Introduction

The market is moving higher on growing trade optimism despite mixed signals from Washington. Last week, Larry Kudlow and other White House officials let it be known there were still wide differences regarding trade and that a meeting between Trump and Xi would not happen before March. Now, Trump says he may postpone the implementation of the March 2 tariffs provided the US and China could reach an acceptable agreement before the deadline. That message and word from China President Xi would meet with Mnuchin and Lighthizer on Friday implies a deal, at least in principle, is not that far away.


Another government shutdown may be avoided but the jury is still out on that one. The Congress has passed a bill on the President's desk for his signature but the signing has not yet happened. Trump says he wants to peruse the document for potential landmines he wants to avoid. The deal doesn't include money for the wall but it does include funding for a physical barrier along some parts of the border which is a big step for the Democrats to have made. If he vetoes the bill Trump says he will still get his funding even if he has to shift funds from other spending projects.

Market Statistics

The Presidential political cycle is already getting underway, oh joy. Today's news includes a report that Joe Biden, former Obama VP, is entertaining the idea of running for President. So far all he's done is flirt with potential donors as he mulls his decision. As of now, he is the front-runner for the Democratic nomination.

The fight against share buybacks is slowly heating up. Senator Marco Rubio recently joined the fray and said today a bill addressing the issue would be presented soon. According to him, we don't have free markets and buybacks are the reason why. His plan is to alter the tax code to disincentivize the practice in hopes businesses will pass on more of their profits to employees or in the form of dividends. He wants to treat buybacks and dividends the same way, good in theory, but if he's successful the market will lose billions of dollars of support that has been a major driver of the bull market.

Today's market set the most new highs since before the November/December stock market correction.

Economic Calendar

The Economy

Only one economic release today and it was a fairly important one; the Consumer Price Index for January. The reports show that consumer-level inflation held steady over the last month as declines in energy offset increases in food, shelter, and most other items Americans use daily. The gasoline index declined the most, about 5.5%, while food increased by 0.2%. At the core-level CPI rose 0.2% over the last month and up 2.2% YOY. This data is solid, solid enough to indicate continued US expansion, and is enough to substantially increase the chances of a rate hike this year, slim as they are.



The Dollar Index

The Dollar started today on shaky footing as trade optimism fueled an early rally in global currencies. Later in the day, however, weak EU data and solid US data helped stiffen the dollar. In the EU industrial production fell -0.9% and more than expected in a sign of continuing slowdown within their economy. In the UK CPI came in below expectations and at a 2-year low. The DXY opened with a loss equal to yesterday's gains but then moved up steadily to regain all the losses before the close. The index looks like it may be consolidating for another push higher, a push that may take it up to the $99 level in the near-term.


The Gold Index

Gold prices tried to rally on today's weak dollar but weren't able to hold the gains. The dollar's midday reversal is the cause and sent spot prices back to break even before the close of the session. The metal is still in consolidation and still above support so there is a bullish bias, the problem is that the dollar looks like it could move higher on stable US economic activity and that would put pressure on gold. Support is near $1,315, a move up may find resistance near $1,330 while a move lower may find support near $1,300.


The Gold Miners ETF GDX moved up in the early portion of the session only to fall back by the close. The ETF closed with a small loss and set a new near-term low in the process. The candle is indecisive but price action over the past two weeks shows a market that is under pressure. For now, the ETF is still above support at the $22 level so there some bullish bias, the risk is that a break of $22 could trigger a deeper decline, possibly to retest support at the short-term moving average. A move up may find resistance at $22.50.


The Oil Index

Oil prices were able to move higher despite a larger than expected build in US stockpiles. The driver of the move is word from OPEC and Saudi Arabia indicating production caps have lowered total output to under 31 million barrels per day. WTI gained nearly 2.0% on the news but the gains were capped by the US inventory data. Stockpiles of WTI and distillates increased substantially over the last week despite an expectation for tightening markets.

The OPEC production cut seems to be doing what it was intended, oil prices are creeping higher, although there is still a long way to go before they regain the losses we saw at the end of last year. Based on price action alone, it looks like WTI will test new near-term highs before it will seek out new near-term lows.


