Boeing is facing increasing trouble as one country after another grounds the 747 Max-8. Canada, the U.S., and the EU have joined a growing global movement to control public risk. Regardless the reason for the crash the fact two jets of the same model were involved in incidents raises concern for public safety. More than one official including President Trump cited new information connecting the two crashes. Because the 737, Max-8, and Max-9 represent a lion's share of Boeing's business a hiccup in business is all but assured.
There were plenty of other events for the markets to focus on but the Boeing/737 issue topped the list. Another Brexit setback hit the market last night late when the UK Parliament voted down May's amended deal. This means the UK is faced with a no-deal Brexit, a hard-Brexit, or requesting an extension for them to figure out some other option. Parliament did manage to vote against a no-deal Brexit so there is some hope, slim as it is, a smooth transition is still possible. The bad news is, based on EU President Juncker's comments there is little chance a new deal can be struck, so parliament has a job cut out for it.
This week is quadruple witching, the week in which monthly and quarterly options for equities, indices, futures, and commodities expire simultaneously. This event may play a roll in today's upward market movement, it is also a possible target date for the market to alter course so caution is the name of the game.
We received three economic reports today and they are all for January. The first, Durable Goods, rose 0.4% and well above the expected -0.10%. The previous month was revised higher which adds some strength to the January data and helps get the first quarter off to a better than expected start. This is the third month of durable goods increases. Ex-transportation goods orders fell -0.1%, ex-defense orders rose 0.7% showing strength in private transportation investment. Shipments, however, fell -0.5% and the first time in three months as manufacturers struggle to keep up with demand.
Construction spending rose more than expected and blew away estimates. The headline spending figure rose 1.4% versus an expected 0.5% as government spending boosts the market. Spending is up only 0.3% YOY. Residential spending fell in January, down -0.3%, despite lower interest rates, rising wages and pent up demand and is down -5.7% from last year. Private spending posted a small increase, 0.20%, but is down -2.0% from last year.
The Producer Price Index was a bit weaker than expected which is both a good and bad thing. Headline PPI came in at 0.1% for the month versus an expected 0.2%. While good in terms of the FOMC and rates hikes it does confirm slowing in the economy. The 1.9% YOY rate will help keep the FOMC patient but the 2.3% core YOY rate is something that bears closer attention.
The Dollar Index
The Dollar Index extended its fall in today's session. The weak PPI data did nothing to support the dollar despite political unease in the EU. The index fell more than -0.42% on the news and created a large red candle. The candle has broken the short-term moving average, near the midpoint of the trading range, and looks like it will move down to the bottom of the range near $95.50. The indicators are consistent with a move toward the bottom of the range are not strongly bearish so support is expected near $96 or $95.50. With the FOMC meeting set for next week, I'd expect to see the index continue within the range of $9.50 to $97.50 over the next few days at least, maybe longer. A move below support or above resistance would be significant.
The Gold Index
Gold prices moved up on today's weak dollar. The spot price gained about 0.70% to form a medium-sized green candle. The candle is breaking above resistance at the $1,300 level, the short-term moving average, and an uptrend line so the move has some strength. Because the last downward move created an extreme bearish peak I expect to see the low at $1,280 retested sometime in the near to short-term, when exactly that will happen is hard to say. The next target for resistance is $1,320 but a move to $1,340 is possible with the dollar moving lower, either of those targets could produce strong enough resistance to send gold prices back to the low.
The Gold Miners ETF GDX advanced in today's session but the move wasn't strong and may not get much higher. The ETF closed with a gain near 0.65% to create a small doji candle. The doji shows resistance just below the $23.00 level and a possible peak within a consolidation range. The indicators are mixed showing signs of rising prices with a bearish bias overall. A move up, if it closes above $23.00, could retest $23.50 but higher than that is doubtful without gold setting a new high too. If resistance confirms at$23.00 a move back to $22.00 or $21.50 is likely.
