Introduction

The Mueller Report was released today, in a redacted version, and the market yawned. While Mueller's findings are disturbing in a broad sense what he discovered isn't any more than what we already knew; Russia interfered with the election and Trump tried in his bumbling way to obstruct the investigation. If you've read James Clapper's memoir you already knew that Russia has meddled in every single presidential election since the cold war began. Russian meddling has gone so far as to directly offer aid to would-be presidents and so far none has accepted.

Market Statistics


Mueller concludes yes, Russia was interfering and yes, the Trump campaign was aware of it. While Mueller was able to conclude the Trump Campaign thought favorably of Russia's efforts to discredit Hillary Clinton it did not collude with Russia in the process. According to the report collusion by definition is an agreement to pursue a course of action, tacit or implied. Regarding obstruction of justice; Mueller says there is substantial evidence Comey's firing was due to his refusal to say the Russia investigation was not about the President himself. For an ordinary person, this would be obstruction of justice, for a sitting President, it means Congress will have to decide if it's worth pursuing.

A round of mixed data from abroad added a little volatility to today's pre-market action. Data from the EU shows manufacturing continues to contract across the region. The all-EU manufacturing PMI came in at 47.8, down a tenth from the previous month, and deep in contractionary territory. The good news is that services PMI was strongly positive and that helped bring the composite PMI into positive territory as well. In the UK, retail sales were much stronger than expected in the last month rising more than 1% MOM and nearly 7.0% YOY.

In trade news, there is word the Chinese are eyeing Trump's travel calendar looking for an opportunity to have a Trump/Xi trade summit on neutral ground. The most likely scenario is Trump's trip to Japan which is scheduled for late May. This trip would be ideal because it puts Trump and Xi close together at a time that fits when the market expects a deal to happen.

Earnings season is in full swing and the broad run of reports are better than expected. The problem is that too many of them provide a weak outlook for the coming year, cite uncertainty about trade, uncertainty about interest rates or a combination of all three.

Economic Calendar

The Economy

The U.S. Retail Sales figures were pretty good for March. Headline retail sales rose 1.6% and beat consensus by 0.9%. Retail sales are now up 3.6% YOY. At the core level, ex-autos sales are up 1.2% MOM and also 3.6%YOY. Retail sales ex-autos and gas are up 0.9% MOM and 3.5% YOY. Sales at retail outlets were led by digital which is up more than 11% for the month. Any way you slice it the figures show strength in the consumer.


The labor data is fantastic and points to ongoing strength in retail sales. The initial jobless claims figure fell -5,000 and more than expected to hit 192,000. This is another new low and dates back to September 9, 1969. The previous week was revised up by 1,000 but who cares, the four-week moving average is falling and just above its own long-term low. On a not-adjusted basis claims fell -0.4% versus an expected gain of 2.0%. On a year-over-year basis claims are down -13.5%. This is the widest margin in YOY data we've seen in months. It shows re-acceleration and tightening within the labor market. The spring hiring season is here and its a good one.


The continuing claims figure fell -63,000 to 1.653 million. This is not a new low but close enough in my opinion. The continuing claims figures have fallen off drastically in response to market tightening and are likely to hit a new record in the next week or two. The four-week moving average of continuing claims is also heading lower, the concern I expressed a few week's ago was misplaced.

The total claims figures fell as well but the decline was less pronounced. This figure lags the initial claims by two weeks so nothing to worry about yet. Regardless, the total claims fell by -46,767 in a seasonally expected move. On a year-over-year basis total claims are down -7.1% which shows tightening within the market but at a slower pace than in the previous year. Based on what I'm seeing in the initial claims and continuing claims I expect to see this figure make a big plunge very soon. The takeaway; labor markets are still strong, U.S. economic expansion is still sucking up workers, and that is fueling consumer health.


The Philadelphia Federal Reserves Manufacturing Business Outlook Survey is the only sour note in today's chorus of data. And even it isn't really that bad. The headline activity index fell to 8.5 in the last month which was a bigger than expected drop. That said activity within the Philadelphia region continues to expand just at a slower rate. Outlook for future business also fell but remains high relative to trend, and in position to rebound along with other economic data.

Within the report, the New Orders Index jumped 14 points to 15.7 and the highest reading in months. Shipments, delivery times, and inventories all fell but inventories at least can be attributed to strength in sales. On the inflation front, prices paid by manufacturers edged up slightly while prices received fell. On the employment front, hiring moved up 5.1 points to 14.7 while the workweek index rose 1 point to 11. 2.


The Index of Leading Indicators confirms a rebound in economic activity and possibly a strong one. The index rose 0.4% in the last month and is up 0.3% from the previous month. The coincident and lagging indicators both increased by 0.1% and have been positive for months.


The Dollar Index

The Dollar Index got a boost from today's data but the gains were capped. While domestic data is stronger than expected there are still signs of weakness and what strength there was is offset by data from abroad. The data from abroad, including stronger than expected labor data from Australia, is generally dollar negative but also contained evidence of weakness. The DXY moved up nearly a half percent but halted at the $97.50 level. This level may keep the index contained in the near-term so I'd wait for a clean break of resistance before getting bullish. The indicators are set up to fire a bullish signal upon a break of resistance but have not confirmed the move yet. If resistance is confirmed instead a move lower is likely.


