US indices drift higher in hopes of a Santa Rally while traders await the December FOMC policy statement. Aside from the attempted bombing in NY there was very little in the way of news leaving events scheduled for later in the week to dominate the minds of market participants. Along with the FOMC meeting be on the lookout for key data, both PPI and CPI are due out before policy statement while retail sales, the Empire State manufacturing index and industrial production/capacity utilization will all come after.

Asian markets were up across the board although gains were not evenly divided. With little in the way of data or business news to drive trading markets were focused on the FOMC and other central banks scheduled to release statements this week. China led with advances in the range of 1% while Australia lagged with a gain barely above break even. European markets were muted in the face of central bank risk; the Swiss National Bank, the European Central Bank and the Bank Of England will all release their policy statements within 18 hours of the FOMC. The events are not expected to bring policy change to any region but are likely to induce some volatility in the currency market.

Market Statistics

Futures trading was weakly positive all morning. The trade hovered just above break even going into the opening bell resulting in an opening gain less of less than 1 point for the SPX. The broad market test break even for support within the first 15 minute of tradings and then proceeded to trade up and sideways from there. The early high, near 0.20%, was set just after 10AM and held until early afternoon. Shortly after 1 the broad market moved up to set a new intraday high near the current all time high but that move was rejected. The index resumed its sidewinding until late in the day when a surge put the indices at new highs just before the closing bell.

Economic Calendar

The Economy

Only one economic report today, the JOLTs report. According to the Bureau of Labor Statistics the number of job openings hovered near all time highs last month, near 6.0 million, where it has been trending the last 24 months. The number of hires increased slightly to 5.6 million while separations were little changed at 5.2 million. The number of quits, seen as a measure of workforce confidence, held steady near 2.2% or 3.2 million and also near record levels. The data shows persistently high levels of job openings in the face of strong hiring numbers and supportive of ongoing labor market health. Looking forward, if employers can't fill needed positions they may start paying more or doing other things to attract and retain employees.

Moody's Survey of Business Confidence jumped another 0.7% in the last week to hit 37.2 and a 2 year high. The past month has seen a run up in confidence as US tax reform advances and economic data shows upward momentum. Mr. Zandi says the global economy is going to end 2017 on a strong note, that sentiment is upbeat and strongest in the US. Forward outlook is also positive with growth expected into the spring of 2018 at least.

The 3rd quarter is closed. 100% of S&P 500 companies have reported with an index average 6.4% earnings growth. This is below the 8-10% expected earlier in the year but well above the 1.9% expected at the start of the reporting cycle. The final rate of growth is 4.5% above the 1.9% expected at the start of the season and above expectations in that regard; based on trend a 4% gain was expected. Looking forward, the 4th quarter is expected to post a gain of 10.6% but we can expect that to fall over the next 2 months. Based on the trends it is possible 4th quarter earnings estimate for the whole S&P 500 could fall to 3-4% by the start of the reporting season.

2018 is still expected to be a strong year for earnings growth. The S&P 500 is projected to post double digit quarterly growth all year with the full year coming in at 11.2.%. The first half of the year is expected to average 10.4% with that growing to 11.4% in the second. If tax reform passes it is widely accepted that these numbers will grow with a possibility of doubling.

The Dollar Index

The Dollar Index drift sideways in today's session creating a small doji like candle. It has been trapped within a range over the past 2 to 3 months as the market wound up on central bank expectations and economic data. It is now trading near the mid point of that range and waiting on the central bankers for the next clue to direction. We know, more or less, that the FOMC is going to raise rates, we think the ECB/BOE/SNB will not. In this scenario the dollar should rise but there is risk. The risk is in how the statements may vary from expectations and the net reaction to the dollar. If the dollar is able to rise versus the pound, euro and franc the index will likely rise along with it. Support targets are at $93.35 and $92.50, resistance targets are $94.15 and $95.12.

The Gold Index

Gold shed nearly a half percent in today's action as the dollar held firm. The metal has been under pressure with FOMC expectations on the rise, tax reform at hand and the dollar off its lows. Now that it is below the $1,250 support target there is a chance for a deeper move, perhaps as low as $1,220 or $1,200. The risk is of course the central bank meetings and how they impact the dollar. A stronger dollar will likely lead to lower gold prices while a steady or weaker dollar will not.

The Gold Miners ETF GDX tried to rally in the early portion of the session but fell back under the weight of falling gold prices. The ETF created a small bodied red candle with visible upper shadow indicative of resistance. Today's action is just off the 5 month low and looks poised to test or surpass that low in the near term. The indicators are both bearish and gaining strength in support of such of move with the caveat that longer term trading ranges remain in play. Downside target is near $21 with a possible move down to $20 should gold prices suffer a serious decline.

