Introduction

The market took a dive even before the FOMC policy announcement on (more) mixed messages about the trade negotiation. Today's confusing news comes directly from Trump. He told reporters the Administration isn't talking about removing tariffs levied on China, they're talking about leaving them in place for a long time, years even. His reasoning is that we need proofs and guarantees China would uphold its end of the bargain and this is the way to do it.

The comments are in direct contrast to Trump's own words that a deal was coming along nicely, they are also in direct contrast to Beijing's desires. With this latest revelation on trade, it makes sense that Beijing would be pushing back against U.S. demands. Steven Mnuchin and Robert Lighthizer are scheduled to travel to China next week for another round of negotiation, if the talks are going to stall or break-down I think next week might be when it happens.

Market Statistics


The market surged after the FOMC policy announcement but the gains were short-lived. There were four key takeaways from the FOMC policy statement. Number 1, the FOMC left rates unchanged. They cited global risks and tame inflation as the primary reasons.

Number 2, the FOMC plans to end the balance sheet reduction at the end of September. They will begin to taper the runoff in May leaving the mortgage portion of the operation untouched. This will continue until September when all run-down operations will cease.

Number 3, the FOMC has lowered their GDP forecast for this year and next. The committee says 2019 GDP will be about 2.1%, down from 2.3%, while the forecast for 2020 fell only a tenth. The longer-run forecast was unchanged at 1.95.

Number 4, the committee says it will remain patient on expected rate hikes. While labor markets are expected to remain tight inflation projections fell a bit. The committee now thinks there will be NO rate hikes this year and then one the next. The market is now calling a 35% chance for a rate cut by December.



In Brexit news, the Article 50 deadline is less than 10 days away. Theresa May, at the behest of the UK Parliament, has officially asked for an extension of the deadline. The extension must receive the approval of all 28 EU member nations and is far from guaranteed. At this point it looks like the EU holds all the cards, the UK doesn't want to allow a no-deal Brexit and they may not have any other choice. The official EU stance has been, so far, no renegotiation and any request for an extension must come with compelling reasons.

Economic Calendar

The Economy

Mortgage applications are pointing to a rebound in home sales this spring. The number of applications rose 1.6% in the last week, the third straight week of increases, and the third new record in a row. The surge is driven by slowly falling mortgage rates, the caveat is that much of the gains are due to refinancing efforts. The rate on a 30-year fixed has fallen to 4.55% from 4.64% while the average amount has increased. The average loan amount is now $327,000 showing sales are skewed to the higher end of the market. Refi's are up 4% for the week and 3.5% YOY.

The Dollar Index

The Fed was arguably more dovish than the market was anticipating and sent the dollar moving lower. The DXY fell a half percent in the wake of the announcement and looks like it may move lower. The caveat is that the index is still trapped inside a range and there is little reason for it to move outside of it. While the dollar is weakening, so too are the economies of Europe, the UK, and Japan and that is going to keep this index moving sideways over the longer-term. Today's data included a CPI read from the UK that came in a few tenths below expectation. In the near-term a move to $95.50 is expected, a drop below that level may alter my viewpoint.


The Gold Index

Gold prices spiked on today's weaker dollar and may move higher. The caveat is that the spot price met resistance at the uptrend line that may keep the metal from extending the 2018/2019 rally. The indicators are bullish so upward pressure is present, the problem is that the MA may push price action to the side and resistance at $1,340 may be strong. While a dovish FOMC has weakened the outlook for interest rates and the dollar that outlook can only take gold so far, the FOMC is still on a tightening path however diminished it is. I'm still looking for a retest of the $1,280 support which raises the possibility of range bound trading over the next couple of months.


The Gold Miners ETF GDX reversed an early loss after the FOMC announcement. The miners ETF advanced to the end the day with a gain near 2.0%. The candle formed is long and green with a visible lower shadow so has come strength. The caveat is the candle is in the middle of a wide consolidation range with mixed indicators so not quite as strong as it could be. A move up looks likely at this point but resistance is at $23 and $23.50 that may keep the ETF trading sideways over the longer-term.


The Oil Index

Oil prices got a jolt from today's inventory data. Data shows much larger than expected draws for crude, distillates, and gasoline fueling the OPEC driven rally. WTI stockpiles fell nearly -10 million barrels versus the expected build of 0.3 million. Distillates fell -4 million, four times the consensus, while gasoline stockpiles fell 4.5 million, nearly double the forecast. WTI had been down in early trading but reversed when the news was released. The black gold gained a little more than 1.5% in today's session and moved above $60 for the first time in months. The indicators remain bullish so higher prices are expected although momentum is weak. My next target is $64.


