Introduction

Trump said it first, now that the Dow has crossed 25,000 our new number is 30K. As wild as that sounds it is not out of the question. The blue chip index gained 25% in the past year and could easily see double digits again this year provided economic trends persist. Today's move was not overly strong but was the 3rd day of gains since the first of the year, took the index to new all times and is supported by forward earnings outlook.

Global markets were positive in the overnight session. Both Asian and European indices closed with substantial gains and led by the Nikkei. The Nikkei advanced more than 3.25% on optimism for 2018. The standout laggard was the Korean Kospi. It closed with a loss of -0.80% on weakness in automakers and tech. Standouts in Europe include the German Dax and French CAC which both posted gains in the range of 1.5%.

Market Statistics

Futures trading was positive from the get-go although a bit weak to start. That changed throughout the morning as positive economic data and early 4th quarter earnings reports lifted spirits. By opening time the SPX was indicated up by roughly 7 points resulting in a small gap at the bell. The index extended those gains during the first hour and half of trading and then entered a trading range which dominated action the remainder of the day. The indices closed with gains in the range of 0.5% with most at new all time highs.

Economic Calendar

The Economy

Lots of data today and mostly labor related. First up is the Challenger, Grey & Christmas report on planned layoffs. The number of planned layoffs fell by -7.4% in December to 32,423. This is -3.6% below last year and brings the 2017 year end total to 418,770. Full year 2017 is down 20% over the previous year and the lowest level of layoffs since 1990. On the flipside hiring plans were at the lowest level all year in December but the 8,000 or so new planned jobs brings the full year total to an all time record and 25% above last year.


The ADP Employment figures show a surprise gain job creation this month. The headline figure of 250,000 outpaced expectations by more than 65,000 and reinforces ongoing labor market trends. The November figure was revised lower but only by 5,000. Gains were led by small and medium size business which accounted for 77.6% of all new jobs created. Gains were dominated by services which accounted for about 90% of all new jobs. On the bright side there were 15,000 new construction jobs so maybe we'll see an uptick in building once the weather warms up.


Initial claims for unemployment benefits rose 3,000 on top of an upward revision of 2,000 to hit 250,000. The four week moving average of claims gained 3,500 to hit 241,750. On a not adjusted basis claims rose 8.3% versus an expected 7.0% and are up 0.3% over last year. This is the first time that not adjusted claims have been up on a YOY basis in some time but not unexpected. This has happened from time to time in the past, so long as it does not persist there shouldn't be a problem. Other than that these figures remain consistent with long running labor market trends and overall labor market health.


Continuing claims for unemployment fell -37,000 to hit 1.914 million. The last week's figure was revised higher by 8,000. The four week moving average of claims gained 750 to hit 1.9122 million and remains consistent with ongoing labor market health. Looking forward and based on seasonal trends we may begin to see this figure begin to move lower as spring approaches.

The total number of claims for unemployment assistance rose 17,935 to hit 2.022 million. This increase is in line with seasonal and long term trends, likely preceding a sharp uptick in the next 2 weeks. The good news is that the uptick is expected and likely to fall short of last years peak. My target is somewhere in the range of 2.25 million. As we move into January the total claims should retreat back to test and possibly set new lows.


The Dollar Index

The Dollar Index fell in today's session despite the round of positive data and hawkish tone to yesterday's FOMC minutes. The problem is persistently low inflation and the undermining effects of positively trending data abroad. While it looks like the index could continue to move lower in the near term tomorrow's NFP could be a catalyst for gains. A strong NFP may not be what it takes but a strong increase in average hourly earnings could. The average earnings have been trending near 2.5% YOY for the past year, a move above could firm outlook for the next rate hike. A move down will likely find support at $91, a move up may find resistance at the short term moving average, neither move will break the index out of its short term trading range.


The Gold Index

Gold prices moved up despite today's positive data. The metal gained about $5 to trade near $1,325 for the first time in months. Price is supported by industrial demand and a persistent belief the FOMC will stay the course or even back off its rate hike timeline due to low inflation. The risk of course is that inflation will begin to pick up and there are signs it is already doing that. Strong numbers in tomorrow's NFP could alter that outlook and put an end to gold's rally.

The Gold Miners ETF GDX posted a gain near 0.5% on today's strength in gold. Today's candle is a small green bodied once to the side of the previous red candle and looks like it may be part of a bullish consolidation. The indicators are both consistent with such a move but have not yet confirmed with trend following crossovers. A move higher would be bullish with an upside target near $25.50 that would leave the ETF range bound in the longer term. The risk, as with gold prices, is in tomorrow's NFP and any other data that may indicate a need for FOMC tightening.


