. The candle is bullish, as are the indicators, so further testing of resistance at this level is likely. However, with the upper shadow appearing near resistance like it did a break above this level is questionable. We've got about 4 weeks until the next round of central bank meetings and lots of data between now and then so consolidation between support, $94.25, and resistance, $95.50, may be on the way.

The Oil Index

The oil price was volatile today as stronger dollar, an increase to US stockpiles and output disruptions in Nigeria vied for dominance. WTI had been down as much as -2.5% in early trading, driven by stronger dollar, only to recoup the loss by the end of the session. Today's supporting news, Nigeria's main oil terminal was shut down with all workers evacuated due to "criminal activity". Exxon, which operates the terminal, clarified an earlier report stating that production continued although business was disrupted. Today's action leaves oil prices near the 6 month high primarily supported by near term supply fears and long term rebalancing speculation.

The Oil Index lost about a half percent in today's action and persists in testing support even while the price of oil is testing resistance. Today's action gapped below the short term moving average, and broke the 1,100 level on an intraday basis, only to find support and move higher during the session. The lower wick on the candle shows support at this level although the strength of that support is questionable. The indicators are mixed; momentum is bearish but in decline while stochastic is bouncing from the lower signal line, a combination indicative of potential support but by no means a guarantee of it. A break below this level could take the index down to the 1,000 level while a bounce from it would likely find resistance at the 1,120 level and the 61.8% retracement.

The Gold Index

Gold prices took a tumble driven by a stronger dollar. The spot price fell more than -2.5% intraday to hit a 3 week low but managed to pare the losses before the close of the session. The FOMC minutes put a rate hike firmly on the table regardless of what actually happens and that has gold moving down to test support. Even with today's move the metal remains above the $1250 level and may remain there in the near term. Over the next 4 weeks data will be the primary driver; strong data will point to the June rate hike, a stronger dollar and lower gold prices, weak data the opposite. The real catalyst, the strong catalyst, will be the FOMC meeting/BOJ meeting.

The gold miners were affected by falling gold prices but the move lower was met by support. The Gold Miners ETF GDX gapped lower at the open by more than -2%, opening below the short term moving average and below potential support at the bottom of the 3 week consolidation range, but buyers stepped in to scoop up the bargains. By end of the day the ETF had recovered all the losses and more, moving back above the moving average and closing with a gain near 1.5%. The indicators remain mixed which, along with today's price action, point to further consolidation at current levels. For now, support is near $23.50 and appears strong. If gold prices are pushed lower this support could fail, is so a move below $22.50 and possibly as low as $21 looks likely.

In The News, Story Stocks and Earnings

Wal-Mart was one of few winners in today's session. The world's largest discount retailer reported a beat on the top and bottom lines despite the fact that others in the retail space, including Target, have not had much success. The results were driven by better than expected US sales and increased global comps (on a constant currency basis). Within the report the company revealed that it's move to raise wages had a positive affect on earnings and helped to drive the stock higher even though full year guidance is only in-line with expectations. Shares of the stock moved sharply higher in the pre-opening session, gapping up by more than 5% at the open, and then moved higher during the day.

Wal-Mart helped to lift the entire the retail sector. The XRT Retail SPDR gained a little more than 1% in today's action, moving up from the three month low set yesterday. The move appears to be a near term bottom as indicated by both MACD and stochastic. Bearish MACD has begun to retreat and stochastic is rolling over while deep in the lower signal zone, both indicative of potential support. The caveat is that the sector is highly divided, while one store does well another does not, so a sustained rally does not look likely at this time. For example, Ross Stores reported after the bell, EPS in-line, revenue weak with weak full year guidance. Gap also reported after the bell, meeting expectations but announcing the closure of more than 70 stores worldwide. First target for resistance for the XRT is about 2.25% above today's close, near the $41.50 support/resistance line broken at the end of last week.

Cato Corporation also reported before the bell. The retailer of women's specialty apparel and accessories reported that revenue and earnings grew from last year in the comparable quarter, and were above expectations. The results were driven by expanding margins, up 30 basis points, comp store sales were flat. Along with the report the company raised full year guidance to a range above the previous. The stock responded well to the news and closed with a gain near 6%. Even with the gain shares of Cato remain near the middle of a long term trading range, but indicated to move higher. Next target for resistance is near $38.

The Indices

The indices moved lower today on increased fear of impending FOMC rate hike. They also found support and were able to recover some of the losses as skeptics have reason to believe the Fed is just blowing more wind. Today's action was led by the Dow Jones Transportation Index with a loss of -0.58%. The transports created a small hammer-like doji, just above the 7,500 support line, and below the short term moving average. The indicators are mixed, momentum is bearish but in decline while stochastic rolls into bullish signal, consistent with potential support at this level. Near term the index may remain within 7,500-7,750 range, between support and the short term moving average, while longer term direction is unclear. A break below support could take it down to 7,250 or 7,000, a break above resistance could go as high 8,000 or 8,100 before meeting next resistance.

The tech heavy NASDAQ composite made the next largest decline in today's session, about -0.56%. The index created a small doji candle, setting a new 2 month intraday low, but not quite reaching my support target of 4,650. The index appears to be trying to put in a near term bottom but this is by no means confirmed. The indicators are consistent with a potential bottom but mixed, leaving it open to further decline. As of today's close the index is smack in the middle of a tight range between support at 4,650 and resistance near 4,780. A move beyond either of these target would be significant and could lead to further moves in the direction of the break. A break below support could go as low as 4,550 in the near term, a break above resistance could go as high as 4,900.

The third largest decline was posted by the Dow Jones Industrial Average which lost -0.52%. The blue chips created a small bodied black candle with long lower shadow that found support just above the long term up trend line. The lower shadow is comparable to a hammer, but today's candle is not overly strong. The indicators are weak; bearish MACD momentum held steady while stochastic flattens out just above the lower signal line with %K moving lower, leaving the index open to further decline. First target for support is the long term trend line, near 17,250, a break below that could take the index down to 17,000 or lower. Today's action also broke the neck line of a potential H&S reversal, that if confirmed would carry a target near 16,900.

The S&P 500 brings up the rear today, falling only -0.37% at the close. The broad market also broke through a potential neckline with today's action, a move that if confirmed could take it down to 1,980 or lower. The indicators are weakest with this index, bearish MACD ticked higher and stochastic has begun to move lower, consistent with potential reversal. If the index manages to regroup and move higher resistance is just above today's closing price near 2,050, and then again just above that at the short term moving average near 2,060.

Today's market action was mixed at best, and bearish at worst. The indices set new near term lows, have weak/mixed indicators and although found intraday support have little reason to rally. The FOMC may or may not raise rates in June but even so, a rate hike is coming soon and that, along with poor outlook for 2nd quarter earnings and declining full year outlook leave them susceptible to deeper correction. I remain bullish into the end of the year because we are expected to see earnings growth return, but find no reason to be so now without some catalyst to bring the bulls back out in force. I am bearish in the near term, waiting and watching for the next great bullish entry.

Until then, remember the trend!

Thomas Hughes