Introduction

Syrian conflict and other geopolitical fears waned over the weekend allowing the market to bounce back in Monday trading. The major indices advanced more than 1% although volume was light. Many traders are waiting on earnings before committing their money so light volume may continue over the next few days. The earnings cycle is well underway and off to a good start but the peak is still a few weeks off so cautious behavior within the market is not surprising. There are 60 S&P 500 companies and 7 Dow components reporting earnings this week, enough to give a solid indication of the strength of earnings growth.

International markets were mixed in today's trade as fear the Syrian conflict could widen dampened spirits. In Asia most indices were able to close with small gains but China was not one of them. Both the mainland Shanghai and Hong Kong Heng Seng indices fell more than -1.5% on lingering trade war fear. European markets were flat to mildly positive in early trading but fell later in the day on profit taking and geopolitical uncertainty.

Market Statistics

Futures trading indicated a positive open all morning. The S&P 500 was looking at a gain of 0.60% when the opening bell rang and that is what it got. After that the market drift slowly higher until popping up to the intraday high just after 1 PM. The market trend sideways from that point on, slowly retreating throughout the afternoon, to close near the middle of today's range.

Economic Calendar

The Economy

Moody's Survey of Business Confidence gained 0.4 points to hit 41.9 and is fast approaching the all-time high. The index shows global business confidence is unshaken in the face of market volatility, trade war and geopolitical tension. Mr. Zandi says the reading indicates the global economy is growing firmly above its potential.


Business inventories grew a larger than expected 0.6% in February and the January read was revised up to 0.6% in indication of ongoing economic expansion within the US. Sales of business and trade merchandise grew by 0.4%, also above expectations.


Retail sales grew a better than expected 0.6% on rising gas prices. Core retail sales, ex food and energy, rose a more tepid 0.2% and as expected. On a year over year basis retail sales are up 4.5% and expanding from previous years.


The Home Builders Index fell 1 point to 69 and a 6 month low. Current sales fell two points and future sales fell 1 while traffic remained unchanged. The builders blame rising prices for the decline in sales and point to tariffs on Canadian lumber as one reason why prices are so much higher.

The Empire State Manufacturing Index fell to 15.80 showing continued expansion in the manufacturing sector but at a slower pace than the month before. The biggest drags on the reading are new orders and shipments which declined -8 and -9 points to hit 9 and 17.5 respectively. Deliveries, inventories and employment indicators all expanded from the previous month. Outlook for the next 6 months is positive but fell more than 20 points to hit a 2 year low.


The Dollar Index

The Dollar Index fell about -0.4% in today's session, moving down from the short term moving average. Today's move is due to tepid data in the US and expectations for data due from the UK and EU later this week. Both the UK and EU are scheduled to release CPI and PPI data that will be watched for clues to future rate hikes. Regardless, the index remains within its short term trading with little reason to expect it to break out.


The Gold Index

Gold prices held steady as global tensions ease. Despite the easing prices remain elevated and near long term highs. The metal has formed a trading range over the past three months, in tandem with the dollar, that is likely to persist until the dollar breaks out of its trading range. The indicators are consistent with a trading range, neither showing strength and both trending near the middle of their ranges, giving no indication a break out is coming any time soon. Support is near $1,310, resistance near $1,360.


The Gold Miners ETF GDX tried to move higher but the advance was met with sellers. Today's candle indicates resistance at the $23 level that may cap gains in the near term. The indicators are both bullish and pointing higher suggesting higher prices are on the way. A break above $23 would be bullish with a target near $24. If resistance holds support may be found near $22.50.


The Oil Index

WTI fell more than -1.5% on easing Syrian fears. Today's action formed a medium sized red candle that closed below the previous long-term high, confirming resistance at that level, and forming a Dark Cloud Cover. Prices may bounce from this level if fear is renewed but for now it looks like they will retreat back into the 2018 trading range. The fundamental picture remains unchanged, a well supplied market, so I still expect to see lower prices later in the year regardless what happens now.


