A quiet day of profit taking, not too surprising following yesterday's massive rally to new all-time highs. The real story today was the IPO of Snapchat, a camera/technology/social media business once courted by Facebook. The company was priced yesterday at $17, above the initial range, and today prices only went higher. Early indications were for an opening near $22, then $23 and then finally $24; once trading began prices moved above $25 where they held for the rest of the day.
Asian indices were mostly up in the overnight session although there were some spots of weakness. The Nikkei surged more than 1%, closing with a gain near 0.9%, while indices in China posted small losses. The financial sector led markets across the region. European indices were mixed, technically, but closed nearly perfectly even to yesterday's closing prices. Driving today's trade was a balance of political uncertainty and economic strength. The French elections, among other events, still looms; today's flash PMI reading shows Eurozone inflation running at 2.0%.
Futures action was slow this morning. The indices were indicated to open flat to slightly negative for most of the morning but did get a little pop on the economic data. The open was soft but not too disorderly, the indices opened with small losses as indicated and then proceeded to double them. The SPX hit bottom a little after 11:30AM and proceeded to trade sideways from there. At 2:30 the indices were just off the lows of the day and winding up for a move higher that occurred in tandem with President Trump's speech at the Newport News shipyards. In his speech the President reiterated his pledge to rebuild the military along with comments to the effect he would build the US Navy to its largest size ever. The Trump Bump did not last long, an hour later the indices were back at the days lows and pushing lower. Downward pressure persisted into the close, leaving the indices near the lows of the day.
Economic data was light today, the monthly macro-data is all scheduled for next week. We did get the weekly jobless claims and the news is good. Initial claims fell -19,000 to hit 223,000, a new low dating back to March, 1973. The four week moving average fell -6,250 to hit 234,250 and also set a new 43 year low. Last week's data was revised slightly higher. On a not adjusted basis claims fell -11% versus and expected -3.3% and are down -19% YOY. Simply stated, the long term down trend in jobless claims continues. Labor market health appears to be making further improvements.
Continuing claims rose by 3,000 on top of an upward revision of 3,000 to hit 2.066. The four week moving average also rose, gaining 750 to hit 2.071. The gains are marginal at best, continuing claims remains low relative to the long term trend and hovering at levels conducive to labor market health.
The total number of claims gained 24,608, in-line with expectations, and remains consistent with long term and seasonal trends. Looking forward we can still expect to see this figure begin to drop off within the next few weeks and into the spring.
The Dollar Index
The Dollar Index gained 0.4% today, closing near the high of the day, as FOMC rate hike expectations begin to soar. The Fed Watch Tool is now showing a 75% chance of March rate hike. Today's candle is a medium sized white bodied candle, extending a bounce from the short term moving average. Today's action was a little choppy, the index tested near term intraday support early in the session on shifting sentiment toward the ECB. With EU inflation on the rise and hitting 2% it raises the question, will the ECB begin to sound to hawkish at the next meeting. If so it could curtail upside for the dollar. At this time upside target is the current long-term high near $103.50. Support on a pull-back is likely to be found at the short term moving average near $100.75.
The Gold Index
Gold prices have begun to fall as rate hike expectations rise and the dollar strengthens. The spot price of gold fell nearly -1.5% today to trade near $1,230. Now that the market has finally begun to accept that March is a real possibility for a rate hike and that we are likely to see 3 hikes this year I expect gold will fall to retest support levels. First target is $1,220, next is $1,200 with a chance at $1,150 should $1,200 be broken.
The gold miners fell along with gold prices. The Gold Miners ETD GDX fell nearly -4% creating a medium sized black candle approaching support target at $21.50. The candle has a lower shadow, evidence of buyers at or near my support target. The indicators are bearish and weakening suggesting that support will be tested. A break below $21.50 would be indication of further weakness with dowside targets near $20 and $18.50.
The Oil Index
Oil prices fell today as well. Rising dollar value and rising US production and US storage at all-time highs are not supporting prices. WTI fell more than -2.20% to a 3 week low near $52.60. Prices are likely to remain under pressure and may set new lows so long as supply continues to outpace demand. The Saudi/OPEC production cuts are helping to support prices but their effectiveness is wearing off. Russia for one is already showing signs that it may not cut production any further.
The Oil Index fell about -1% in today's session, falling from the short term moving average but stopping well short of support levels. Support is just below the current level, near 1,200, and is looking strong at this time. The indicators are both bearish, consistent with a fall from resistance and test of support, but both are also showing divergences confirming support at current levels. I'm bullish on the sector due to forward earnings outlook but falling oil prices could curtail the move. A break below 1,200 would be bearish in the near to short term with downside target near 1,150. A break above the moving average would be bullish with upside targets of 1,250 and 1,300 in the near to short term.
In The News, Story Stocks and Earnings
Caterpillar made headlines today when Federal agents raided three facilities. The IRS, FDIC and Commerce Department participated, speculation suggest that the action is tied to a subpoena issued in 2015 pertaining to some accounting practices. Shares of the stock fell more than -4.25% on the news but are still within the near term trading range, just off the 2 year high.
Kroger reported earnings this morning beating on both the top and bottom line. Net sales increased by 5% although there was a decline in comp store sales of -0.7%. Forward guidance is in-line with consensus estimates and helped to support share prices. Shares were up initially, following the news, but fell before the open, gapping down and closing with a loss greater than -4.3%.
Juno Therapeutics announced that it was suspending further testing of a new cancer drug following the deaths of some patients. The news was not taken well, sending the stock down more than -4% to find support along the short term moving average.
Profit taking was the name of the game today. Anytime the indices managed to claw their way upward it was met with selling. Today's leader was the Dow Jones Transportation Average with a loss of -1.61%, no other index fell half as much. The index created a long black candle completely reversing yesterday's gains. The indicators are pointing lower and confirming resistance at current levels in the near term although longer term indications remain consistent with a rising market. Selling could continue into the near term but declines may not be large. Support is just below current levels along the short term moving average, and then just below that at 9,250.
The NASDAQ Composite was the 2nd biggest loser in today's session with a loss of -0.73%. The tech heavy index created a medium sized black candle completely engulfing yesterday's candle but not erasing yesterday's gains. It also closed a gap formed yesterday. This candle is a bit ominous, a Dark Cloud Cover, and may indicate more selling on the way. The indicators are consistent with a peak, both showing bearish crossovers, and are also consistent with the onset of consolidation, profit taking and selling. First target for support, should the decline continue, is 5,800 and then the short term moving average just below.
The S&P 500 made the 3rd largest decline, -0.59%, but did not quite fully engulf yesterday's candle and is far from reversing yesterday's gains. Today's loss is no less ominous, the candle is still bearish and indicative of selling and consolidation. The indicators are consistent with a top, MACD is diverging from the new high and stochastic is showing a bearish crossover, but this does not necessarily mean a deep decline is on the way. First target for support is at today's low, just above 2,380, with next target near 2,350.
The Dow Jones Industrial Average made the smallest decline today, slightly more than -0.53%. The index created a medium sized black candle and a bearish attack pattern. The indicators are consistent with a top within an uptrend and suggest further downside or consolidation. First target for support is at the bottom of yesterday's candle, near 20,950, with next target near 20,800.
Today's action was a little surprising but not a major breakdown of the bull market. The indices have made massive gains in a short time, profit taking is understandable. The question now is how long will it last and how deep will it take the indices. Regardless the answer, if you've been waiting for a correction to get in the market this is starting to look like it could be it. The long term outlook remains rosy, earnings growth is at hand and the economy is about to be unleashed by Trumponomics so I remain bullish and awaiting the next good entry.
Until then, remember the trend!