News hit the street early this morning that negotiators were closing in on language that would, in effect, end the US/China trade war. Negotiators are working on the memorandum for six key areas of dispute which is not an end to dispute but would be, could be, an end to hostilities.

The six areas include forced-technology transfers, intellectual property, agriculture, services, non-tariff barriers to entry, and currency manipulation. Along with the memorandum is a list of 10 commodity and goods China is expected to buy from the US.

The news is good but just another headline until Trump and Xi reach an agreement. The memorandum is not the same as a Congress-Ratified trade deal, more a set of guidelines, so there will still be some economic risk if they are accepted.

Market Statistics

James Bullard, FOMC member and President of the St. Louis Fed, went on the record this morning saying quantitative and policy tightening is coming to an end. His statements echo, in part, sentiment portrayed in the FOMC minutes with one catch. He thinks rates are too high right now but acknowledges he is in the minority position, a position which leaves the door wide open for him to be wrong.

Economic Calendar

The Economy

There was a lot of data this morning and for the most part, it points to continued slowing within the US economy. I'd like to say that most of it is old, delayed by the government shutdown, but it's not. The only bright spot in the news is the jobless claims figures. Initial claims fell more than expected and appear to be returning to trend. The number of initial claims came in at 216,000, down 23,000 (19,000 net revisions), and are retreating fast. The four-week moving average of claims rose 4,000 to 235,700 and a new 13-month high, a red flag, but should begin to retreat by next week. On a not adjusted basis claims fell -13.5% versus an expected -4.2% and are down -1.1% from last year.

The number of continuing claims fell -55,000 and more than expected as post-holiday/government shutdown-induced volatility in the labor market subsides. The number of continuing claims is back below the four-week moving average and heading lower. Even so, at these levels, the continuing claims are consistent with long-term labor market health and tightening so not overly concerning.

The total number of claims rose by 33,000 to 2.177 million. The increase is in line with seasonal expectations and down -7.7% from last year so well within acceptable limits. The volatility seen in the initial claims and continuing claims data has not passed-through to the total claims figure so I am even less worried about it than I was. Looking forward we can expect to see the total number of claims fall off into the spring until hitting its seasonal low somewhere near 1.4 or 1.5 million.

The Philly Fed's February MBOS is a mixed bag of news. Both New Orders and Shipments saw a wicked slowdown from the previous month while employment levels continue to rise. The headline reading is -4.1, down 23.1 points from the previous month's 17.0, and indicative of contraction within the manufacturing community. New Orders fell -24 points to -2.4, shipments fell -17.0 to -5.3, but employment rose 4.9 to 14.6 as businesses prepare for the spring season. On the inflation front, prices-paid continue to fall and support the idea of no FOMC rate hikes this year.

The Index of Leading Indicators fell -0.1% in January and contrary to expectation. The index had been expected to tick higher a tenth but global deceleration is taking its toll on US activity. Economists at the Conference Board say US GDP is likely to slow to 2.0% by the end of the year, bad news only because growth is slowing. The previous month's read was revised up by a tenth to 0.0%, good news, but it was offset by a downward revision to November. The Coincident and Lagging Indices both increased, the Coincident Index declining to 0.1% while the Lagging Index rose to 0.5%

Durable Goods Orders rose 1.2% in December. This is 0.2% below expectation and a month in arrears, delayed by the shutdown. This is the second month of increases though, following a 1.0% rise in November, and may carry into the New Year. Core-Durables fell -0.7% stripping out defense and aircraft which shows some weakness in general spending. Transportation was up 3.3% and a large part of the increase in total goods orders.

Existing Home Sales fell in January but that lull is already ending or over. Sales fell -1.2% and are down for the third month in a row. This brings the YOY count to -8.5% and to the lowest level in over three years. The lull is or was driven by rising rate fears that are now largely abated, the mortgage application data on Wednesday suggest buyers are still interested and coming back to the market.

The Dollar Index

The Dollar Index showed some resilience in today's action. The FOMC's minutes did little to move the index but today's data had it moving lower in the early portion of the session. Later, optimism over trade and US economic dominance helped support the dollar and push it back above the 30-day EMA. Today's action is the third and most bullish of three tests of support at the moving average and $93.50 level where support appears to be solid. A move up from here may take the index up to $97.00 or $97.25, maybe higher if FOMC majority sentiment continues to favor tightening albeit with patience.

The Gold Index

Gold prices fell today and confirm resistance at $1,340. The metal is giving up gains after the FOMC minutes revealed the committee is in favor of tightening but waiting patiently for the data to tell them when the next move will be. Now that gold has confirmed a peak it is likely to enter a consolidation before making its next move. In the near-term, support may be near today's low, if not $1,320,$1,310, and $1,300 are good targets. If price rebounds the top of the new range is $1,340-$1,350, a move above that might be bullish.

The Gold Miners ETF GDX fell in today's session to create a small red candle and confirm Wednesday's shooting star. The pattern is big enough to be significant and backed up by a sharp divergence in the indicators so price reversal is a high probability. Resistance is now in the range of $23.25 to $23.50 and may be strong. A fall from this level may find support at $22.50 or $22.00 but once begun we may see the sector retrace the last few months of rally.

