The indices moved set new all time highs on strong earnings from big names. Caterpillar was the star of the show delivering blow out earnings and positive forward outlook. Along with the earnings are economic reports pointing to continued expansion. President Trump's visit to Davos is also helping to support the market. He's made some positive comments on the economy, growth, the dollar and trade that have helped to reassure the market.

International markets were largely down in the overnight session. Asian indices shed -0.25% to -1.00% as the dollar fell and currencies throughout the region gained strength. Adding to angst were a basket of mixed earnings reports. Exporters were hit the hardest as they have the most exposure to currency exchange.

European markets were focused on earnings, but also on the ECB, and finished their day in negative territory as well. The DAX led with a loss near -0.90% on ECB uncertainty. The bank held their rates unchanged and made no alterations to outlook or statement as had been expected. Mr. Draghi did little to indicate a change in policy was at hand but traders remain convinced there is. Data from the region has been positive and trending higher although target inflation rates have not been reached.

Market Statistics

Futures were flattish in the earliest portion of the pre-opening session. The trade began to gain strength throughout the morning as data and earnings were released eventually hitting a peak on news from Caterpillar. The Dow jumped more than 100 points on the news and opened with a small gain. The blue chip and broad market indices both set new all time highs in today's action but closed off of their highs. Price action was light in most cases, daily ranges were small and volumes were low. Advancers and decliners were evenly matched while those making new highs outpaced those making new lows by 5:1.

Economic Calendar

The Economy

Initial jobless claims rose by a smaller than expected 17,000 from last week's downwardly revised figure to hit 233,000. The four week moving average of claims fell -3,500 to hit 240,000. On a not adjusted basis claims fell -25.9% versus an expected -31.4% and are down -7.65% from last year. Looking to the chart it is easy to see there has been volatility in the data, it is also easy to see that the overall trend remains down. Recent volatility is due to the storms last fall as well as seasonal shifts in labor forces. Regardless, claims remain at/near long term 45 year lows and consistent with labor market health.

Continuing claims fell -28,000 from an upwardly revised figure to hit 1.937 million. The four week moving average of claims fell -3,500 to hit 1.920 million, the previous week's average was revised up by 2,500. This figure has also shown some volatility over the past few months as well as a flattening that may indicate the down trend is over.

The total number of American's receiving unemployment benefits jumped 116,813 to 2.453 million. My first reaction to this was "whoa, that's a big number" and it is. It is consistent with season and long term trends but well above expected. This spike, along with the flattening continuing claims, is a potential red flag that labor market tightening is coming to an end. If so we could begin to see a pick up in the pace of wage inflation as employers work harder to find, attract and retain employees.

New Homes Sales fell as expected but well above what analysts had predicted. The December read shows a -9.3% decline in sales from the previous month but the year over year and full year figures are still positive. December 2017 is 14.1% above December 2016 and full year 2017 is up 8.3% over the full year 2016. Decembers sales are hurt by the persistent problem of low inventory/high prices and by the bad weather seen across the nation.

The Index Of Leading Indicators points to continued strong expansion in the US. The headline index gained 0.6% with positive revisions to the previous two months. Along with this the Coincident Index rose 0.3% while the Lagging Index rose 0.7%. All three indices have been positive for more than a year and, according to economists at the Conference Board, "The passing of the tax plan is likely to provide even more tailwind to the current expansion. . . The gains among the leading indicators have been widespread, with most of the strength concentrated in new orders in manufacturing, consumers' outlook on the economy, improving stock markets and financial conditions."

The Dollar Index

The dollar went on a wild ride today; it first shot higher on Mnuchin's comments and the ECB and then later fell on comments from President Trump. The president refuted Mnuchin's comments, specifically the media's coverage of the comments, saying that the administration does not want a weaker dollar and that the dollar is going to strengthen along with the US economy. He also said, and this is my interpretation, theat he didn't want people to be talking about the dollar so it could float freely on the open market. The Dollar Index fell to test support at $89 and looks like it is confirming. Today's candle is a large hammer doji at support that may lead to a reversal within the long term trading range.

The Gold Index

Gold went on a wild rise as well. After the ECB meeting and press conference and before the Trump comments it moved up to test 2016 highs. After the Trump comments spot prices fell to break even and below, giving up a half percent by settlement time. The metal is indicating resistance at the previous high and top of a long term trading range although more evidence is needed. If resistance is confirmed a move lower should be expected. If the dollar does indeed strengthen as Trump says it will gold prices are likely to fall. Tomorrow's 4th quarter GDP read could spark such a move, or perhaps the FOMC next week, but global economies are improving as well. Tightening from the ECB, BOE, BOJ and others is likely to undermine dollar strength and keep it and gold within their current ranges.

