The major indices surged to new all time highs on better than expected earnings, tax reform and expanding growth in 2018. Today's news was good to say the least; earnings are coming in above expectations, more signs of tax-reform-induced economic have emerged and forward outlook continues to improve.

Asian indices held steady in overnight trading as market watchers had their eyes on today's earnings announcements and fall-out from yesterday's bond-purchase news. Chinese officials came out to say news China would suspend purchase of US treasuries was incorrect, came from unofficial sources and classified as "fake". Chinese indices led with gains near 0.11% while Korea lagged with losses near -0.5%.

European indices were also mixed despite positive data, reassurance from the ECB and rally in the US. Today's EU data included industrial production figures which rose more than expected in the month of December and for all of 2017. The headline YOY figure of 3.2% was 0.2% better than expected and underpinned key points of the ECB minutes, also released today. The minutes show the bank is well aware of economic improvement within the bloc and will be ready to readdress their policy message in the near future. The FTSE led with gains of 0.2% while the DAX lagged with losses near -0.60%.

Market Statistics

Futures trading was flattish but positive all morning, gaining a little strength going into the open. The SPX was indicated to open with gains near 0.2% and did so. The index then began working its way higher until hitting a peak just after 10AM and then dipping down to test for support. Support was found at the opening level resulting in a bounce that carried the index back up to test the early high and move on to set new ones. Another peak was hit around 1:30PM resulting in sideways trading at new all time highs that carried into the late afternoon.

Economic Calendar

The Economy

The Producer Price Index shrank unexpectedly by 0.1%, analysts had been expecting expansion to slow to 0.2% from the previous month's 0.4%. Despite the drop producer level inflation remains moderate at 2.6% and above the Fed's 2% target. On a core basis, ex-food & energy, PPI rose by 0.1% but was still weaker than expected. YOY core PPI is running at 2.3% and also above the Fed's target rate. The news both supports the FOMC's current time line, it does not suggest surprise hiking at next week's meeting.

Initial claims for unemployment rose by 11,000 to hit 261,000, last week's figure was not revised. The 4 week moving average of claims gained 9,000 to hit 250,750. On a not adjusted basis claims rose by 14.7% versus an expected 10.0% but are lower than last year. On a year over year basis claims are down -2.8% and consistent with ongoing labor market health.

Continuing claims fell by -35,000 to hit 1.867 and the lowest level for this figure since 12/29/73 (after revisions). The last week's figure was revised lower by -12,000. The four week moving average of claims fell by -5,500 and continues to trend near the long term historic lows, consistent with ongoing labor market health.

The total number of Americans receiving unemployment assistance jumped 82,330 to hit 2.101 million and the highest it has been since early last year. This spike is seasonally expected and lower than last year at this time, consistent with ongoing labor market improvement. Looking forward this figure should top out within the next 2 weeks and then begin falling as we approach the spring hiring season.

The Dollar Index

The dollar fell hard on the combination of ECB minutes/Industrial Production and our own weaker than expected PPI data. The dollar index created a long red candle moving back down to support at the $91.50 level. The index is indicated lower and may move down to the bottom of the short term trading range near $91.00 if tomorrow's CPI data is not as expected. Current estimates are for consumer level inflation to rise by 0.2% and expanding from the November read of 0.1%. Regardless the data the index is likely to remain within its range until next week's FOMC meeting if not longer.

The Gold Index

Spot gold got a boost from today's weakness in the dollar but the move was capped near $1,325 and the recent highs. The metal could continue higher, especially if tomorrow's CPI is weak, with a possible upside target of $1,350. Longer term I expect the metal to remain range bound as the global recovery continues.

The Gold Miners ETF GDX moved up along with gold but the move was small and not supported by the indicators. Today's candle is small and green and very near the mid-point of the long term trading range, not really a surprise with the FOMC meeting just next week. The indicators are a little mixed but generally consistent with range bound trading and test of support/move lower within that range. Support is currently at the pair of moving averages which, coincidentally, are on the verge of forming a crossover. A bounce from support would be bullish within the range, a break through would be bearish. Upper targets for resistance are $24 and $25, lower targets for support are $22.50, $22 and $21.

