Comments from Stephen Moore, Trump's pick for the Federal Reserve, sent bond rates to new lows and equity markets followed suit. Moore, who has been critical of the FOMC, say's he's no sycophant to Trump but he would call for an immediate rate cut. While not a confirmed member his comments were treated like he were. It didn't help that the Reserve Bank of New Zealand issued a warning with their policy statement last night. The RBNZ says their next policy is most likely a rate cut reinforcing the idea of a global slowdown and impending recession.
Conversely, in the EU, ECB President Mario Draghi cautioned markets that slowing global growth is not necessarily an indication of recession. The caveat for us is that said signal typically leads the market by quarters if not a year or more, and there is still no sign of an actual recession, only slowing growth. The yield for the 10-year Treasury fell below 2.375 deepening the inverted yield curve.
Secretary of the Treasury Steve Mnuchin and Trade Ambassador Robert Lighthizer are on their way to China. They are going to meet with Chinese Vice Premier Liu He for the third time. The word from the White House is that trade negotiations are still progressing positively, we should get some confirmation of that this weekend (or the opposite). Liu He is also expected in Washington in early April, contingent on the success of this weeks meeting, with a possible meeting between Xi and Trump next month but don't hold your breath.
In the EU the Brexit fight is nearing its endgame. Theresa May is desperately fighting for support of her deal, the only deal available to the UK, and has offered to resign if it is accepted by Parliament. Parliament is voting on a series of issues this evening that will help them determine the course they wish to take. As an outside observer, it seems as if there are but three choices; the May Brexit Deal, a no-deal Hard-Brexit, or no Brexit at all. Ironically, if the UK does go Hard-Brexit they will have much more flexibility in dealing with us and every other nation on the planet except the EU, a fact that may sway Parliament or even the EU to change their minds.
There is at least one sector benefiting from the interest rate scare; housing. With rates on the decline, mortgage applications are surging. Over the last week, the rate on a 30-year mortgage fell another 10 basis points to 4.45%. The number of mortgage applications surged 8.9% and is at another new high. The Mortgage Purchase Index, the Mortage Market Index, and the Refinance Index all made strong gains over the past week. The housing market may still be sluggish but it is gaining momentum, this year could be a stellar year for the builders.
The U.S. Trade Deficit fell in the last month and much more than expected. The deficit came in at -$51.1 billion versus a smaller drop to about -$57.7 billion. The decline is driven by China and an increase in the number of soybeans they are purchasing. It's a small step but a good sign that U.S./China trade negotiations are bearing fruit and that relations are normalizing. A few more data points like that or some positive on the trade deal and the market might stop worrying about a recession.
The Dollar Index
The Dollar Index tried to advance today but fear of slowing growth capped gains. The index extended its move above the short-term moving average to hit resistance at $97 and fall back to break even. The index is still trapped within its range likely to remain there in the near-term. The risk is that there are several potential catalysts including news on Brexit, the Trade Deal, or inflation that may send the dollar moving sharply in either direction. The Brexit and Trade Deal are kind of floating out there in limbo where they could pop out to scare traders at any time, news on inflation is due out on Friday and more likely to miss than beat consensus estimates.
The Gold Index
Gold prices fell about a half percent today. Today's candle shows resistance at the uptrend line and support at the short-term moving average that is likely to keep the metal range bound in the very near-term. Uncertainty over inflation, interest rates, and geopolitics has the metal moving sideways within a new range. Based on the last MACD peak which was quite extreme I am still expecting a retest of the recent low sometime soon but that doesn't mean a test of $1,340 won't come first. The indicators are consistent with range-bound trading so I don't think any big moves are brewing for gold right now.
The Gold Miners ETF GDX fell back from its peak in today's trading. The ETF is showing signs of resistance at the top of its trading range that may keep it from moving much higher. The indicators are weakly bullish but show signs of peaking which are consistent with range-bound trading. A move higher may make it to $23.50 without another catalyst, a break above that level may be bullish. It looks like there is some support at $23.00 but it isn't strong, if prices move below there a drop to the short-term moving average is likely.
The Oil Index
Oil prices fell today but the move was small, the uptrend is intact. Today's move was driven by unexpected inventory data that showed a larger than expected build in WTI storage levels. WTI storage jumped 2.8 million barrels versus an expected draw of 1.1 million. The news is bearish for oil but offset by a much larger than expected draw in distillates. U.S. production is helping to keep oil prices from shooting higher but OPEC's tightening scheme is the stronger force. Couple that with news Venezuela's primary oil terminal is without power and the odds of global supply tightening increase.