The Oil Index
Oil prices rose nearly 3.0% after U.S. inventory data shows a much bigger draw than expected. WTI advanced $1.32 on news inventories fell by 3.9 million barrels in the last week. The draw isn't large but is more than expected and compounded by a 4.62 million barrel drawdown in gasoline. The weak data is due to a variety of factors including OPEC's tightening efforts and sanctions on two key exporting nations. Now that WTI is moving to new highs I expect to see it continue higher for the near to short-term. My next target for resistance is $60 where is may enter consolidation.
The Oil Index gained about 1.5% on the strength in oil prices and looks like it may move higher. The caveat is that the index is still below potentially strong resistance at the 1,300 level and then the long-term moving average. The indicators are mixed but turning weakly bullish and the move is supported by rising oil prices so a touch to 1,300 or the 150-day EMA is possible. A break above the 150-day EMA would be bullish.
In The News, Story Stocks and Earnings
JP Morgan made waves in the banking sector when it announced plans to open 90 new branches in its competitors back yards. The bank says it will open locations in and around Washington D.C., Boston, Philadelphia and key markets in North Carolina, Tennessee, Missouri, and other mid-western states. Branches are planned near large universities as well as lower to middle-income areas with plans to broaden exposure in those areas next year. Shares of the stock were flat in today's session.
Aurora Cannabis announced a deal that will help seal it's position as the top pot stock this year. The company has entered into a strategic partnership with Nelson Peltz to formulate plans for future expansion. Mr. Peltz was awarded options to buy 20 million shares of the stock, shares which gained more than 10% on today's news. Aurora is one of Canada's top-three cultivator/producers and working aggressively to dominate markets at home, in the U.S. and overseas. One example is the companies purchase of Whistler Medical Marijuana, Whistler is one of Canada's oldest brands and the only cultivator with an organic license.
The VIX fell in today's session and is now at a semi-critical level. Today's low is consistent with the recent low where support has so far been present. This level may produce a reversal in fear and an increase in overall market volatility but the indicators so far do not indicate that. The indicators are both consistent with falling prices so I would expect to see the VIX trend sideways or test support in the near-term. A move below today's low, near 13.50, would be bearish for fear and bullish for the broader market.
The indices extended their bounces in today's session but the moves aren't convincingly bullish. Resistance is evident in most cases. Today's leader is the Dow Jones Transportation Average with a gain of 1.02%. The transports created a medium-sized green candle with a long upper shadow that points to resistance at the 10,500 level. The indicators are consistent with a bullish swing in momentum but not yet firing a bullish signal so upward movement is questionable. If the index does move up resistance is likely at 10,500, a move above that would be bullish.
The NASDAQ Composite posted the second largest advance at 0.69%. The tech-heavy index set a new high with today's action but the candle is small and the upper shadow reveals resistance is present. The indicators are consistent with upward drift but not yet showing a strong signal so I am cautious with this one. A move up may reach 7,800 but there is potential for resistance from today's close all through that target.
The S&P 500 also advanced 0.69% in today's session. The broad market index created a small green candle with long upper shadow showing resistance at my uptrend line and the 2820 level. This is potentially a very important level as it may keep the S&P 500 in bear-market conditions in the near to short-term. A fall from this level may confirm the top of a trading range with the December low as a target for support. A move up would confirm bull market intent if not an actual bull market, my target would then be 2,870 and the January 2018 all-time high.
The Dow Jones Industrial Average posted the smallest gain and formed the smallest candle in today's session. The index advanced 0.58% to form a small green candle with visible upper and lower shadows. The candle is above support targets at the short-term moving average and long-term uptrend line so looks bullish. The indicators are still mixed so caution is warranted. A move up may find resistance near 26,050, a move above that would be bullish.
The market moved up, again and again, I am skeptical, there just isn't anything to drive the market higher right now. The updraft may be caused by a lack of bad news, it may be caused by dwindling fear, it may be caused by fundamentals but it's hard to say, there is just too much clouding the market right now to be sure. With the FOMC meeting next week, the Brexit falling apart, slowing global growth, and trade uncertainty lingering in the air it's a good time to sit on the sidelines until a little more certainty arises. I am firmly bullish for the long-term but neutral for the near-term.
Until then, remember the trend!