The FOMC minutes reveal the committee is less hawkish than the policy statement led us to believe. The minutes include some relatively minor changes in wording that carry a lot of weight regarding the pace of future interest rate increases. Most notably, the FOMC now sees that 'some' further gradual rate hikes will be needed and qualified the change with a note. The committee wanted the market to know that 'some' is meant to convey the idea of a relatively limited number of future rate hikes and the market like what it heard. Indices that had been cautiously higher moved to the highs of the day on this news.

The committee also says the economy is still strong despite geopolitical headwinds and that labor markets remain strong. Regarding the pace of hikes; the committee says it is still data dependent although it has become more difficult to judge the need for hikes and that the number and pace of those hikes is uncertain. Basically, the FOMC has altered its stance and now expects to see only one (1) rate hike in 2019.

Today's slate of events included speeches from three FOMC members who agree the committee is patient. The need for rate hikes may still be present but it has lessened to the point a pause in hikes is the most likely scenario. The CME's FedWatch Tool shows only a 16.5% chance of one hike next year and a slim chance rates will be cut.

Regarding the balance sheet rundown, the committee will continue to allow their balance to wind down and cautions the market that it may spark volatility in other key rates. At the current pace of run-off, $50 billion monthly, it will be years before the Fed's balance sheet is back to pre-crisis levels.

Market Statistics

The trade talks ended today and there are signs of positive progress. Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs, Ted McKinney said the talks went just fine and that it was good for us. Now the trade reps will have to report back to Trump to make the next step. Now that the talks have begun in earnest there is a chance they could progress quickly although no substantive change in Chinese domestic affairs is expected very soon. At best China will open up its markets, import more agricultural and energy products, and make promises we'll have to trust them to keep. Regardless, this is good news and will be a boost to 2019 global GDP.

Economic Calendar

The Economy

Only one macro-economic release today and that was the minutes. The minutes were a nice confirmation of the FOMC's new stance and a sign they will allow the economy to catch up with current interest rates. The weekly mortgage applications saw a 23.5% surge in the last week as pent-up holiday demand and lower rates spur activity. As a leading indicator, this is a good sign of increased real estate activity but won't likely show in that data for another month or two at least.

The Dollar Index

The Dollar Index began to fall well before the FOMC minutes were released. The decline was driven by an expectation for Fed dovishness that was reinforced by statements from Raphael Bostic, Charles Evans, and Eric Rosengren. While some of the committee members still see a need for rate hikes all have toned down their outlook and indicate future hikes are not on autopilot and are data dependent. Today's move in the dollar trimmed 0.75% from the index and broke below a key support level.

The index may move lower in tomorrows session, the indicators are in support of such a move, but the ECB meeting is on tap and that may reverse the index fall. If the ECB backs off of their policy stance as the FOMC has done I would expect to see the dollar index resume its sideways meandering rather than fall to new lows.

The Gold Index

Gold prices moved up on today's dollar weakness and look like they could go much higher. The metal is in an uptrend and forming a flat pattern that could add $45 to its price in the very near term. This move is set up by the softening expectation for future FOMC rate hikes and could be sent out of the park by the ECB if they maintain their own outlook. The ECB has indicated that they will begin tightening policy in the second half of this year, anything to that effect will be bearish for the dollar and bullish for gold. Resistance is currently at $1,300, a move above there would be bullish and could take gold up to the $1,345 to $1,365 range.

The Gold Miners ETF GDX moved up more than 1.0% in today's session and may move higher, is likely to move higher, if gold is able to move higher as well. Today's candle extends yesterday's bounce from support but was halted before the recent highs. The indicators are mixed and suggest and range bound trading or correction so there is a reason to be cautious. A move above resistance would be bullish and could take the ETF up to $22, $23, and $24 in the near to short-term. If resistance at the $21.50 holds or is confirmed by whipsaw action I would expect the ETF to trend sideways at current levels or pull back to retest support at or below $20.50.

The Oil Index

Oil prices surged more than 5.0% in today's session on two catalysts that are light on substance. The first is the Saudi Oil Ministers reaffirmation that Saudi Arabian oil production would fall in the coming months. The second, a positive conclusion to this week's round of trade talks. Both news bites are positive but I say light on substance because the Saudi's are manipulating oil prices with talk and tight control of supply, and the trade talks are far from conclusive. WTI is now trading just above $52 where there is a high potential for strong resistance. A move up from this level could be bullish, a fall from this level would confirm resistance and the near-term downtrend in prices.

