Oh the difference a weekend makes. Trump's temporary immigration ban has sent the world into upheaval, how long it lasts is anybody's guess. Today's action saw the indices retreat from last week's all time highs but did not break the near term trend, or put an end to the Trump rally. In fact, by end of day when the dust settled much of the early losses were recouped and the trends looked as intact as ever.

Other news affecting early trading including Personal Income and Spending data, good if a little on the light side, and earnings. There were only about 40 names on today's earnings calendar, none with too high a profile, the rest of the week will be much different. There are 105 S&P 500 companies reporting,the busiest week of the season to date with reports from pharma, transportation, retail and mega-cap energy.

International markets were hit by the news but the reaction was not as intense as it could have been. Indices in Asia were led by a -0.90% decline in Australia, balanced by gains in both the Korean and mainland Chinese indices. European stocks were hit harder, falling more than a full percent in most cases to close at the lows of the day.

Market Statistics

Futures trading indicated a lower open for the indices all morning but only about -0.40%. The immigration order is to blame and may be the spark to start a major correction. However, the rhetoric and outrage already seem to be subsiding as the facts and alternative facts are disseminated so just how low this can drive the market is very questionable. The open was a little hectic, the indices fell as indicated and then fell and fell until hitting their lows just before 11AM. From that point forward the tone changed, back to bargain hunting and slow steady buying, pushing the indices back up to regain about half the days losses at the close of trading.

Economic Calendar

The Economy

There was a little more data released today than we get on a typical Monday and it was good. It wasn't perfect, not really robust, definitely not bad but consistent with long term trends and expansion of the economic recovery. Personal Income and Spending was released at 8:30, both figures rising but missing on the income side. Personal income came in at +0.3% versus an expected 0.4%, the good news is that the miss was made up in the revisions. The previous month was revised up a tenth from unchanged to +0.1%. Disposable Personal Income also increased by 0.3%. Spending rose as expected, +0.5%, with no revisions to the previous month. On the inflation side of things the PCE Prices index gained 0.2% for the month, 0.1% at the core level, and is up 1.6% YOY and 1.7% YOY ex-food&energy. The Pending Homes Sales index increased 1.6% in December, better than the 1.0% predicted by economists, led by strength in the west and the south. On a year over year basis the December figure is up 0.3%. Looking forward Lawrence Yun, economist at the NAR, says low inventory remains an issue. What houses there are available are on the high end of the scale and putting additional pressure on the market.

Moody's Survey of Business Confidence gained 0.3% in the last week as present and future outlook indicate growth. Mr. Zandi says that global business confidence is strong but cautious in some areas. Outlook for present conditions has picked up somewhat while forward outlook held steady.

Earnings season is well underway and moves into high gear this week with another 103 S&P 500 companies on the list. To date, 34% of the index has reported with 65% beating earnings estimates and 52% beating revenue estimates, both a little on the low side but near the 4 year averages. In terms of growth the blended rate for the 4th quarter is now 4.2%, up 0.8% in the last week alone, and 0.3% for the year, up a tenth.

Looking forward, estimates are on the rise and looking good. First quarter 2017 estimates have moved up more than a full percent to 12% while full year 2017 has increased by 0.2% to 11.6%. There is one red flag although not too alarming as yet; second quarter estimates fell slightly, -0.3%, and bear watching as we move forward.

The Dollar Index

The Dollar Index tried to move higher, buoyed by today's data and a miss on German inflation data, but was capped at resistance. The index created a small to medium sized pin bar that confirms resistance at the short term moving average and the $100.50 level although the indicators suggest that resistance will be tested again. Both MACD and stochastic are consistent with a shift in momentum to the upside consistent with prevailing trends. These trends were supported today by the data, data later in the week may do the same, and there is always the FOMC meeting to be wary of. The travel ban may have held the index back today, I doubt it will if the data and the FOMC are in support. Support is near $100, just below today's close, resistance is just above today's close, near $101.

The Gold Index

Gold prices edged higher on uncertainty to tickle the $1,200 level. Spot prices gained about 0.75% to trade just above $1,199. Prices may remain elevated on fear and flight to safety but the real move will be sparked by the FOMC Wednesday afternoon, possibly the NFP on Friday. A hawkish tone, strong data and enhanced rate hike expectations could send gold back down to test recent lows, near $1, 150.

The gold miners got a little lift from the rise in gold prices but not much. The gold miners ETF GDX gained only about 0.60%, creating a small doji candle, with indicators that continue to weaken. Stochastic is already indicating a pretty strong buy, consistent with the recently broken down trend, that may be confirmed by MACD in the next few days. MACD hit the zero line today, a crossover looks likely but not guaranteed. Support is just below the current level, near $22.50, at the short term moving average and the 50% retracement line. A break below here would be bearish, downside target near $20.00. A bounce would be bullish but faces resistance at or just above $24.00.

