The broad market climbed higher, the blue chips setting new all time highs. Are we seeing follow through or the last legs of the Trump rally petering out? A look at the charts says it all, the post-election Trump Rally is petering out but this does not mean that the continuation of the greater bull market and longer term rally begun with the Trump election has come to an end, only that near term outlook is a little shaky and no wonder, there are 3 major central bank meetings over the next 2 weeks along another boat load of macro-economic data. And whatever geopolitical tensions Trump can stir up with his tweets.

Today's action was largely influenced by the Italian referendum, shrugged off, while the global market awaits Mario Draghi and the ECB. The EU central bank is set to announce its latest policy decision, no changes expected, this week. The Italian referendum, it mostly means no changes in Italy for another year or two, but also that Italian banks may face hard times in the future. Asian markets were down on the news, having closed long before the rebound staged by EU indices. In the EU markets were happy with the results, opening with a gain from last week's closing low and extending that gain throughout the session. The DAX led with gains in the range of 1.6%.

Market Statistics

Futures trading indicated a positive open all morning, in the range of 0.5%. Trading was a little choppy but held that range into the opening bell, setting a new all time intraday for the Dow as soon as trading commenced. There was a small pop right after the open, taking the indices up to the highs of the day but after that action was very lack luster. The indices tread water near or just below their highs although they did manage to remain in the green across the board up to and until the close of the session.

Economic Calendar

The Economy

Only one economic report today, released at 10AM. The ISM Non-Manufacturing Index jumped an unexpected 2.4% to hit 57.2. The gains were made on strong Activity, New Orders and Employment. Activity came in at 61.7%, New Orders at 57% and Employment at 58.2% and show expanding levels of growth across the industry.

Moody's Survey Of Business Confidence fell -2.9% to 29.6, the lowest level in 6 weeks, as global sentiment takes a hit. Mr. Zandi says that despite a dimming of outlook for both current and future conditions confidence remains high and shows an economy expanding in line with potential.

The 4th quarter earnings cycle is getting closer and closer and in fact begins this week with the first 2 companies will report for the 4th quarter. That being said it is still a few weeks before things really get started. The 3rd quarter is mostly over though too, 99% have reported, the final 5 report this week and next week. The blended rate of earnings is 3.1% and likely to stand through the official end of the season.

Looking forward to the fourth quarter, full year and next year. Fourth quarter earnings growth expectation is 3.3% and likely to rise at least 4% by the time the reporting cycle is all said and done, final target in the range or 7.5% to 8.5% year over year earnings growth. At this time full year 2016 blended rate is 0.1%, also likely to rise by the time the 4th quarter season is wrapped up. Next year, full year 2017 is expected to see year over year growth of 11.4%, 11.5% in the 1st quarter and 10.7% in the 2nd.

There is quite a bit of data out this week and next, the two biggest items the ECB meeting this week and the FOMC meeting next week. In and around all that are reads on CPI, PPI, housing, factory orders, the consumer, retail sales and much much more. Tomorrow the calendar is light with Productivity/Unit Labor Costs, Trade Balance and Factory Orders... nothing market moving here.

The Dollar Index

The Dollar Index saw profit taking and pull back on the heels of the Italy referendum. The referendum itself doesn't really have that much impact on the dollar but it did spark buying in the euro. The index fell a little more than -0.5% to break back below the recently broken long term high and potential support level in favor of stronger support at the short term moving average. The moving average did halt the move and the indicators are, so far at least, consistent with support at this level. If support holds it will be the 2nd of 2 successively higher support levels, the first set early last month at $97.50. For now, support is near the 100 level and looks like it will be tested further, a break could go as low as $98.65, possibly December 8th when the ECB meets.

The Oil Index

Oil prices continue to drift higher on OPEC hopes, I remain skeptical. OPEC production, with caps, is still at a level that contributed to the current supply/demand imbalance and will do nothing to alleviate it, if they even live up to the agreement. Prices may continue to rise into the near term but I think there is more than a 50/50 chance the bottom will fall out sooner or later. The risk is that demand will actually pick up to match production but that is not expected either. WTI settled up 0.25% but fell in the after hours, shedding close to -1% on profit taking.

The Oil Index is trying to sustain a break out and may be gathering strength. The index gained just over 1% in today's session to trade above the 1235 resistance level (the 50% retracement level dating back to 2008 and of importance many times since) but was halted at the 1,250 level. Today's candle is a small spinning top, above potential resistance, with rising indicators. The indicators, both MACD and stochastic, suggest that the index is gaining strength, the caveat is that the MACD peak is not yet showing a lot of strength and stochastic is still below the upper signal line and as yet equally consistent with potential resistance. A break above 1,250 would be bullish and could go as high as 1,300 in the near term, a fall from this level has support targets near 1,200, 1,175 and 1,150.