The Oil Index advanced nearly 0.90% on heightened earnings expectations. Oil prices, despite today's decline, are trading at long term highs and levels where its impact on earnings and outlook for earnings is robust and that is driving this market. The indicators are bullish and suggest a retest of 1,460 is likely, the caveat is the indicators. Both are bullish and strong, MACD is at an extreme peak and stochastic is high in the upper signal zone, but they are also both consistent with an overextended market. With the index coming so close to resistance, and outlook for oil prices negative, there is a possibility it could top out at 1,460 but I wouldn't trade on that assessment until the candles and oil prices confirm it.


In The News, Story Stocks and Earnings

Netflix reported earnings after the bell and met analysts expectations for revenue and earnings. The company beat, by a large margin, on net new subscribers adding more than 2 million in the US alone. Along with this they issued guidance for next quarter that comes in above consensus, $0.79 versus $0.65. Analysts say the results, and guidance, show the company is able to compete versus Amazon and Disnay in domestic and foreign markets, good news for them. Shares of the stock jumped more than 6% on the news.


Bank of America reported a 30% increase in YoY revenue driven in large part by tax reform and consumer banking. The consumer banking segment grew 40% YoY to $2.695 billion on expanding labor markets and increased employment. The bank also reported growth in every other segment except one, mortgages, helping to lift shares in the pre-market session. The stock opened with a small gain, and closed with one, but moved lower to test support intraday.


The VIX is moving lower. The fear index declined nearly -5% in today's action and is approaching the long term moving average. This moving average, near the $15 level, may act as support when it is reached. The indicators are both bearish and pointing lower suggesting lower prices are on the way. A break of support would be bearish for fear and bullish for the broad market.


The Indices

The major indices all moved higher in today's session but one really stands out, the Dow Jones Transportation Average. The transports gained 2.32% in a move creating a large green candle gapping up from the short term moving average. This move is an extension of a long-term, trend following bounce from strong support and very bullish. The indicators both confirm this move and are forming a strong trend following entry signal that looks very bullish to me. There may be some price resistance near 10,775 that will lead to a retest of the all time high once broken.


The Dow Jones Industrial Average posted the second largest advance, 0.81%, in a move echoing the much larger advance posted by the transports. The blue chips created a small green bodied candle moving up from the short term moving average and setting a new one month high. This move is trend following and supported by the indicators. The indicators are both bullish and forming a strong trend-following entry signal that is likely going to lead to higher prices. A move up may find resistance at 25,000, 25,500 and 26,000 on it's way up to retest the all time highs.


The S&P 500 made the third largest advance, 0.81%, in a move that suggests support is still present along the long-term uptrend line. The index formed a small green bodied candle moving up from the short term moving average and long term uptrend line that extended its bounce from the long term moving average, a trio of events confirming strong support at current price levels. The indicators are both bullish and pointing higher, in line with the prevailing trend, suggesting the bounce will continue. A move up will confirm this outlook, my targets are 2,700, 2,800 and 2,900.


The NASDAQ Composite is today's laggard with a gain of only 0.69%. The tech heavy index created a small spinning top doji sitting on support at the long-term moving uptrend line and short-term moving average. The candle is a bit indecisive but shows support is still present at key targets. The indicators are both bullish, pointing higher and consistent with a strong entry signal so I am expecting to see higher prices. A move up will confirm, likely to come as tech companies report earnings, my targets are 7,500, the all time high and new all time highs.


Political unease is fading but still present, it could rear its ugly head at any moment, and if it does it may cause a knee-jerk reaction sell-off (or worse if the news is bad enough). Until it does, earnings will be at the forefront of the markets attention and earnings are good. We've just come off a great quarter of earnings, we're about to have a great quarter of earnings and we're looking at another, even better, quarter of earnings next cycle and that will drive the market higher over the next 2 to three quarters at least. I am cautious because it's just smart to be safe but bullish for the near, short and long term.

Until then, remember the trend!

Thomas Hughes