The Gold Index

Gold prices held steady in today's session despite the strong move in the dollar. The metal is under pressure from a stronger dollar and better than expected data but the move lower may have run its course. The dollar is sitting at a resistance level that has been tested and confirmed repeatedly in the past and fundamental conditions haven't changed so it makes sense to think gold will remain range bound as well. The indicators are consistent with a bearish peak and MACD is divergent from the new low so it's not technically out of the question for gold to move higher. If gold makes a rebound resistance is likely at $1,285 and $1,300. If gold fall from this level a move to $1,260 is likely.


This could be a make or break moment for the Gold Miners. The Gold Miners ETF GDX fell -2.0% intraday to break support at the bottom of its trading range. Support was confirmed by the long-term moving average which has also been broken. The indicators are bearish so a deeper move lower is possible but I'd like to see another close or to below $21.50 before committing to that outlook. If gold prices are able to rebound there is every reason to expect the GDX will follow suit.


The Oil Index

Oil prices edged higher on signs of market tightening. News the Saudis cut exports to just under 7 million barrels reinforces OPEC's plans to raise prices. The news comes on the heels of weaker than expected U.S. inventory figures that showed unexpected drawdowns across all major categories. Today's action was not strong, WTI formed a small candle and did not set a new high, but it is bullish within the consolidation range. The indicators are still mixed but stochastic is showing a bullish trend-following crossover and MACD is not far behind so higher oil prices may be coming soon.


The Oil Index continues to consolidate just above the long-term moving average. The index is supported by rising oil prices but having a hard time gaining momentum as is the underlying commodity. Slow-growth concerns and economic uncertainty are dragging on the demand outlook. When that changes we may see oil prices go parabolic. Until I am still expecting a slow to a steady rise in the Oil Index while OPEC keeps production levels low and sanctions on Iran and Venezuela are in place.


In The News, Story Stocks and Earnings

Facebook, plagued by privacy and ethics issues, announced today it had inadvertently uploaded the contacts data of up to 1.5 million of its users. This is in addition to inadvertently allowing its employees access to a searchable database of millions of Instagram users passwords. Facebook says an internal investigation concluded no improper use was discovered but so what? We can't trust what Facebook says and whether or not the data was used improperly is not the point, private personal information including passwords are not safe on Facebook. Shares fell a marginal -0.25% but may be heading lower.


American Express reported before the bell and sparked a little bit of volatility in the stock price. The company says adjusted EPS came in $0.04 above the consensus estimate on revenue that missed consensus by a narrow margin. The results were driven by broad-based strength across all three revenue streams that are expected to continue this year. The company reaffirmed guidance and initial sent the stock moving lower but the weakness was seized by the bulls. The stock opened with no gain, moved lower to test support and then moved sharply higher. By the end of the day, AXP was up more than 2.0% and tickling its all-time high.


Trendy shoemaker Sketchers reported before the bell and did not give the market what it was looking for, better than expected growth. The company reported revenue of $1.2 billion rose 2.4% but fell short of consensus by $20 million. Growth was hampered by weaker than expected comp store sales, a near -11.0% decline in U.S. wholesale sales, and weaker than expected margins.

The weaknesses were offset by an 8.7% increase in international wholesale sales but not enough to make a difference. Shares fell hard on the news and opened with a loss of -15%. Bottom-pickers stepped in to drive prices up and off of the low but they still closed down about -10%. While it looks like this years growth had already been priced into the market, it also looks like some growth is still expected.


The Indices

Today's index action was mixed. While Wednesday's bearish signals were not confirmed (for the most part) price action remains frothy and direction uncertain. Today's leader is the Dow Jones Transportation Average with an advance of 0.60%. The transports moved above Wednesday's candle (a potential shooting star) but were once again halted by resistance at the uptrend line. The indicators remain bullish but weak, consistent with topping, and do not support a strong move higher. Resistance is at the 11,000 level, a move above that with a close may be bullish.


The next strongest mover in today's action is the Dow Jones Industrial Average. The blue-chips advanced a little more than 0.55% in a move that created a medium-sized green candle and set a new high. This index is accompanied by bullish indicators that both support the idea of higher prices. It looks like the Industrials are moving higher and may reach 27,000 in the very near-term.


The S&P 500 is third in today's lineup with a gain near 0.25%. The broad market made small gains today and struggled to maintain them intraday. The index created a small doji candle that set a new low below yesterday's Dark Cloud Cover but did not confirm a reversal. If anything the S&P 500 is still in consolidation although it looks like bias may be negative. The indicators are bearish and suggest lower prices with a target for possible support at 2,875.


The NASDAQ Composite closed with a small loss, -0.05%, and that concerns me. The tech-heavy index is confirming if weakly, a Dark Cloud Cover reversal pattern and that is not a bullish omen. The indicators are consistent with a price peak at this level so there is more reason than one to fear a pullback. If prices were to fall they could drop as much as -2.5% before finding support at the short-term moving average. A move below the 30-day EMA could add additional momentum to this move. A close above 8,000 and better yet at a new high would be bullish.


The index action is mixed and I don't like that. Mixed indices mean one thing and that is volatility; the equity market has been choppy and it looks like it is getting choppier. While earnings for the 1st quarter cycle are largely better than expected the outlook for future quarters continues to decline. It is good news that earnings are not as bad as first feared but it doesn't mitigate the fact outlook is still deteriorating.

Deteriorating outlook is not good for the market because it can turn an appropriately valued market into an over-valued market and over-valued markets are ripe for profit-taking and reversal. The indices may move up to retest their all-time highs but it's not a move I'd trade on. I remain firmly bullish for the long-term but I am neutral in the near-term, patiently waiting for the correction I see brewing in the charts.

Until then, remember the trend!

Thomas Hughes