The Gold Miners ETF GDX tried to extend yesterday's gains but the move was cut short by Trump's comments. The ETF fell hard on the news creating a large red candle and confirming resistance in the upper half of a long term trading range. The indicators are both bearish, showing wicked divergence and pointing lower in confirmation of lower prices. Today's action was halted at $24 and a potential support level, a break below there would be bearish within the range with a target near $23.50 and then $23.00.

The Oil Index

Oil prices fell to close the day with a loss near -0.50%. Prices had been up in the early session, setting a 4 year high, but fell later in the day following Trump's comments from Davos. This move is due to today's reversal in the dollar more than anything else as US storage data and OPEC's production cap continue to support the market.

The Oil Index fell about -0.40% on the fall in oil prices and may have hit a peak. The index has been trending strongly higher on the rise in oil prices but with those in question for the longer term a correction is due. The indicators are both consistent with possible or imminent correction showing significant divergence from freshly set long term highs. A fall fro this level could go to 1,400 or 1,375 in the near term.

In The News, Story Stocks and Earnings

Caterpillar reported in the early morning and blew past estimates. The company says improving global economics have led to strong sales, increased back logs and improved forward outlook for business. Both revenue and earnings came in above expectations, earnings more than doubling from the year ago period, driving shares up more than 3.5% in the pre-market session. The gains were short lived however as concern growth was already discounted and fears over a probe into its Swiss operations weighed on shares. By end of day the stock had formed an alarming red bodied candle with long lower shadow that may be confirming a top. Both indicators are currently bearish and moving lower suggesting lower prices to come. Support may be at the moving average, a break below there would be bearish.

Kroger is reported to be in talks with Alibaba. The goal is to form some kind of alliance with which to battle the new Amazon/Whole Food's conglomerate. Neither company commented on the report but analysts agree it is likely in response to the recently opened flagship AmazonGo store. Shares of the stock jumped in the pre market and are now trading at a 7 month high.

After hours action was hot with dozens of big name reports hitting the market. Starbuck's reported net revenue up 6% on strong global comp increases but did not meet analyst expectations. Earnings of $0.65 beat by $0.08 but were not enough to buoy share prices. Global comp sales rose by 2% driven by strong increases in China. China net revenue grew by 30% on a 6% increase in same store sales. Forward guidance is unchanged, shares of the stock fell -2.5%.

Intel also reported after the bell. The difference is that it beat on the top and bottom lines driving shares to new highs. The company reported a 4.3% gain in net revenue driving a $0.21 (25%) beat on the EPS end. Gains were driven by strong demand that is expected to persist into the new year resulting in increased guidance and a hike to the dividend. Considering the number of IoT connected devices is expected to more than triple to over 50 billion in the next decade I'd say strong demand should continue for some time.

The Indices

The indices had another day of indecision but most were able to hold their ground. The Dow Jones Transportation Average unsurprisingly led with losses near -1.60%. The transports are in near term correction and heading down to test support at the short term moving average. The indicators are both moving lower following bearish crossovers and consistent with such a move. A break below the moving average would be bearish and could take the index down to 10,500 or lower. A confirmation of support at or near the moving average would be bullish and trend following.

The NASDAQ Composite is the 2nd of two indices to close with losses although losses for the tech heavy index were far less than for the transports. The index closed with a loss of only -0.05% but created a small red candle. Today's candle is to the side of the previous two and at all time highs so looks like a consolidation at this point. The indicators remain bullish and consistent with consolidation within an uptrend so no change to outlook at this time.

The S&P 500 made the smallest gain, 0.06%, but created a red bodied candle in the process. The broad market index opened at what would have been an all time closing high but fell during the day. The candle is to the side of the previous two and consistent with near term consolidation within the current up trend. Both indicators are showing near term weakness consistent with such a move but neither show signs of reversal just yet. If the index were to move down support may be found at 2,800 or just below at the short term moving average.

The Dow Jones Industrial Average posted the largest gains and looks the most bullish of the indices. The blue chips closed with an advance of 0.53% creating a small green bodied candle and setting new all time intraday and closing highs. The index is drifting higher in lie with the prevailing trend and supported by the indicators. Both MACD and stochastic are bullish although there are some signs of weakness. A move up from here would be trend following and bullish, a move lower may find support at 26,000 in the near term.

The indices continue to hold their ground at or near all time highs. These highs are supported by long term trends, current earnings and forward outlook although there are some near term hurdles holding them back. The hurdles, mostly sentiment driven, may lead to market correction but there is no firm sign of that yet.

Tomorrow's GDP release is going to be important, especially ahead of next week's Fed meeting. Analysts are expecting growth in the range of 3%, any deviation from that will impact growth and interest rate outlook if not stock prices. A beat, especially a solid beat, will be further indication Trump's pro-growth policy and business friendly stance will spur earnings growth into the next several years. I remain bullish for the long term but cautious for the near, waiting on data. If a correction does develop I expect it will lead to another great entry point for bullish positions.

Until then, remember the trend!

Thomas Hughes