The Oil Index

Oil prices rose more than 1% in today's session to settle near $57.90. The price was supported by a shut down of the Forties pipeline despite signs US production continues to rise. The last week's rig count rose to a 5 month high in further evidence high prices will bring more supply onto an already flush market. WTI is now trading a mere dollar below the recently set long term high and looking like it might retest that level. Longer term outlook remains tepid; the OPEC production cap is helping but there is still ample supply to cap upside potential for prices. Resistance target is $58.95, a break above there would be bullish.

The Oil Index moved up on today's rise in oil prices but gains were capped at resistance. Resistance appears to be just above the 1,275 level and evidenced by the long upper shadow on today's candle and several candles formed over the past week. The indicators are rolling over into trend following bullish entry signals that suggest resistance will continue to be tested and possibly broken. Even if oil prices should fall from today's close they remain high and consistent with robust earnings growth.

In The News, Story Stocks and Earnings

Bitcoin is all the rage and I must admit I own a little. The cryptocurrency future is now trading live on the CBOE and at a premium to the underlying asset. Many had expected the futures trade to spark correction through short selling but this didn't happen, the futures have no physical tie to BTC and are a pure speculative instrument.

The price quoted for BTC comes from the Gemini Exchange which varies greatly from other exchanges, and those from each other. One of the biggest issues with BTC trading is a lack of order routing and "best execution", when you trade its with the other people using the same exchange as you. Anyway, futures action is suggesting a 10% premium to today's BTC prices with a January settlement, volume is low but steady and did cause circuit breakers to trip.

Shares of surged more than 20% on news Morgan Stanley had taken a stake in the company. SEC filing reveal Morgan Stanley owns more than 11% of the company which announced earlier this year it was investing heavily into the Bitcoin ecosphere. That news sent the stock up more than 200% and will likely drive gains into the future as more businesses make it possible to use the digital tokens in daily life.

The VIX fell more than -1% on today's action. The fear index is moving lower and below the 10 level, poised to retest recent and long term lows. Both indicators are bearish and pointing lower, suggesting support will be tested, but both show signs of support at this level. The stochastic in particular has been trending above the lower signal line and consistent with a trading range. This does not mean reversal, or even really suggest it, but it does give reason to think options have gotten as cheap as we can expect them to be.

The Indices

Today's action was weak but positive in most cases. The one stand out is the Dow Jones Transportation Average which shed roughly -0.50%. The transports created a small red candle just below the all time high and looking like it may move lower in the near term. The indicators are both strongly bullish relative to the current high but showing weakness consistent with consolidation in the nearest term. The index may move down to 10,250 or 10,000 if the first target is broken. Looking to the longer term, the current MACD peak is a multiyear extreme which leads me to believe today's action is consolidation leading to continuation of near, short and long term up trends.

The tech heavy NASDAQ Composite led the gainers with an advance near 0.50%. The index created a small green bodied candle to the side of Friday's small red one and completely erasing it. This action is a continuation of a trend following bounce from support which occurred last week at the short term moving average. The indicators remain weak but have begun to roll over into trend following signals with stochastic in the lead. It is firing the weak/early trend following bullish crossover which often occurs during periods of consolidation. A move higher may find resistance at the current all time high, a break above there would be bullish. If the index falls within the consolidation range first support target is the short term 30 day moving average.

The broad market S&P 500 saw a little late day strength which drove it up to close at the high of the day and at a new all time closing high. The index is currently extending a bounce from the support within an uptrend and likely to go higher. The indicators are a bit mixed but consistent with a trend following entry. MACD is bullish and ticking higher, bullish, while stochastic begins to roll over in confirmation of the signal. There may be resistance at the all time intraday high, a break above there would be bullish. Upside target is still 2,700. First target for support is near 2,625.

The Dow Jones Industrial Average brings up the rear with a gain of 0.23%. The index created a small green bodied candle closing at the high of the day and a new all time closing high. The index is moving higher following a bounce from support and in line with prevailing trends. This may move continue in the near term although the indications are mixed. MACD momentum remains bullish although it is in decline while stochastic is pointing lower with only early signs of support, neither giving firm indication of direction. A break to new all time highs would be bullish, signs of resistance at this level may be bearish.

The indices are in consolidation with a chance of moving higher. Today's action had them trading right at the all time highs and looking like they could go higher. The problem is that the indications are still mixed and there is at least one good reason to sit tight and wait; the FOMC. The bank is not expected to do the unexpected but that doesn't mean it won't. So long as forward outlook remains good, earnings growth is on the table and tax reform is moving forward the market should continue rising in the long term. The near term is a little cloudier; there could be a correction but no real sign of one yet. If there is I'll be ready to buy on the dips. I am cautiously bullish in the near term, firmly bullish in the long.

Until then, remember the trend!

Thomas Hughes



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