The Oil Index

Crude oil gained another 0.5% to settle above $62 and at a fresh 3 year high. The move was driven on signs of market tightening that will likely continue supporting prices in the near to short term. Today's news was another surprisingly large of US stockpiles and further crackdowns on protests in Iran. US stockpiles fell 7.4 million barrels versus the expected 5.7 million but are offset by increases in gasoline storage and total distillate supply. Over the next few weeks we may see additional drawdowns as cold weather spurs use of heating oil and other heating fuels. Longer term outlook for 2018 remains well supplied with an expectation for prices to fall below $50 by the end of the year.

The Oil Index gained another 0.70% and is fast approaching my 1,390 target. The index is moving up on strong forward earnings outlook that is being supercharged by rising oil prices. The indicators are bullish and on the rise, consistent with higher prices, so there is little reason to think this rally will end. If 1,390 is surpassed next targets are 1,450 and 1,500 for 3 and 4 year highs.


In The News, Story Stocks and Earnings

Macy's delivered some post-holiday sales guidance this morning that was good, but not that good. The company says that total comp sales for the 2 month holiday period are up 1.1%. Company CEO says they are seeing improved trends in the stores, customers are responding well to the loyalty program and online is still growing by double digits. The company also gave updated guidance in a narrower range within the previous but the bottom line remain this; sales are going to fall close to -3%. Shares of the stock shed more than -3% on the news to test support at the pair of moving averages. Today's move looks like confirmation of support following a major moving average crossover and indicative of reversal. Whether this means reversal from down to sideways or down to up remains to be seen.


JC Penny reported a 3.4% gain in holiday season comps driven by strength in home and beauty. The company is seeing explosive growth in online and is able to deliver from all of its brick and mortar locations. Management backed previous guidance in the upbeat statement, driving shares higher. The stock jumped in the premarket session only to open flat and push lower to test support intraday.


Sears announced it was closing more than 100 additional stores including some K-Marts. I have to say I am not surprised. After what I saw at my local Sears store this season I'd say they've given up. The company says it is in ongoing effort to restructure is footprint as part of a turnaround program that is long overdue. Shares of the stock lost another 5% to set another new low.


The Indices

The indices made gains today but the candles are sketchy. In nearly every case today's action looks tentative and uncertain as the market moves up to set new all time highs. The Dow Jones Industrial Average led the way as traders and President Trump turn their eye to infrastructure spending. The index gained more than 0.75% intraday to set a new all time high and create a small green bodied candle. The move is trend following and bullish although the indicators are a bit weak. Both are rolling into trend following bullish crossovers but MACD has not confirmed and the signal showing in stochastic is weak and likely precedes a stronger one yet to come. Regardless, the trend is up and so is price action so a continuation of today's gains is more likely than not.


The broad market S&P 500 is first runner up in today's session with a gain of 0.40%. The index created a small green bodied candle with small upper shadow setting new all time intraday and closing highs. The move is trend following and bullish with indicators consistent with such a move. MACD and stochastic have both confirmed with bullish crossovers in today's action although the stochastic signal is still what I would call early and/or weak. Upside target is 2,800.


The Dow Jones Transportation Average comes in third with a gain of 0.31%. The transports created a medium sized doji candle, possibly a shooting star, while setting a new all time closing high. The index is moving up in line with the prevailing trend and supported by the indicators although there are signs of weakening and weakness. MACD is showing significant divergence from the current highs which suggests a consolidation is due if not a correction. A move higher would be bullish and trend following with target near 11,000, a move lower could indicate consolidation.


The NASDAQ Composite comes in last a gain of 0.17. The tech heavy index created a small red bodied candle despite posting a gain and setting a new all time closing high. The candle may be bearish but is more likely a random red candle within uptrend when compared to the other indices. The indicators are both bullish and strongly bullish in that MACD is above 0 and rising while stochastic is firing a bullish crossover with both %K and %D moving up. Upside target is 7,200.


The indices are moving higher but like I said, the move looks cautious and uncertain. This could lead to correction but until those signals are confirmed the trend is up. If there is a correction or consolidation it would be a good thing and set us up nicely for future rallies in 2018. Tomorrow's NFP could be a catalyst for the market as there is little else on tap right now that could move it. A big number would be bullish for jobs, bullish for the consumer and bullish for the economy. A small number wouldn't be bad but it wouldn't move the market much I think. After that earnings will be the focus. The next cycle will start in a few weeks and is expected to be a good one. I am cautiously bullish in the near term, still firmly bullish for the long.

Until then, remember the trend!

Thomas Hughes


 

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