Introduction

US markets limped sideways on light volume as the end of 2017 draws near. This action is not surprising during the holiday week; trading volume, economic data and business news are all very light. That being said there is some expectation for strong markets in 2018 as economic and business trends persist and strengthen under the new tax scheme.

Markets in Asia were mixed on the penultimate trading day of 2017. Most were able to close with gains in the range of 0.50% but not all. Japan lagged with a loss near -0.50% as yen strength pressured equities. European markets were a mirror image to that. Most closed with losses in the range or -0.50% led by a marginal gain on the FTSE.

Market Statistics

Futures trading was flat if positive all morning. The SPX was indicated to open with a gain near 0.1% and that is what it did. The SPX opened with small gain, less than 4 points, and the quickly gave up most of those gains. By 10AM the index was moving sideways and held within a very tight range the rest of the morning. At 1PM the index was still moving sideways within the days range, holding steady with a gain near 0.05%. This action held true until late in the day, very near to the close, when a round of buying sent the indices up set and close at new highs for the day.

Economic Calendar

The Economy

Weekly initial jobless claims came in unchanged from last week's unrevised 245,000. The four week moving average of claims gained 1,750 to hit 237,500. Both figures remain low relative to trend and consistent with healthy labor markets. The not adjusted figure increased by 12% versus an expectation of 11.8% and is still trending below last years figures. On a YOY basis not adjusted claims are down -6.0% and consistent with ongoing labor market improvement.


Continuing claims for unemployment rose 7,000 from last week's revision of +4,000 to hit 1.943 million. The four week moving average of continuing claims fell -4,250 to hit 1.919 million. Both figures remain low relative to trend and consistent with labor market health.

The total number of claims for unemployment benefits jumped by 102,056 to hit 2.004 million. This increase is in line with expectations, seasonal and long running trends. We can expect to see this figure spike over the next 4 weeks before hitting its peak with the data for December's final week. So long as the peak remains within trends further improvements can be expected in the labor market.


Advance figures for November trade balance shows the trade deficit widening by 3.4%. This is driven by a $5.4 billion increase in imports offset by a $3.8 billion increase in exports. Wholesale inventories grew by 0.7% while retail inventories grew at a much slower 0.1%.

The ISM's Chicago Business Barometer formerly known as the Chicago PMI came in at 76.7 for the month of December. This is above expectations and a 6.5 year high. The December data brings Q4 2017 to 65.9 and also a 6.5 year high. Within the report production and new orders both came in at multiyear highs while all other indicators show strength as well. The production indicator shows notable strength at a 34 year high. The employment indicator fell from the previous month but remains in expansionary territory.


The Dollar Index

The Dollar Index fell to a 3 month low in today's trade but remains within the short term trading range. Today's action shaved -0.35% from the index creating a medium sized red candle moving down within a trading range. The indicators are both bearish and pointing lower in support of falling prices with a target near the bottom of the range. The bottom of the range is near $91.30. This move may continue into the near term although there are risks. For one, Trump is set to sign tax reform into law next week, for another there is quite a bit of data due out over the next 2 weeks that could alter FOMC outlook.


The Gold Index

Gold prices drift higher on the weakening dollar. The spot price gained about $5 to trade near $1,270 but remains below the $1,300 resistance target. Price action over the past few days looks choppy and extended, possibly due to thin holiday volumes, and has the metal extended within its trading range. A move to $1,300 is likely, a break through is questionable. If prices should break through a move to $1,310 or $1,318 is possible.

The Gold Miners ETF GDX created a small doji candle confirming support at the 30 day moving average. The ETF is moving higher within a trading range and looks like it could continue in the near term. The indicators are both bullish and in support of higher prices although there are some red flags. The first is weak momentum, the second is potentially overbought conditions in the stochastic. If the ETF does continue higher next target for resistance is $24.00. Support is likely at the short term moving average or just below that along the long term moving average, near the mid point of the long term trading range.


The Oil Index

Oil prices closed with a small gain after a session spent in the red. The latest data from the EIA shows a surprisingly large draw of US inventories which helped to support prices. The spot price for WTI settled near $59.70 and the recently set 2.5 year high. Oil prices may continue higher in the near to short term but a ceiling is likely to be found; forward outlook calls for well supplied markets and lower prices (lower than $50) by the end of 2018.