The Oil Index

This week's EIA inventory data was mildly bearish and oil prices responded in kind. The data show stockpiles of crude are up 3.6 million barrels, about 0.6 million above expectation, but not enough to offset expectations OPEC will tighten the market. WTI fell about -0.75% but remain above the $56 level. Bias is still to the upside, OPEC and its cronies are turning down the spigots so higher prices are all but assured. A move lower will probably find support near $55, a move up may find resistance near $60 and $64.

The Oil Index fell in response to oil's weakness but the move isn't strong. The index is giving up some of its gains as it ratchets its way up to the long-term moving average. The indicators are diverging from the latest series of highs but bullish so there is upward pressure but resistance is near and getting closer. The long-term EMA is my first target for serious resistance but that doesn't mean the index can't fall from where it is if it's going to fall. A move lower may find support at 1,275 and the short-term EMA, a fall below that would be bearish. If the index moves up as is expected, a move above the 150-day EMA would be bullish.

In The News, Story Stocks and Earnings

Hormel reported a mixed bag of results this morning that gave investors indigestion. The processed food company says volume growth is up 1% but mix and other factors produced varying results across segments. Revenue grew 1.3% YOY and missed by a tenth, EPS also missed and by a comparably narrow $0.01. The company maintained its full-year guidance which seems reasonable, the miss was fractional, but the market wasn't having any and sold the stock down. Shares fell more than -3.5% on the news but bounced from the long-term moving average in midday trading to recoup some of the losses.

Nike took a hit today after a high-profile player blew out a shoe on live TV. The player, Zion Williamson, plays for Duke and is a shoe in for the NBA. During the game he put his foot down so hard he sprained his knee and ripped the upper right off the sole. Nike is suitably concerned as their reputation is built around solid athletic footwear. Shares fell -1.3% but this is likely another buy-on-the-dip event like the old what's-his-name scandal from last year, oh year, Colin something or other. I would not be surprised if that shoe was in higher demand now that Zion destroyed one while playing ball on TV.

Shares of Domino's got burned following the release of earnings. The company says revenue grew 21.1% over the last year to $1.08 billion. This is just shy of consensus. The companies earnings came in at $2.62 and missed by $0.07. The miss is due to weaker than expected comp store sales that are partially offset by improving margins. The comp sales were weak in all segments if a modestly positive 2.6% to 5.7%. Regardless of the miss, results were solid enough for management to increase the dividend by 18% which puts yield 0.80%. Shares fell more than -5.0% in pre-market trading and extended the losses to over -8.0% during the day, a bargain some investors took advantage of.

The Indices

The indices gave up some gains today, the bulls tried to claw back the losses but weren't able to. The rally isn't over yet, but it might be if buyers don't step into the market. The way the indices are now, it looks price action is cresting a peak and about to head lower if only because no one is willing to buy. The Dow Jones Transportation Average posted the only gain but it was small, a wee 0.05%.

The transportation index created a tiny doji candle within the range of the previous two candles and the smallest in a series of shrinking candles. The indicators are bullish but stochastic is overbought and MACD is near zero after diverging from the rally so any further upside is highly questionable. The index appears to be hanging in mid-air after exhausting its upward momentum and is just waiting to come crashing down. A move lower may find support at 10,500, a move below that would likely move down to retest support at the long-term moving average.

The NASDAQ Composite fell a little more than -0.60% and set a new low for the week. The index created a small red candle moving down from the recent high and looks like it may be cresting a peak. The indicators are divergent from the high and rolling into bearish crossovers so a consolidation or pullback to support is expected at least. A move lower may find support at 7,400 or 7,250.

The Dow Jones Industrial Average fell nearly -0.70% as late-day weakness sent it to the lows of the day. The blue-chip index created a small red candle moving down from resistance at 26,000 and looks like it may fall further. Today's action has taken the index back below the uptrend line support/resistance and the indicators are rolling into bearish crossovers so there is some downward pressure. The index may move sideways from here but, if not, the first target for support is 25,500.

The S&p 500 fell about -0.65% to create a small red candle. The candle confirms the presence of resistance at a previous uptrend line and signals a peak within the rally. The indicators are consistent with a peak and the possibility of a pullback in prices. A move lower may find support at 2,750 but the moving average near 2,700 looks like a much better target assuming the index does fall.

The market is still in rally mode but the indices look like they've gone about as high as they can go for now. Hope can only do so much. Even if there is a deal to make a trade deal announced soon it won't be soon enough to materially affect 1st quarter earnings. First quarter earnings are expected to show negative growth and negative earnings growth is not a bullish condition for stocks. With that in mind, there is a possibility the market will sell off into the next earnings cycle regardless of the state of the trade talks. If that is the case I would view it as the next buying opportunity because earnings growth will return later this year. I am firmly bullish for the long-term but neutral for the near-term until the market gives a better signal.

Until then, remember the trend!

Thomas Hughes