The Oil Index gained more than 1.60% after today's inventory data. The data is good for prices, prices are good for earnings, and earnings are good for the sector; Nuff said. The index is now above the long-term moving average and looking bullish. The candle isn't really large but it did close at the high of the day and is supported by the indicators. MACD has confirmed the bullish signal and is moving higher with plenty of room for the index to run. My next target for resistance is at 1,400 although there may be a pocket of sell orders waiting at 1,350. Longer-term I see the energy moving substantially higher as oil prices rise and earnings estimates follow suit.


In The News, Story Stocks and Earnings

Shares of Google extended their rally today despite some bad news from the EU. EU regulators have levied a third antitrust fine against the world's largest search engine, this time for blocking the ads of rival advertisers. The fine is worth $1.7 billion but a drop in the bucket compared to what the company is making. Today's move was supported by yesterday's announced plan to build a gaming platform. The platform would leverage Youtube as a means for spectators to watch game-play (apparently some people like to). Shares of the stock gained 2.0%.


General Mills reported earnings before the bell. The iconic producer of packaged foods reports revenue and earnings above consensus. Revenue was driven by a 1% increase in organic sales along with a 2.3% improvement in margin. Results were mixed across segments with weakness in the EU, Australia, Latin America and China offset by strength in Convenience and Food Services. Guidance for the coming year was also above consensus calling for 9-10% revenue growth and 0-1% EPS growth. Shares advanced 2.5% in the premarket, doubled that gain intraday, but gave up some gains before the close.


Ford is doubling down on plans for the future. The company announced yesterday plans to increase production of SUVs, today the company announced plans to build a new factory for the production of autonomous vehicles. The plan, while bold, maybe a bit premature as it is expected to be operational in only two years. Shares of the stock fell more than -2.0%.


The Indices

The indices were up, down, and sideways in today's trading as hopes, fears, expectations, and reality vie for dominance. Today's biggest mover was the Dow Jones Transportation Average with a loss of -1.30%. The transports gapped down at the open, opening below the pair of moving averages, and moved lower from there. The only good thing about today's candle is the lower shadow which reveals the presence of buyers. The indicators are mixed but more bearish than not suggesting downward movement but within a trading range. In the near-term, it looks like the index will move down to the 10,000 level. In the longer-term, it looks like the 10,000 may be where firm, solid, market support is located.


The Dow Jones Industrial Average was the second biggest decliner with a loss of -0.54%. The blue chips created a small red candle moving down to support at the long-term uptrend line and so far support is holding. The indicators are mixed but momentum is bearish so I would expect to see the uptrend line tested again over the next couple of days. Support is possibly strong, it is confirmed by the short-term moving average, but with the transports leading the market lower, I see this index moving down to touch the long-term EMA.


The S&P 500 closed with a loss of -0.29% after a slightly volatile day of trading. The broad market index created a small doji candle with red body showing indecision but with a bearish bias. Today's action shows support is present along my uptrend line but momentum is bearish and stochastic is rolling over so it may be broken. A move below 2,810 may be bearish for the longer term but additional support targets exist just below along key moving averages.


The NASDAQ Composite posted the only gain in today's action, small as it was. The tech-heavy index closed with a gain of 0.06% after setting a three-day low and a five-month high in the same session. The action shows mounting indecision and resistance to higher prices although the indicators are bullish. Both MACD and stochastic are pointing to higher prices albeit weakly and with divergence. A move higher may be forthcoming but I'm not holding my breath right now.


If there is one thing I can say for certain it is that the market is indecisive. The good news is that one of the causes, the FOMC, is safely behind us for another six weeks (not counting Fed-speak). The bad news is that the main cause of global economic slowing, the U.S./China trade war, is far from over. Yes, there's been progress, sure a deal is getting closer, but no, it isn't coming in the next week or two and there are still hurdles to cross that may be insurmountable. Applying this to what really matters, earnings, we're starting to get some fairly dire warnings on further economic slowing (FedEx) and that my friends will weigh on outlook and equities. I am still firmly bullish for the long-term, still cautiously neutral in the near-term.

Until then, remember the trend!

Thomas Hughes