The Oil Index

Oil prices surged another 1% in today's trading and hit another new multiyear high. The move was driven by signs of increasing demand and supported by OPEC's production cut but the gains were not held. Prices jumped above $64 only to hit resistance and fall back to create a pin bar doji that indicates a pause or correction within the rally. Looking forward I am still expecting oil prices to correct back to bear market territory by the end of the year. Global production and capacity (don't forget OPEC could pump more if they wanted to) is expected to keep markets well supplied throughout the year.

The Oil Index surged on today's oil price gains, gains that are fueling the fire of forward earnings expectations, and set a new multiyear high. The index is on its way up to test the 3 year highs near 1,450 and could easily hit them in the next few weeks. The indicators are bullish and ticking higher in support of the move although longer outlook is cloudy. If/when oil prices begin to fall back gains in the sector could be capped.

In The News, Story Stocks and Earnings

Lots of news today and all of it good that I am aware of. On the one hand there were numerous reports of tax-reform driven pay increases and bonuses, on the other earnings are beating expectations. Today's biggest story in earnings was Delta Airlines. The company beat on the top and bottom lines and delivered positive results in all of its operating segments for the first time in years. Revenue grew by 8.4% YOY and beat by $90 million, driving earnings of $0.96 which beat by $0.06. Along with this is an increase to full year 2018 guidance that sent shared up by more than 2% in the post market session. The company is expecting 4-6% revenue growth this year.

Wal Mart announced a number of market moving new bites this morning starting with wage increases. The company says that because of tax reform it will raise its minimum starting wage to $11 and give all employees a bonus based on years in service. The largest bonus is $1,000 and given to those employees with 20 or more years employment with the company. Wal Mart also says it will be closing 10% of its Sam's Club stores and converting about 10 of them into ecommerce facilities. Shares of WMT fell on the news but found support at the short term moving average.

KB Homes reported after the bell and saw big gains today. The company says it expects solid demand in 2018 will drive revenue and earnings through the end of the year. The company has reported solid increases in traffic, sales, pricing and back logs that will keep it busy for at least the next few quarters. Shares of the stock gapped up by 5% at the open and then extended those gains to 12% by the close. Today's move is a strong move up to highs not seen since the Housing Bubble burst and is supported by the indicators.

The Indices

The indices moved higher in today's session. The move was driven on evidence tax reform will help more than just corporate shareholders, and that earnings growth is indeed expanding. Today's leader is the Dow Jones Transportation Average with a gain of 2.3%. The transports created a long green candle moving up from the 11,000 level and extending a rally that has now added more than 23% to the index in under 2 months. The move is supported by the indicators which are both bullish and pointing higher. Upside targets are as high as 13,000 in the near to short term.

The Dow Jones Industrial comes in second with a gain of 0.81%. The blue chip index created a medium sized green candle moving up from a very small consolidation move to set a new all time high. The move is supported by both indicators which are bullish and pointing higher, consistent with higher prices. Upside target is 2,600 in the near term.

The NASDAQ Composite tied for 2nd with a gain of 0.81%. The tech heavy index created a medium sized green candle moving up from a very near term consolidation to set a new all time high. The move is supported by the indicators which are both bullish and pointing higher in support of higher prices. Upside target is 7,500 in the near term.

The broad market S&P 500 brings up the rear with a gain of 19 points or 0.70%. The index created a medium sized green candle moving up from Tuesday's low to close at the high of the day and set a new all time high. The move is in line with the prevailing trend, supported by the indicators and likely to continue higher. Both MACD and stochastic are bullish and pointing higher in support of higher prices. The near term target is 2,800 but could easily be exceeded if conditions persist as they are.

The markets are still moving higher, are still setting new all times and still supported by forward outlook. Now they are also being driven by expanding outlook and signs tax reform will spur the economy as Trump and his cronies have said it would. The risk now is that earnings season will not continue as it started but I don't think that will happen. Tomorrow's big reports will be JP Morgan, Wells Fargo and Citigroup. I think there is a good chance for a big positive surprise. I am bullish.

Until then, remember the trend!

Thomas Hughes