Introduction

Economic Data, the FOMC, and Trade News failed to move the market. Dare I say it? It looks like economic conditions, the FOMC, interest rates, and the trade deal are priced into the indices. That leaves only one thing and that is earnings. With the peak-season due to begin in two days, there is a lot riding on what could be, is likely to be, the worst quarter of earnings growth in two years.

Market Statistics


On the economic front, the CPI Consumer Price Index was mixed. Headline inflation was hotter than expected and rose the most in one month in over a year. Balancing that was a core-reading stripping out food and energy that shows inflation is still rising at only a tepid rate. This at once suggests the FOMC may have to raise rates later this year while reinforcing the need for patience, nothing new in that.

The FOMC minutes were released this afternoon and they did not give up any new insights either. The Fed, in their discussion, left the door open to future rate hikes with comments to the effect 'patience' does not preclude 'data dependent'. If the data says hike rates the rates will go up. A few members see possibility rates will need a modest increase by the end of the year. The majority agree no hikes is the more likely course of action given the evolution of risks and data. The Fedwatch Tool is predicting a 55% chance of rate cut by the end of the year.


Regarding growth, the FOMC says that GDP will bounce back solidly in the second half of the year. They also give themselves a nice pat on the back for that citing their patience as a driving cause. The FOMC's patience is certainly helping the economy to bounce back, the lack of it is also a big reason why the economy slowed in the first place.

The committee also talked about the balance sheet wind-down. They revealed a desire to remove uncertainty as a reason for producing a timetable at the lasts meeting.

Trade talks wear on and progress continues to be made. Treasury Secretary Steve Mnuchin has been in near-constant talks with Liu He and making great progress. According to him, the two sides have just about agreed on the enforcement mechanism which includes enforcement offices to be set up by both sides. Other than that little detail was given other than a desire to end talks quickly. That said, Mnuchin also says there is no timeline and talks will take as long as they take.

In international news, the IMF downgraded its global growth forecast for the second time this year. The IMF says world GDP is going to be 3.3%, down from 3.5%, and possibly will be downgraded again. The downgrade notes downside risks and calls on world leaders to make a coordinated effort to stimulate growth. Reading between the lines the report says world leaders need to get their trade issues worked out.

Economic Calendar

The Economy

The Consumer Price Index was a mixed bag for sure. The headline figure rebound from last month's long-term low in the strongest one-month gain in over a year while core CPI continues to moderate. Headline CPI jumped 0.4% MOM and 1.9% YOY while core CPI rose only 0.1% and 2.0%. Both core and headline inflation are well below the peaks set last year and give little reason for the FOMC to hike rates. This month's increase is due in large part to energy and gasoline, the energy index rose 3.5% and was 60% of the total increase in consumer prices. Tomorrow we'll get the latest read on PPI.


The Dollar Index

The Dollar Index was up down and sideways on today's news. On the one hand, the data and the FOMC are on track for no rate hikes this year, far more dovish than what the market was expecting just a few months ago, while on the other the ECB is also getting dovish. The ECB held rates steady in today's policy announcement and made no changes to their planned TLTRO III. The DXY ended the day slightly lower after experiencing a volatile session. The move stopped short at the short-term moving average where it may find support. Regardless, the DXY is trapped within a trading range and not likely to exit any time soon.


The Gold Index

Gold prices moved up with today's dollar weakness and set a new near-term high. The spot price is moving up from the $1,300 level and looks like it will move higher. The indicators are bullish and rising which is consistent with higher prices but the indications are weak. A move higher may find resistance at $1,320 or, if that is broken, near $1,340. In either case, gold prices will still be range bound.


The Gold Miners ETF moved contrary to the underlying commodity falling in today's action. The ETF shed nearly a full percent in a move suggesting another peak has been reached. This is the 5th peak within the current trading range but may not indicate a price reversal. The indicators are still a bit weak and mixed but basically showing a bullish entry signal that could take the ETF up to the top of the range. If the GDX is able to move up resistance is at $23.00 and $23.50. If not, support is at the short-term moving average and $22.00.


