Introduction

Economic data confirms activity slowed from last year but it wasn't as bad as feared and signs of a rebound are already emerging. Today's news includes data from China and the FOMC's latest Beige Book, both of which suggest economic activity is already re-accelerating. The bad news is that earnings, while better than expected, haven't been enough to spark a rally. The outlook from companies like Netflix have fallen short of consensus estimates and cast a shadow of doubt on the season's potential.

Market Statistics


New from China is that GDP grew faster than expected in the first quarter. The 6.4% reported is a tenth hotter than expected and helps assuage fear of economic slowdown. The March Industrial Production and Retail Sales figures back up the GDP read and suggest activity is accelerating in the 2nd quarter. Both Chinese Retail Sales and Industrial Production came in above expectations and the previous month's read. The risk in China now is that the PBOC will begin to rethink the need for additional stimulus since it looks like what they've already done is working.

The Beige Book was little changed from the previous month. Overall U.S. activity grew at a slight to moderate pace but there is a ray of light. While most districts reported economic growth as unchanged a few say the activity is accelerating. The caveat is that outlook did not improve so economic re-acceleration is likely to be restrained without some other catalyst for growth. Retail sales were sluggish but held steady, tourism was good, home sales are stronger, and manufacturing conditions are favorable although trade uncertainty lingers.

On the employment front, the Beige Book says employment continues to grow and wages are on the rise. Demand for high-skilled labor is highest but shortages are seen across the spectrum. Labor market tightening is adding to wage pressures as employers are forced to offer higher wages and benefits. Labor market tightening is also said to be restraining growth in some areas of the country and segments of the economy.

The Beige Book also shows that prices are rising. The word used to describe inflation is modest as tariffs, freight costs, and wages cut into margins. The bad news is that tariffs are adding to inflation, the good news is that rising freight costs and wages are a sign of economic expansion, inflation tied to them is healthy so long as it is managable.

With all that is going on in the market, it was comments from United Health CEO David Wichman that had today's indices moving. He says proposals from Democratic lawmakers like Medicare For All will surely jeopardize peoples relationships with their doctors, destabilize the nation's health care system, and limit clinicians ability to practice medicine. His comments had the entire health care sector down nearly -3.0%.


Economic Calendar

The Economy

Mortgage applications fell -3.5% over the last week but that is not important. The decline is small compared to gains in the last few weeks and not unexpected. Further, the decline in mortgage apps is due solely to a decline in refinance applications and offset by a 1% increase in applications to buy. Applications to buy are now up 7% YOY and sitting at a 9-year high. Lower interest rates and pent up demand are fueling the gains and likely to sustain this growth into the foreseeable future. The risk, of course, is in the FOMC and the data, and the two of them guide the market's view of inflation.

Wholesale Inventories rose in February from an upwardly revised January figure. Inventories rose 0.2% MOM and are up 6.9% YOY. The pace of sales also increased and this month, for the first month in several, outpaced the inventory build. Sales increased by 0.3% as activity in the broader economy begins to re-accelerate. The increase in sales can be seen in the Sales-to-Inventory Ratio. The ratio has begun to roll over and sign inventory growth is slowing. With activity re-accelerating and inventory growth slowing and/or about to decline it's logical to assume manufacturing activity will pick up to meet the demand.


Tomorrow's economic calendar is full. There is a read on Retail Sales, the Philly Fed's MBOS, Flash PMI from Markit on manufacturing and services, Business Inventories, and the Index of Leading Indicators along with the weekly jobless claims. This bundle, as a whole, is a fairly broad reflection of U.S. economic activity; if it confirms what we're already seeing in other data the second half of the year could be really good.

The Dollar Index

The Dollar Index edged lower in today's session but basically is holding steady near the middle of its trading range. Today's data was dollar positive but not enough by itself to tip the balance in favor of the bulls. U.S. economic activity has stopped slowing and may be rebounding but so has that of China, the EU, and the UK. With this situation still in place, that of U.S. data offset by global data, the DXY is likely to remain range bound in the near-term. The top and bottom of the range are $97.50 and $95.50, no change there, but it looks like the top may be retested again before the index moves lower. A move above $97.50 is not expected unless tomorrow's data is strong and data from abroad comes in weak.


The Gold Index

Gold extended its fall below $1,280 in today's action and in so doing has confirmed resistance at a level that was once market support. The metal is losing is luster in favor of equities as global data points to less slow-down than previously expected. The metal shed only a quarter percent in today's action but set a new low and below resistance. The indicators are bearish and pointing lower so lower prices are expected. My target now is $1,260 and possibly $1,240 depending on data, events, etc. The risk is that stochastic is already nearing oversold levels which sets up the possibility for a rebound should the right catalyst emerge. I'm thinking a set-back in trade talks, a weak data point, weak earnings outlook, Fed-Speak, Trump-Speak, just to name a few.


The GDX Gold Miners ETF fell a full percent in today's action. The ETF created a long red candle moving down to hit support at the bottom of its range at $21.50. The ETF is also supported by the long-term moving average which is sitting exactly at the bottom of the range. The indicators are bearish and gold is indicated lower so a move lower is expected. Support may be strong at the $21.50 level and may produce a rebound. If so I would pay attention because this ETF often leads gold with its bigger moves. A fall below $21.50 would be bearish and likely take the ETF down to $21.00, $20, and $19.00.