The Oil Index fell today as well as it winds up for its next big move. The index is caught between the short and long-term moving averages where it is getting squeezed. The indicators are mixed but with bullish bias and set up to fire bullish crossovers so I am optimistic the index will move higher. The outlook for energy profits is already on the rise with oil prices edging higher and likely to carry the sector higher with it. A break above the long-term EMA will be bullish and may take the index up to 1,400 or higher in the near-term. A fall from this level may be bearish but it would depend on the cause.
In The News, Story Stocks and Earnings
Boeing was able to make a small advance in today's session. The stock bounced from the long-term moving average to form a small green candle as it reestablishes support near the $375 level. Today's move is driven by news the company has a fix for its 737 MAX problem, what it doesn't have a fix for is the political fallout that is only now gaining momentum. The FAA and Boeing are both in the hot seat over the approvals process and Boeing is the only one the government can fine. The fix includes a software update, increase pilot training, and cockpit alerts for the specific problem that caused the two crashes. Safety inspections have not revealed any new issues. Analysts at Citigroup have reinstated Boeing at a buy so this may mark a turning point for the stock.
KB Homes reported after the bell yesterday with mixed results. The company says revenue fell -7% in the last year but EPS beat by a wide margin. More importantly, the company raised its forecast for revenue and profits in the second half citing improving conditions. These comments jibe with what I'm seeing in the mortgage data and may yet be underestimating the strength of pent up demand. Shares of the stock jumped more than 3.0% in today's session but triggered resistance at the $25.00 level.
The Homebuilders SPDR XHB moved up more than 1.0% on mortgage outlook and results from KBH. The ETF is moving up from a strong support level and confirmed by the indicators so higher prices are expected. The stochastic and MACD are forming a relatively strong bullish trend-following signal so we may see this ETF make an extended run to the upside. My first target for resistance is $39.50, a move above that could run as high as $46 in the near to short-term.
Lululemon reported after the bell and there are only three things to say about it. The company reported strong revenue, strong earnings, and gave strong guidance above the analyst's consensus. Results are driven by strong comps, 17%, that are above the consensus as well. Shares of the stock rose 10% on the news and likely to move higher longer-term as the company executes on its strategies.
The indices fell fairly hard this morning but didn't hold the gains. A midday bounce from support more than halved the day's losses in most cases. The only index to close with a gain is the Dow Jones Transportation Average and it managed to move higher all day. The transports created a medium-sized green candle moving up to test resistance at the pair of moving averages and resistance was there. Today's action may be bullish and is loosely supported by the indicators, the problem is that price action is still below both moving averages and there is little impetus to buy. A move above the moving averages may be bullish, a fall from today's close would confirm resistance and a possible return to recent lows.
The day's biggest loser is the NASDAQ Composite. The tech-heavy index shed about -0.60% at the close and shows both resistance and support in a single candle. The candle is large and red but mostly shadow and sitting above support. Support is at the short-term moving average and may be strong enough to cause a bounce but the indicators don't confirm that outlook. The indicators are both pointing lower following bearish crossovers which is consistent with lower prices. A move below the short-term EMA would be bearish and could take the index down to 7,400, 7,200, or 7,200.
The S&P 500 closed with a loss of -0.39%. The broad market index closed below my uptrend line and confirm resistance at this level. The candle points to lower prices and that is supported by the indicators which are both bearish and gaining strength. The caveat is that there is still support at the short-term moving average that may keep the index from falling much further. A fall below the 30-day EMA would be bearish and may take the index down to 2,730.
The Dow Jones Industrial Average closed with the smallest decline, only -0.12%. The blue-chips fell more than that but were able to regain most of the loss by the close. The candle is a medium-sized doji showing resistance at a long-term uptrend line and support at the short-term moving average. The indicators are bearish and gaining strength so it looks like support is the more likely loser in this battle. A move below the 30-day EMA would be bearish and may take the index down to 25,100 and the long-term EMA.
The indices are still trying to decide what to do. There are signs of a possible recession, economic data is slowing, but the outlook for growth remains positive. If near-term trends in economics persist we may indeed see a recession but that still won't be for several quarters at least unless something drastic happens to curb activity. The more likely scenario, assuming trade relations don't worsen, is that global economic growth will stabilize as we go into the summer and fear of recession will fade. In the meantime there are many reasons to expect some volatility and a sell in the market, negative earnings growth in the first quarter, Brexit, Trade Negotiations are only three of them. I remain firmly bullish for the long-term and neutral for the near-term.
Until then, remember the trend!