The indices set new highs in a mixed session; traders are waiting on the ECB, GDP and Trump talk from Davos. Through it all earnings continue to roll in. On average businesses are beating expectations and giving positive forward outlook but there are some areas of concern. One concern, estimated tax savings aren't quite what the market was expecting. The savings are there but earnings growth estimates haven't reached the 20% level like some proponents put forth. . . yet.

Asian indices were mostly up on positive earnings and economic outlook although there was one notable laggard. The Japanese Nikkei 225 fell nearly a full percent the day after hitting a 26 year high. The move is driven on profit taking and a stronger yen. European indices were flat to up in the early part of the session but fell later in the day to close with losses near -1%. The move was due to mixed earnings and economic uncertainty. Data over the past month or so has been weak to tepid, consistent with ongoing expansion but not consistent with acceleration in the economy. Today's PMI data shows slowing in the EU manufacturing sector offset by acceleration in the services sector.

Market Statistics

Futures trading was flat to up in the early morning and gained some strength going into the open. The trade was driven by positive earnings and comments from Davos attendees like Jamie Dimon. Mr. Dimon sees tax cuts driving wage growth and inflation, and a surge in economic growth to above 4%. The open was calm, the SPX began the day with a small gain and then moved slightly higher. The index set a new all time high, as did the Dow Jones Industrial Average and NASDAQ Composite, but failed to hold the gains. By 11AM the indices were moving down from the highs and approaching break even. By 1 oclock they were firmly below break even and by 1:30 at the lows of the day. By 2PM they were bouncing off of those lows and once again approaching break even levels where they hovered into the close.

Economic Calendar

The Economy

Markit's Flash PMI reading shows another month of solid growth in the US economy. Although the composite and services readings both showed slowing of expansion both were positive. Composite PMI fell to 53.8 and an 8 month low while services PMI fell to 53.3 and a 9 month low. Offsetting this data and leading the economic expansion is manufacturing PMI which rose to 55.5 and a 34.4 month high. Manufacturing output rose to 56.2 and a 12 month high.

Existing Home Sales fell -3.6% in December but remained positive for all of 2017. Full year 2017 existing sales grew by 1.1% and is the best year for sales since 2006. Economist at the NAR say the gains were driven by strong growth in labor. A shortage of homes for sale has led to higher prices which have in turn curbed what may otherwise have been robust sales. They don't give a forward outlook but do make comments to the effect low inventory could continue to hurt sales this year.

The Dollar Index

The Dollar Index shed more than -1% to hit $89.00 and a 3 year low. The move is driven on improving global economics, trade war fears and comments from Steve Mnuchin. The Treasury Secretary let it be known that the administration is not concerned with a weaker/weakening dollar and may even welcome it. Today's move brings the index down to a possible support target but there is no sign of support as yet. Tomorrow the ECB will release their policy statement, if they alter their policy stance like they've indicated they're ready to do the dollar could see more losses.

The Gold Index

Gold prices moved up to set a 4 month high on today's weakening dollar. The move carried spot price up to $1,359 and may go higher if trade war fears persist. LG has already indicated it will raise prices in response to Trump's tariff's, if more manufacturers follow suit Americans could see washing machine inflation begin to pick up. Gold prices are now approaching resistance targets near $1362.

The Gold Miner's ETF GDX gapped up at the open to create a small green bodied candle and set a 4.5 month high. The move is bullish but not supported by both indicators. MACD is bullish but very weak and divergent from the new highs while stochastic is also divergence and not looking bullish at all. Today's move is highly questionable and may correct quickly. One such chance is tomorrow with the ECB, if the bank fails to meet market expectations the euro could tumble from its new multi-year highs versus the dollar, drive the Dollar Index higher and gold lower. After that 4th quarter GDP on Friday could be a mover, and then of course there is the FOMC meeting next week to watch out for. Regardless, the ETF is likely to remain within the longer term range; top is near $25.60.

The Oil Index

Oil prices surged to set a new 3 year high. The gains were driven by a tenth week of stock draw-downs on top of last week's lower rig count. It looks, for now, as if US production is not meeting the needs of the market but there are risks for the bullish outlook. The first is that the US has seen record cold temperatures across the bulk of the country over the past 6 weeks and this is leading to above average use of heating fuels. The second is that US producers aren't going to sit on the sidelines forever, high prices will bring them and others to the market. Forward outlook remains the same; well supplied market in 2018 are expected to lead to average prices near $53.