The Oil Index

Oil prices moved lower in today's session but are basically holding steady near the recent high. WTI has been in a small consolidation band over the past week or so and set up for its next move. With OPEC+, the Venezuelan and Iranian situations, and better than expected data supporting the market a move up is what I expect over the short to long-term. In the near-term, there may be a small correction or profit-taking event. The indicators are bullish but consistent with a peak so it would not be out of place for prices to pull back.


The energy sector is beginning to percolate. Rising oil prices are fuel for rising earnings forecasts and that is what drives stock prices higher. The XOI Oil Index fell in today's trading but remains near the freshly set high and consistent with a rising market. The index is slowing edging higher week by week and building up to what I think could be a nice rally. The candles, the moving averages, and the indicators are all set up to produce a textbook move that could easily send this index up to retest 1,600 or +28%. The only question now is if oil prices follow through on the OPEC+ Call or not.


In The News, Story Stocks and Earnings

Morgan Stanley reported before the bell and beat on the top and bottom lines. The bank says Q1 adjusted EPS is $1.33, $0.13 above consensus. The GAAP EPS include a net tax benefit not seen in all quarters so was left out for comparison reasons. The bad news is that revenue was down from the prior year in what management described as a slow start to the year. Institutional Securities, Investment Banking, and Trading revenues all fell but were offset by growth in NII, Wealth Management and Investment Management. Earnings were also helped by lower compensation expenses but that should not be expected to continue in today's labor market.

Morgan Stanley also says it feels good about guidance. The company is looking for mid-single digit loan and NII growth despite the flat yield curve and interest rate uncertainty. A healthy pipeline of deal-making is also noted as a driver of future results. Shares of the stock rose 2.6% on the news.


Facebook announced today that it was working on a new device to rival Amazon's Alexa and Apple's Siri. The tool would help users interface with the Internet and help Facebook collect more data, and expose you to more risk. Despite the risks, I am sure people will flock to it so Facebook is likely to turn out a winner. Social media is on the outs and regulators are ready to swoop so Facebook needs a strategy for change or else go the way of websites like Yahoo that are now irrelevant. Shares of the stock closed with a small loss but set a fresh 8-month intraday high before the close.


Las Vegas Sands reported after the bell and delivered a solid beat. Not a jackpot but enough to keep investors interested. Adjusted EPS of $0.91 beat by $0.04 while revenue rose 2.0% and also beat estimates. EBITDA grew 8.7% or better across all properties with revenue and EPS strength driven by the integrated resort property in Macau. Good news within the report includes updates on the progress of two other major projects and favorable outlook for the remainder of the year. Shares moved up nearly 4.0% in after-hours trading.


The Indices

The indices were mostly flat and mixed in today's session. There is one index however that move up 1.0%. The bad news is that even with that 1.0% gain the chart on the Dow Jones Transportation Average does not look good. The candle is a nice little shooting star doji right below a major resistance point; all it will take is a drop in tomorrow's action for this to turn into a Shooting Star Doji reversal. The indicators are bullish but not strongly. Momentum is weak and stochastic is showing a bearish crossover that could spell trouble. A fall from this level would confirm resistance and the possibility of a deeper correction. If so my targets for support are 10,750 and then 10,500.


The S&P 500 posted the largest decline at -0.22%. The broad market index opened with a small gain but fell throughout the day to form a medium-sized red candle. The candle forms a Dark Cloud Cover with the candle before it and may lead the index lower in the next few days. The indicators are showing bearish crossovers that confirm the presence of selling pressure. A move lower is expected over the next few days, my first target for support is near 2,875, a fall below that could lead to a much deeper decline.


The NASDAQ Composite closed with a loss of only -0.05% but it too formed a Dark Cloud Cover. This index looks like a textbook example of an overextended market at its peak and about to pull back. The candle signals reversal and that is backed up by the indicators. The indicators are both showing bearish crossovers with an index well extended from reasonable support at the short-term moving average. Even if this index is still in an uptrend and heading higher I would expect to see prices consolidate at this level. A fall from this level would be bearish and may take the Comp down to 7,790 or 7,500 in the near to short-term.


The Dow Jones Industrial Average posted the smallest loss at -0.01%. The blue-chip index is still in consolidation near the recent high and it is indicated higher. A move higher is possible but not expected in light of what I'm seeing in the other indices. A move sideways or lower is more likely; my target for support in that event is 26,000.


The market has been rallying for a long time, since the end of December, and it looks extended. It has looked extended for some time and it has thrown off at least one reversal signal that failed. I have been anticipating a pullback and possibly correction to December's lows and this may be it. If it is there will be a much better signal to sell on than what we're seeing today. When that signal comes, if it comes, I'll be ready to sell for some short-term gains. The slowdown may be over but the reacceleration has yet to begin. I am still firmly bullish for the long-term.

Until then, remember the trend!

Thomas Hughes