The Oil Index advanced more than 2.0% in today's session and has extended its climb above the short-term moving average. The index is rising on oil prices and may move higher if it can surpass resistance at 1,260. The indicators are bullish and suggest prices will continue to climb in the near-term. A move above 1,260 would be bullish but face another resistance target at 1,300.

In The News, Story Stocks and Earnings

Constellation Brands reported earnings before the bell and beat on the top and bottom lines. The company says revenue and adjusted EPS both grew in the last year but the outlook for future growth is not good. The company says softness is being felt in spirits, beer, and wine that I think may be linked to the budding marijuana boom that is sweeping the globe. Legalization of medicinal and recreational cannabis is accelerating and likely to lead to a Federal regulation at some point in the not-too-distant future. Shares of the stock fell nearly -12.0% in pre-market action.

Pricesmart reported December sales before the open and fiscal Q1 2019 after the close of the session. The December sales figures are positive and somewhat strong at 0.9% for the month and that was negatively affected by currency fluctuation. Comp-store sales rose 0.4% for the month and round out a solid year for the warehouse shopping club.

Earnings in the first fiscal quarter were good but revenue was only as expected which left shares flat in after-hours trading. Adding to investor malaise were mixed metrics on merchandise sales, up 0.3% in the quarter but down more than -2.0% on a comp-store basis. The mixed results were due in part to the opening of a new store that helped increase total sales while sales per store unit fell.

Shares of home builders were up on today's mortgage data and expectations for earnings scheduled to be released after the bell. Shares of KB Homes and Toll Brothers were both up more than 4.0% at the end of the session and KB Homes at least surged another 4% in the after-hours session. The builder reports revenue and earnings above expectations and provided a positive outlook for future operations. The company has a substantial amount of free cash flow and has been allocating towards reducing debt and preparing for growth this year and next.

The Indices

Today's index action wasn't very strong but it was bullish and set new multi-week highs for a broad swath of the market. What I really like is that the Dow Jones Transportation Average led the charge and it broke above its short-term moving average.

The candle is not large but opens at the close of yesterday's doji session and move up to close near the high of the day. The move shows that potential resistance at the 9,500 level is not present leaving the path forward open to advance. The indicators are bullish and suggest that upward momentum will carry prices higher in the near-term at least. Now that prices are edging above the 30-day moving average momentum may begin to build but we're not out of the woods yet. There are several targets for resistance just above today's close that may cap gains in the near-term.

The NASDAQ Composite posted the second largest advance at 0.70%. The tech-heavy index extended its move above the short-term moving average and poked its head above an important uptrend line. Today's move is cautious but bullish, let's hope there aren't bears waiting to play whack-a-mole with prices now that they are on the rise again. The indicators are bullish and suggest rising prices are at hand, my target for the next resistance is now 7,290.

The S&P 500 gained about 0.40% in the session and created a small spinning top doji. The candle is above the short-term moving average and at a new near-term high so bullish and possibly the precursor to higher prices yet to come. The indicators are both on the rise and support the idea of higher prices provided the 2,600 can be overcome. The 2,600 level is consistent with the November and December lows, a target for possible resistance. A move above 2,600 would be bullish and may take the index up to 2,700 in the near term.

The Dow Jones Industrial Average gained about 0.38% in today's action and may move higher. The caveat is that today's candle is small and shows resistance at the 24,000 level. The index is above the short-term moving average and the indicators are bullish so upward pressure is present. If it is enough to break above resistance prices will likely move up to 24,800 in the near-term.

The market used to be scared of trade wars, the FOMC, and slowing growth. Now the causes of those fears are gone or leaving, the FOMC has decreased the trajectory of interest rate hikes and trade talks are underway, both of which will help alleviate the third concern of slowing global growth. It's still early in the rebound, there is still cause for caution, but the price action looks bullish and so am I.

The next hurdle for the market is earnings. The Q4 2018 cycle is about to go into high gear and that could add fuel to the rally. Next week the season kicks off with reports from the big banks and some important industrial and transportation names like Alcoa and CSX. The expectations are high, not compared to last quarter, and the estimates have been falling so I think there is a good chance most S&P 500 companies will beat their consensus estimates. I am firmly bullish for the long-term and ever so cautiously bullish for the near-term.

Until then, remember the trend!

Thomas Hughes