The Oil Index tried to move higher on today's oil news but the gains weren't held. The index continues to consolidate within its near-term range and does not show much sign of breaking out in either direction. The indicators are both near the middle of their ranges which indicates a quiet market, one waiting for a sign of direction. A move up will be bullish when it break 1,300, a move lower will be bearish when it breaks 1,225.


In The News, Story Stocks and Earnings

Hilton Worldwide reported better than expected revenue and earnings despite the effects of slowing global economic growth. The hotel operator says global RevPar grew 2.0%, US RevPar grew 1.1%, management fees increased by 13.9%, margins improved, adjusted EPS grew 12.9%, and occupancy held steady. The company went on to raise guidance above the consensus and sent shares moving up. The analyst at Nomura tracking the sector says they are comfortable with the guidance after seeing the Q4 results but held his price target steady. Shares moved up more than 5%.


Dish Network fell more than -7.0% in today's action after reporting better than expected revenue. The problem is a miss on EPS and a massive decline in paid subscribers. The number of paid subscribers fell 339,000 in the last quarter, 10 times the number of net-subscriber adds posted in the previous quarter. Dish has been experiencing massive customer loss for some time now and does not appear to be winning the TV/media wars.


Shares of Deere And Company were downgraded today by Bank of America Merril Lynch. The analysts say ongoing trade concerns and slowing global expansion will weigh on sales of farm equipment. Based on that outlook, Deere is expected to not raise guidance this year and not maintain a premium over rival Caterpillar. The downgrade is from buy to neutral and comes with a decreased price target, $11.25, and sent shares down more than 2.0%.


Google made headlines today announcing it would invest $13 billion in US real estate this year. The company is planning on expanding its data centers into Nebraska, Nevada, Ohio, Texas, Oklahoma, South Carolina, and Virginia and add 10's of thousands of jobs in the process. Shares of the stock gained about 0.35% on the news, the bigger story is, of course, the boost to US jobs, jobs that are fueling wage gains and consumer spending.


The Indices

The indices moved higher today but the gains were capped by profit-takers, not surprising given this week's run up and the fact OPEX is at hand. The day's leader is the Dow Jones Transportation Average with an advance of 0.49%.

The transports have extended their break above the long-term moving average and look like they could continue to rise in the near-term at least. The indicators are bullish so upward pressure is present, the problem is that momentum and stochastic are both diverging from the new high. A move higher is still expected although gains may be limited, my next target for resistance is 10,750 assuming we get a close above 10,500.


The Dow Jones Industrial Average posted the second largest gain with an advance of 0.46%. The blue-chip index moved higher in the pre-opening session to break above resistance at a long-term uptrend line and set a new near-term high. The move is bullish and may lead to higher prices still but there are some red flags that may halt gains in the coming days. Both indicators are divergent from the new high and there is a potentially strong resistance target just above today's close. A move up is expected but I wouldn't count on it going to far until price moves above 25,750.


The broad market S&P 500 moved up 0.30% to set a new near-term high. The move is bullish but the candle is weak and there is some visible upper shadow so the risk of reversal is present. The indicators are mixed, MACD is bullish and divergent while stochastic moves lower, which indicates a slowing market and the presence of resistance, a recipe for reversal if I ever heard one. If prices are able to move higher resistance may be present just above today's close near 2,780, a break above that would be bullish. If the price falls from today's closing level support may be found at 2,700 and the long-term moving average.


The NASDAQ Composite posted the smallest gain at only 0.07%. The tech-heavy index created the most bearish looking candle of all, small and red with visible upper shadow, that raises the odds tomorrow's action will see index prices fall from today's close. A move lower may find support at Tuesday's close, a move below that will probably continue down to the long-term moving average near 7,260.


The market is moving higher and that is a great thing, the sentiment is improving but we are not out of the woods yet. The trade talks are the biggest obstacle the market faces at this time, the biggest obstacle it has faced in quite some time, and there is no guarantee we'll see substantive progress regardless the cause for hope. If the talks break down, if the next round of tariffs gets implemented and the outlook for global economic activity takes another hit I fear we may see a sharp and possibly prolonged downdraft in stock prices. Until then I am bullish for the long term and incredibly cautiously bullish for the near-term.

Until then, remember the trend!

Thomas Hughes