The Oil Index

Oil prices fell about -1% today as rising US rig counts, storage and production levels offset OPEC production cuts. Rig counts have been on the rise for months, last weeks was the highest in more than a year, an even forecast last year, triggered by $45 oil. Activity in the US is likely to at least hold steady if not increase so long as prices hold above $45, which in turn will add downward pressure to prices. If demand doesn't pick up to support prices OPEC may have no choice but to reopen the pumps in order to cash in while they are still high.

The energy sector took a dive today, along with the broader market, as uncertainty for the future gripped the market. The Oil Index fell nearly -2%, dropping below the near term congestion band and the 1,250 level. The indicators are both pointing lower and consistent with further downside in the near term. Today's action suggests there may be some support at 1,225 although 1,200 is a firmer target. The long term outlook is still quite bullish, so long as that doesn't change this dip will likely turn into a buying opportunity.

In The News, Story Stocks and Earnings

Sanmina Corporation, a leader in the realm of manufacturing solutions, reported earnings after the bell and the results are good. The company reported revenue above estimates and showing growth from the previous and year over year quarter. Earnings grew 75% on a GAAP basis, 30% on a non-GAAP basis and led the company to raise guidance. Guidance for 2Q 2017 is now $0.67 to $0.72, above the consensus estimate. Shares of the stock moved up to a ten year high on the news.

Tech innovator Rambus reported in line with estimates, EPS up 9% quarter to quarter and 27% year over year, as the company continues to move closer to the consumer. The company expects to return to profitability in 2017 as it looks to expand away from its core business. Forward guidance is in a range with consensus near the low end. Shares of the stock moved higher in after hours trading but remain with the 12 month range.

The VIX spiked today and may move higher. The index gained more than 17% to move above the short term moving average but met resistance at the 12.50 level. The indicators are pointing higher in the near term but remain weak at this time. A move higher is very possible with Trump fall-out hitting the market, if 12.50 is broken the next target is 15.00.

The Indices

The indices tried to sell off hard but only made a halfway decent attempt of it, recovering roughly half the day's loss before the end of the session. Today's leader was the Dow Jones Transportation Average which closed with a loss of -1.23%. The transports had been down as much as -2.8% intraday, touching support at the short term moving average, before bouncing back to recover more than half the day's losses. The index created a doji candle, confirming support, although the indicators have weakened. MACD is making a small peak and stochastic is beginning to roll over, both consistent with indications of resistance but not reversal. The index may test support again in the next day or so, a break below which would be bearish in the near term. If support is broken, near 9,250, next target for support is 9,000.

The NASDAQ Composite made the second largest decline, -0.83%, but did not fall far enough to hit the short term moving average. The tech heavy index created a small bodies black candle with long lower shadow, indicative of support, and may fall further in the next day or so. The index is still about 1.6% above the moving average, first target for firm support. The indicators are mixed and consistent with a peak or resistance within an uptrend, not so much reversal, and point to prospective entry point within an uptrend. If support is broken at the moving average next targets are near 5,500 and 5,250, -4% and -8% from the recent all time high.

The Dow Jones Industrial Average made the third largest decline today, -0.61%, edging out the broad market S&P 500 by a mere hundredth. The blue chip index created a small black bodied candle with long lower shadow, touching and confirming support at the short term moving average. The indicators slipped a hair in the nearer term but remain consistent with a trend following shift in momentum in the longer. MACD is still on track to make a zero line crossover, provided support holds, and stochastic is still moving higher so the set up looks more like the text book trend following entry than it does any form of reversal. Is support at the current level fails and the index moves lower the next targets for support are near 19,500 and 19,000.

The S&P 500 made the smallest decline today, -0.60%, and created a small doji candle. Today's candle confirms support at the short term moving average, the long term up trend line and the top of the January consolidation range. The indicators are weakly bearish and suggest support may be tested further, they are also set up to fire another trend following entry signal on the next puff of positive news to whip through the market. The long, short and near term trends are all up, and support has not yet been broken, so this looks like a buying op to me.

The market sold off today yes but it did not sell off hard and there was no commitment in it. The indices all found support intraday, they all regained a fair amount of today's losses and none came even close to doing any real damage to the technical trends. Quite the opposite is more likely, a little selling is what a good rally needs for the bulls to keep their legs and carry the market upward.

The immigration news was ill-delivered and shocking but once the facts are swallowed and digested, however unpalatable, it's just not worth the amount of outrage that was caused by it, and I think today's market action shows it. The real question is, does the issue have legs? Does it really have an impact on the market other than in the near term, will outrage continue into the short term and spill over into the economy? My guess is that it won't.

There are more important things afoot this week. There is a lot of data, starting tomorrow and ending with Friday's NFP, and that includes the FOMC meeting and policy statement on Wednesday. There is no expectation of a policy change but lots of expectation for news or hints within the statement. If they seem worried it could add momentum to today's sell off, if they endorse the economy it will likely add support. I'm still still cautious, the sell off might not be over, but I am bullish on the broad market, and now forward earnings estimates are starting to rise and my trigger finger is getting itchy.

Until then, remember the trend!

Thomas Hughes