Economic data and Fed rhetoric point to a December FOMC interest rate hike, but how much will it be? I ask this because today's data is pretty strong and with Trumponomics on the way the signs are pointing to some robust growth next year. The CME's Fed Watch Tool gives a 90% chance of a quarter point hike but I think the debate may turn to the possibility of more. At any rate the news supported the market but did not inspire a morning rally, traders being cautious ahead of testimony from Janet Yellen. In her prepared remarks she says that a hike is appropriate "relatively soon" and cites many dangers of waiting too long. During the Q&A she seemed to favor a rate hike and went on to say that slow business investment "isn't our fault", echoing their long running stance that more than fiscal policy was needed to spur the economy.

International markets were basically flat in today's session, the Japanese Nikkei really flat with a gain/loss of 0.00%. Asian indices were mixed but very near to 0.00% regardless of gains or losses. European indices closed largely in the green with gains in the range of 0.20% to 0.60%.

Market Statistics

Futures trading indicated a flat to mildly positive all morning and was fairly steady concerning the earnings and economic reports released before the opening bell. Once the bell sounded trading was choppy for the first hour or so but took on a slightly more bullish tone once Yellen's testimony was concluded for the day. By 12:30PM a high near 0.5% for the SPX had been set and the market was pulling back a bit. By 3PM support had been met and index prices were back near or setting new highs for the day, where they remained into the close of the session.

Economic Calendar

The Economy

There was a raft of data today and it all points to more robust economic growth and higher interest rates. Starting it off, Initial Claims for unemployment. Initial claims fell an unexpected -19,000 to hit 235,000. Last week's figures were not revised, this weeks figure is a new low dating back to 11/4/1973. The four week moving average also fell, -6,500, to hit 253,000 and is on the way to testing its long term lows. On a not adjusted basis this week's claims fell -12.9% versus the expected -5.7% and are down -14.8% over this same time last year. This is the widest margin between this year and last year not adjusted claims in about 10 months. This data is good and consistent with labor market strength.

Continuing claims fell by a larger than expected -66,000 to hit 1.977 million, the lowest reading since 4/15/2000. The previous week was revised up by 2,000, the four week moving average fell by -19,250 and also set a new low. This metric continues to trend lower and is consistent with improvement in an already strengthening labor force.

The total number of unemployment claims rose by 23,556 to hit 1.806 million. This gain is in-line with seasonal trends and likely to continue into the end of the year. The important thing to note is that the total number of Americans on unemployment has been trending lower over the last 2 years and more, how high this rise takes us is far more important than that the total number of claims is on the rise. Looking at my chart, I'd say that it should top out between 2.5 and 2.75 million. On a year over year basis total claims are down -7.3%.

The Consumer Price Index came in at a seasonally adjusted +0.4% in October, in line with expectations. On a not adjusted basis CPI is up 1.6% over the trailing twelve month period. Housing(+0.4%) and gasoline (+7.0%) were the largest contributors. The energy index rose by 3.5%, food was unchanged. Ex-food and energy up 0.1% month to month but holding steady above the Fed's 2% target on a year over year basis.

Today's housing data, starts/permits/completions, is what is really exiting, I think anyway. Housing starts jumped 25.5% on a month to month and 23.3% year over year to the highest level in 9 years. There is a large margin of error but nonetheless a bit of positive news. Withe the data single family homes start also saw a rather large increase, 10.7%. Permits rose at a more modest 0.3% month to month and 4.6% year over year, completions 5.5% in the month and 7.2% year over year. Economist have long theorized that rising employment, rising wages, rising demand and low, low inventory of new and existing homes would/could/should spur new construction . . . it looks like they could be right. If so it will feed the cycle of labor market improvement/housing market improvement that has led to last month's surge in starts.

The Dollar Index

Today's data, Yellen's statements and testimony have strengthened the dollar. The Dollar Index surged more than 0.5% to hit a new long term high and looks like it could extend the gains. The risk now is that we may have entered a period of buy-the-rumor-sell-the-news, unless of course the FOMC surprises with more tightening than expected. Both indicators are bullish and on the rise, stochastic showing some strength. Next upside target, as projected by Mr. Fibonacci, is near $102.50 but I wouldn't expect to see it get there in a straight line. There is likely to be at least some consolidation or test of support now that the index is breaking out.

The Oil Index

Oil prices spent a choppy day trading around the $46 level, closing near the lows of the day near $45.50. Today's action was driven by the oh so trustworthy Saudi's who are said to be "optimistic" about a production cut deal. WTI was first up on the news, gaining about 1%, and then later faded as the reality of over-supply and the enormous size an OPEC cut would have to be to really do anything to change the situation. They may keep trying to talk the market up but I don't trust it, not until they actually cut production to a level below that of January,2016 and that cut shows up in the data.