The Oil Index gained 0.50% on today's gains in oil. The index moved up to create a small red bodied candle setting a new three year high. This move is trend following, supported by rising oil prices and the indicators although there are some warnings signs. Both MACD and stochastic are bullish and in support of higher prices but both are also showing divergence from the newly set high that is consistent with a weakening rally. This may lead to a consolidation and/or correction at some point in the future, caution is due. Until then the trend is up, new target is 1,500.

In The News, Story Stocks and Earnings

Comcast, one of America's leading cable/internet providers, reported earnings this morning before the bell. The company delivered a line-up of good news that sparked a volatile day of trading. Earnings and revenue beat expectations on 350K new subscribers, the company also increased the dividend, announced a stock buy back and improved guidance. The news sparked buying which drove it up to set a new all time high. This sparked profit taking which caused the stock to fall sharply. Support came back into play however, leaving the stock very nearly at break even creating a long legged doji.

GE also reported before the bell. The multi-national conglomerate reported a -5.1% decline in YOY earnings, missing estimates by $2.66 billion and falling short of EPS as well. The company offset this news with an upgrade to guidance and comments like “cash flow is improving” and plans to cut another $2 billion in structural costs. It also revealed it is the focus of an SEC investigation into insurance payments. Shares of the stock opened with a gain but that was quickly reversed leaving them down more than -2% at the close.

United Technologies also reported before the bell. The company reports revenue grew by 7.0% YOY, beating estimates, leading to adjusted EPS of $1.60. Adjusted EPS beats last year but does not take into account a tax charge related to the tax reform. Forward outlook is good and above expectations. The company is expecting to see accelerating sales and revenue growth in the range of 4-6%. They also say they are planning repatriate $2 billion off shore profits. Shares of the stock opened lower, moved up to set a new high, then fell back to close near the open creating a long legged candle with small green body. This is indicative of resistance at the recently set high. Correction is possible but for now it looks like the stock is forming a consolidation pattern with chance for continuation.

The Indices

The indices hit a hiccup on their march to new highs but new highs were reached in today's session. That being said not all indices set new highs and the one most notable is the Dow Jones Transportation Average. The transports fell more than -2% intraday, closing with a loss near -1.25%, and created a small doji candle. This doji is hammer-like and may indicate near term support although there is potential for further downside. The indicators have rolled over into bearish crossovers which, in an uptrend, usually lead to consolidation or correction. A firmer target for support is near 11,000 and just below that at the moving average.

The NASDAQ Composite also close with a loss but only about half that of the transports. The tech heavy index also set a new all time high but did so while creating a red bodied candle. The candle is a dark cloud cover but a weak one, it may lead to consolidation or near term correction but is not an indication of major market shift. The indicators are bullish and consistent with uptrend if a bit mixed in the near term. A move up would be trend following and bullish, a move lower may confirm the onset of consolidation/correction but not a full reversal.

The broad market S&P 500 posted the smallest gains, near 0.15%, but created a small red bodied candle. The index is drifting higher and showing a little bit of froth with today's action but nothing to be concerned about yet. The indicators are bullish and consistent with higher prices, upside target in new all time high territory. A fall from this level may be bearish but would, at this juncture, more likely result in a consolidation move than deep correction.

The Dow Jones Industrial Average posted the largest gain, about 0.30%, and created a small hanging man doji. Today's candle is indicative of indecision and pause but not in any significant kind of way, it looks like average daily action within an uptrend. The indicators are bullish and consistent with higher prices although they are a bit mixed in the near term. A move lower may find support at 26,000, a move below there would likely go to 25,500. A bounce or move up from this level would be bullish and trend following with upside target near 27,000.

The markets are moving up in the near, short and long term, there is no denying that. Today's action was a bit disconcerting but does not, at the end of the day, appear to be anything for the bulls to worry about. There are some concerns including the renewed threat of trade wars but none have yet had impact on earnings growth or earnings growth outlook. Until that happens I am bullish. I remain cautious for the near term because there just isn't any reason to go nuts.

Until then, remember the trend!

Thomas Hughes