The Oil Index

Oil prices held steady despite bullish inventory data. The level of WTI in storage fell -1.5 million barrels versus an expected rise of 0.20%. Compounding this was a massive -7.7 million barrel decline in gasoline inventories. WTI rose a little more than 0.35% in today's trading and did not set a new high. Despite this, gold looks like it is preparing for another push higher, this time to $68.


The Oil Index moved up in today's trading and confirms support is growing along the short-term moving average. Today's candle doesn't set a new high but does appear bullish and part of a consolidation and continuation of recent trends. The indicators are rising and momentum is bullish so higher prices are expected. Resistance is just above today's high, a break above that would be bullish too. When resistance breaks a move up to 1,400 is expected.


In The News, Story Stocks and Earnings

Delta Airlines announced earnings before the opening bell. The company beat on the top and bottom lines sparking a massive pre-market surge in stock prices that fizzled out during the day. The company says strength was driven by improvements across the operation, higher premium ticket pricing, and savings in maintenance/repair/overhaul. Guidance for the full year was raised but to a wide range around consensus which may have something to do with today's volatility. The stock closed with a nice increase but the candle leaves a lot to be desired.


Bed, Bath & Beyond reported earnings after the bell. The specialty home products retailer says comps fell -1.4% but guidance was strong. Slowing in-store traffic was offset by better than forecast digital sales as company initiatives bear fruit. The CEO says 2019 is going to be a good year because EPS growth is going to stabilize and accelerate. He set full year guidance at $2.12 versus the expected $1.85 and shares jumped 4% on the news.


The VIX fell with today's action but it still doesn't look great. Volatility is low relative to last year's big spikes but still well above the bull market lows and flirting with a reversal. Today's candle retreat to support at 13.30 where fear has had a hard time getting by. This marks the 6th time prices have halted at this level in the last 6 weeks and the indicators are turning bullish. Both MACD and stochastic are mildly bullish now, a move in the VIX above the short-term moving average would confirm the signal they are suggesting. With earnings season set to kick off in two days and a sell-the-news-event brewing with trade, I think the VIX is giving us a warning that should be noted; fear could spike at any minute, and it could be a big one.


The Indices

The indices drifted sideways and did not look very strong about it. Most are sitting near their recent highs, the NASDAQ Composite set a new one. The tech-heavy index created a small green candle with barely visible upper shadow creeping up to set a microscopic new high. The move may be bullish but it looks weak and tentative and the indicators aren't great either. MACD momentum is bullish but very weak and diverging from the 2019 rally while stochastic is high in overbought territory. My misgivings may be overblown but with the all-time so close to hand getting bullish now isn't really worth it anyway. If prices move to set a new high, break to new highs, and hold them we start talking extended rally once again.


The Dow Jones Transportation Average posted the second-largest advance in today's session, about 0.40%. The transports formed a small green candle showing support at the previous high but again, the indicators do not look great. Momentum has diverged from the new high while stochastic is high in the upper signal zone suggesting weakness and overbought conditions. This situation may only lead to consolidation but could lead to full reversal should earnings season not pan out.


The broad market S&P 500 gained about 0.30% in today's trading to form a small green spinning top with upper and lower shadows. The index did not set a new high and does not look particularly bullish despite sitting above support. The indicators are both peaking out with the index and suggest a move to test support is imminent. A move to 2,880 is possible, a move below that level would be bearish at least for the near-term.


The Dow Jones Industrial Average closed with the smallest gain and hardly any gain at all, only 0.02%. the blue-chip index formed a small spinning top doji near yesterday's low and looks like it will move lower. The indicators are both showing bearish crossovers consistent with a pullback or test of support that could move the index down to 26,000 or lower in the near-term.


The indices are giving mixed indications no two ways about it. There are signs the market is peaking but whether that is a near-term peak of consolidation or a longer-term peak of reversal is hard to say. I would expect to see similar action tomorrow, quiet and without much movement, and then a possibility of bigger moves on Friday. JP Morgan and WFC are going to report earnings before the bell on Friday and those are going to be important events. Their results and their outlook will set the tone for the entire season. I am firmly bullish for the long-term but neutral and cautious at least until after Friday mornings earnings reports.

Until then, remember the trend!

Thomas Hughes