The traders of oil companies seem to share my skepticism. The Oil Index began the day trading just above the upper boundary of the 8 month trading range only to take a dive from that level and confirm resistance. The index is range bound and likely to remain so until this issue with oil supply/production/demand and prices gets settled. Support is near the middle of the range, between 1,120 and 1,150.

The Gold Index

Gold prices sank with a strong dollar dragging them down. Spot gold fell roughly -1% to hit a new low just above $1,210. With FOMC outlook so strong, the dollar rising and economic data in support it seems likely that gold will continue to fall. The risk I think here is reverse to that of the Dollar Index, sell the rumor and buy the news. Support target is $1,200 for now, a break below there could spell doom for gold bulls.

The Gold Miners ETF GDX fell nearly -4% on today's action, confirming resistance at the 50% retracement level. This now brings a possible full retracement to the table but with no time horizon offered. The indicators remain bearish and weak, consistent with a fall from resistance within a down trend and suggestive of lower prices. First target is the current low near $20, a break below here would have a target near $16.50.

In The News, Story Stocks and Earnings

Walmart reported before the bell and continues the story that where one retailer does well, another isn't. The company beat on the bottom line, barely, but fell short on revenue and guided next quarter to a range just below consensus. While all major metrics showed growth currency conversion hurt net income by nearly -2% and will continue to weigh on earnings into the future. Shares of the stock fell -3.5% on the news.

Union Pacific made an announcement intraday that helped support the stock. The board of directors approved a 10% increase to the quarterly dividend and renewed a 120 million share repurchase program. Under the new terms the company is authorized to repurchase up to 15% of shares outstanding, or about $12.2 billion. Shares of the stock gained 0.85% in today's session and look set to move higher, possible upside target near $108.

This is a big week for retail earnings in general. As mentioned, the story is mixed. Some are doing well and some are not, some are giving good guidance and some are not and the disparity exists even between competitors. One example is Home Depot and Lowe's, the one beat expectations and the other fell well short of them. Ross reported after the bell and delivered strong results with weak guidance. Williams Sonoma the same. The sector as a whole though seems to be in decent shape and is supported by labor trends, rising wages and outlook. The XRT Retail Sector gained just over 1% in today's session, extending the Trump Rally to 11.5%.

The Indices

Today's action was relatively light but significant in it's bullishness. Price action was led by the NASDAQ Composite which gained 0.74% and came within a half point of the all time high. The index looks like it is on a run higher and the indicators both confirm. The only thing standing in the way now is the current all time high which could act as resistance. A break above this level would be bullish and could lead to gains in the short, medium and long term.

The Dow Jones Transportation Average made the second largest gain today, just shy of 0.50%. The index made a small gain, but it is the third day of consolidation at this level, following a brisk rally, and looks a lot like a bull flag. Both indicators are bullish and strong but consistent with this consolidation/test for resistance. A continuation of the rally would be bullish and could take the index to 9,600.

The S&P 500 comes in third today, a tenth of a point behind the transports. The broad market index created a small white candle and extending the Trump Rally. The index is fast approaching the current all time highs and is supported by the indicators. Both MACD and stochastic are both bullish and on the rise, stochastic reconfirming an earlier signal with %D Line bounce from the upper signal line. Upside target is the all time high, near 2,193, a break above here would be bullish and could take the index up to 2,350 in the near to short term.

The Dow Jones Industrial Average made the smallest gain today, only 0.20%, but looks as bullish as any of the major indices. The index has consolidated for 4 days at this level and appears to be waving the same bull flag as the transports. The indicators are strongly bullish, MACD consistent with a peak or consolidation, and support higher prices in the near to short term. The MACD peak isn't incredibly strong but it is a 1 year extreme and significant in that. A continuation of the Trump Rally from here could go as high as 19,800 in the near term and much higher in the short to long.

All signs point to go and on more than one level. The economy and the Fed are signaling rate hike in December, the FOMC and the data are signaling health and expansion in the economy, labor market health and housing market health are fueling each other, earnings growth is back and expected to expand and the charts are looking bullish. The first wave of what could be a long running bull market has crashed, all we need now is some follow through and it looks like it is on the way. The risk now is that the data will cool, the holiday shopping season will be weak and that earnings won't grow but those are bricks in the wall of worry, at least for now. I'm still cautious, I've been waiting for this a long time, but very optimistic, looking to buy on weakness and getting more bullish day by day.

Until then, remember the trend!

Thomas Hughes