The Gold Index

Gold prices fell in today's session despite the drop in the dollar. Spot prices fell roughly -1% intraday, closing with a loss near -0.5% and trading near $1170. Despite today's weakness the dollar is getting stronger and has at least a stable if not bullish outlook, so likely to keep pressure on gold. The ECB meeting this week could be a mover, if they do anything to materially weaken or strengthen the euro and by extension the dollar and gold. Support target for gold should it fall is near $1,150.

The gold miners slipped some today but found support, at least in the near term. The Gold Miners ETF GDX opened with a loss, fell lower, and then rebound to create a white bodied candle but still closed with a slight loss. The ETF remains in consolidation near the lower end of a triangle-like range and near the lows of a 4 month down trend. The indicators are consistent with a bullish signal but in light of the short term down trend, and outlook for gold, are more likely indicative of correction/consolidation within a down trend and precursor to further downside. Support is near $20, a break below here could go as low as $16.50 in the near to short term.

In The News, Story Stocks and Earnings

The VIX fell nearly -14%, dropping from the short term moving average and falling below 12.50 once again. The fear index appears to have decided not to spike again, and to retreat back near the long term lows. This is an indication of lower option prices and a good time to buy and/or put on protection in case of unexpected volatility. It may also indicate that the rally in equities isn't as over as it may look.

Apple is in the spotlight again and for a number of reasons, as if it ever really isn't in the spotlight. Not only is Trumps evolving China policy having an impact on the brands penetration into the country the company is experiencing a sharp decline in Watch sales while at the same time entering the world of self driving cars. Today's news is that Watch shipments have fallen -70% and that the company is interested in self-driving software. Shares of the stock fell more than -1.0% intraday and appear to be headed down toward the lower end of a trading range near $105.

Rexnord Corporation, maker of things like ball bearings and gears, came under scrutiny following some tweets from President Elect Trump concerning their proposed move to Mexico. The company is planning on moving a factory from Indiana to Monterrey, shifting 300 jobs to Mexico, but has yet to comment on Trump's attention. Shares of the stock fell more than -1% in today's session.

The Indices

The indices drift higher today but not all are looking to strong at this point. Today's action was led by the NASDAQ Composite which posted a gain of 1.01%. The tech heavy index created a medium sized white bodied candle, bouncing up from support levels near 5,250 and the short term moving average. The indicators do not yet confirm but this is a trend following bounce so has a good chance of leading to something more. Support is 5,250, a break below here is likely to go down to the long term up trend line near 5,000. First target for resistance is near 5,400.

The next biggest gainer in today's session is the S&P 500. The broad market climbed 0.58% and did not, but is coming to close to, set a new a high. The index is also bouncing from potential support levels, near 2,190, and setting up for a move higher. The indicators are not yet rolled over but as yet consistent with a consolidation/test of support within an uptrend and could confirm with only a day or two of further upside. Support is near 2,200, resistance near 2,215, a break beyond either could take the index 50 to 100 points in the near term.

The Dow Jones Transportation Average made the third largest gain in today's session, 0.36%. The transports created yet another small spinning top candle in the slow drift up to test the current all time high. The indicators continue to weaken although there is some renewed bullishness in the stochastic; %K has made a bullish crossover of %D within the upper signal zone, a sign of continued strength within an uptrend. MACD is a bit of a worry, it continues to wind down toward 0, but is at least coming off of a very strong peak and one likely to be followed up by another wave, if past history is any indication. Upside target is near 9,300 and the current all time high.

The Dow Jones Industrial Average made the smallest gain in today's session, only 0.24%. The blue chips created a very small black candle after opening at a new all time high, and then falling slightly from there. The index appears to be drifting higher, confirmed by a bullish stochastic crossover high in the upper signal zone. Momentum is winding down to 0 here as well, but coming off a 2 year extreme peak so prices are likely to continue rising from here, or at least retest these levels if they should fall. The 19,000 looks like a good target for near term support, 18,750 next target. Upside targets are near 19,500 for now, 20,000 longer term.

Today's action look like more upward drift and more sector rotation, led by the NASDAQ. The indications are not real strong but it looks like the post-election Trump rally is not quite over. It is getting extended, it is in danger of correction, there are reason to be wary but for now the near trend is up and long term outlook is positive, for both the economy and earnings growth. Between now and then there will surely be a buyable dip, and that is what I am waiting for. It could come over the next two weeks, sparked by central bank meetings and economic data, but that is TBD. I remain cautious but bullish, letting my winners run, keeping an eye out for correction and looking for the next great entry in the bull market.

Until then, remember the trend!

Thomas Hughes



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