The Oil Index held steady in today's session, rising 0.16% to create a small green candle to the side of the previous. The index is still in uptrend, driven by rising oil prices and forward earnings outlook, with a chance of moving higher. Today's candle appears to be consolidation within uptrend and is supported by the indicators. Both MACD and stochastic are bullish and moving higher, suggesting strength in the market and higher prices to come. A move up may find resistance at the recently set 2.5 year high, a break above there would be bullish. Upside target is now 1,390.


In The News, Story Stocks and Earnings

Trucker JB Hunt delivered less than spectacular guidance this morning. Newly issued guidance has EPS and revenue in a range around consensus and as expected. The news confirms expectation that have been building over the past quarter and points to strength in the entire shipping industry. Shares of the stock fell on the news in early trading, opening the day with a sizable gap to the downside, only to have support step in at the moving average to drive prices back to break even and just below the recently set all time high.


The success of Star Wars: The Last Jedi has firmly cemented Disney as top earner at the box office in 2017. The company has taken in a staggering $2.27 billion in ticket sales and commands more than 21% of the market. Shares of the stock were supported by the news but did not move appreciably. Today's candle is small and red despite posting a small gain and indicates support is present at the short term moving average. The indicators are both pointing lower in support of lower prices so a further test of support is likely.


The VIX posted a small loss and created a red candle in a day of sideways trading. The fear index moved sideways from yesterday's candle and remains below resistance at the long term moving average. The indicators are pointing higher following bullish crossovers so a test of resistance may be forthcoming although a break above does seem likely at this time. A break above the long term moving average, near 10.75, would be bearish for the equities market but likely only for the near term.



 

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The Indices

Price action in the indices was light and held within very tight ranges. For the most part the moves were to the up side although there was one to close with a loss, the Dow Jones Transportation Average. The transports shed -0.34% to create a small doji candle just below the current all time closing high. Today's move appears to confirm near term support with the caveat of light holiday trading. The indicators are a bit worrisome as both are now showing bearish crossovers and MACD significant divergence from the new highs. If the index were to move lower first target for support is near 10,500 with a chance of breaking through to test the short term moving average.


The Dow Jones Industrial Average posted the largest gain but a mere 0.26%. The blue chips were however able to set a new all time closing high but not a new all time intraday high. Aside from that today's candle is small and well within the near term trading range. The indicators are bullish in the longer term suggesting the bull market is still intact. In the shorter term both MACD and stochastic are showing bearish crossovers consistent with consolidation in the least and correction at worst. A fall from this level may find support at the short term moving average near 24,300. A break below there may go to 24,000.


The S&P 500 closed with the 2nd largest gain, 0.18%. The broad market index created a small spinning top doji well within the 8 day holiday trading range. It did not set a new all time high. The indicators are still high in their ranges but showing bearish crossovers and consistent with consolidation and possible correction. Price action could be setting up for a bullish trend following signal but with holiday trading conditions in place trading signals are more likely to peter out than follow through with gains. A move up to new all time highs would be bullish with target near above 2,700. A fall from this level may find support near 2,650 and the short term moving average.


The NASDAQ Composite brings up the rear with a gain of 0.16%. The tech heavy index created a small spinning top doji within the holiday trading range and looks like it could continue trending sideways tomorrow at least. The indicators are mixed but both showing bearish crossovers and in support of consolidation with a chance for correction. A move lower may find support at the short term moving average, a move below that may go down to the long term up trend line near 6,700. A move up may find resistance at the all time high, a break above there would be bullish with target near 7,200.


Economic growth is still expected, earnings growth is still expected and the long term bull market is still intact. I am bullish for the long term but, that being said, I just don't see any reason to get bullish in the near term. The charts aren't indicative of reversal but they are set up for possible correction. Is the signal strong enough to make me want to trade it? Not really but it is strong enough to make me want to wait for a better indication of entry before opening new positions. Until then I am content to sit and hold open positions, possibly raising stops, and wait until the next great entry point presents itself.

Until then, remember the trend!

Thomas Hughes