Introduction

US indices bounced back from their deepest sell-off of the year. Is it time to get in or is this just a dead cat bounce? Today's action was not heavy, gains were minimal and breadth was weak. If it is more than a dead cat bounce it's not a very strong signal. While long-term trends remain intact nearer term trends are breaking down as earnings season winds up and we weather the next few weeks without much market moving news expected.

International indices sold off in response to growing political unease in the US. Asian indices were hit hardest, European indices having moderated their losses before the close of the session. In Asia losses were led by the Nikkei with a decline of 1.32%, European markets were led lower by the FTSE which posted a loss of -0.89%. These markets may bounce back in overnight trading but I would expect traders to be cautious and gains to be minimal.

Market Statistics

Futures trading was negative right from the start if a bit choppy throughout the early session. At the low the S&P 500 was indicated to open with a loss near -6 points while at the high it was closer to -1 point. Economic data was fairly robust today and helped to support early trading although it did not lift indices into the green. The open was as expected, the SPX opened with a loss near -4 points and tried to move lower within the first minutes of trading. Buyers were present, just below yesterday's closing prices, and were there to support the market as it opened. The SPX quickly found support and managed to bounce, hitting an early high just after 10:30. This high held for most of the day, the index trend sideways from there, until just before 2:30 when a surprise rally drove it to new highs. The new highs did not hold, the indices retreat into the close but remained firmly positive for the day.

Economic Calendar

The Economy

There was a bit of economic data today, nothing overly important but all pointing to one thing; a healthy economy. First up, initial jobless claims. Seasonally adjusted initial claims fell -4,000 to hit 232,000 from last week's not revised figures. The four week moving average of claims fell -2,750 to hit 240,750. On a not adjusted basis claims fell -4.1% versus an expected -2.4% and are down -15.6% YOY. Despite recent volatility these figures remain in downtrend and show marked improvement over last year. The not adjusted claims in particular have diverged from trend and reveal tightening in the labor market.


Continuing claims fell -22,000 to 1.898 million from last week's revised figure. Last week's figure was revised higher by 2,000. The headline and moving average continuing claims numbers are new lows dating back to 1988 and 1974 respectively. Together and with initial claims figures these numbers show ongoing improvement and tightening in the labor market. There are less people losing jobs and they are finding new work faster than ever.

The total number of Americans receiving unemployment benefits fell a surprising -95,874 to 1.891. The number is not surprising in that it fell, it is surprising in that it fell so much. The total number of claims has basically reached my lower target for spring declines and looks like it could decline further. On a year over year basis it is down nearly -11% and consistent with ongoing labor market tightening, declining unemployment and rising employment.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey jumped 16.8 points, well ahead of expectations, to hit 38.8. This is the 2nd highest reading this year, the 2nd highest reading in more than 10 years and the 10th consecutive month of growth. Within the report shipments gained 16 points, new orders fell 2. Delivery and unfilled orders were both positive as well and have been positive for 7 months. The employment index fell by -3 but remains positive showing growth slowed in the past month. Looking forward the 6 month outlook is also strongly positive, but down significantly from the previous month.


The Conference Board Index of Leading Indicators was released at 10AM and shows continued expansion in the US economy. The index gained 0.3% after gaining 0.3% in March and 0.5% in February. This is the 8 month of positive reading in the index and, according to Conference Board economists, could indicate acceleration or even a cyclical pick-up in the economy later this year. The Coincident Index also rose 0.3% as did the Lagging Index.


The Dollar Index

It took a few hours to sink in but today's data helped to alleviate fear of economic slow-down and strengthen the dollar. The Dollar Index gained nearly 0.4% in a rebound from yesterday's decline but did not regain the upper side of previous support now turned resistance. The index has fallen below support targets in the $98.50 to $99.00 region and in danger of falling further. The indicators are both pointing lower and suggest further downside is possible, stochastic is showing weakness as well with a bearish crossover of the lower signal line. Today's action suggests that there may be support at the $97.50 level, a break below that would be bearish. In the near-term Trump scandal may add downward pressure to the index while we wait for the next round of central bank meetings.


The Gold Index

Gold prices were up in early trading but reversed those gains later in the day on hopes President Trump would avoid further entanglement with former FBI director Comey. A video of him testifying to congress led traders to believe he would not implicate Trump in trying to curb investigations. Whether or not its true is yet to be seen, the testimony was not unequivocal in support of Trump's innocence. Spot gold gave up nearly a full percent and fell below the $1,250 level. This level is a resistance target and could cap gains into the near-term. Short to long-term direction is more likely dictated by the FOMC/ECB/BOJ balance than it is by political scandal. Economic data remains on track for the FOMC to raise interest rates in June (more than likely at 74%), any positive surprises from the economy or political arena could reinforce that expectation and send the dollar back above resistance and gold to recent lows.

The Gold Miners ETF GDX fell a little more than -0.60% in a move that confirms near-term resistance. Today's action formed a red candle moving down from yesterday's close beneath resistance. Resistance is the 38.2% retracement level and the mid-point of a short-term trading range. If resistance holds this will the third peak in a series of lower peaks within this range with a possible focus on the FOMC meeting next month. If so we can expect to see the ETF continue to trend sideways until then. Resistance is $23.75, support is $21.


The Oil Index

Oil prices edged higher today on growing signs the OPEC/Russia production cap would be extended. A number of member nations have signaled support for the deal which is expected to pass at the Vienna meeting later this month. WTI gained nearly a half percent on the news to trade above $49.25.

The Oil Index fell despite today's gains in oil prices but was at least able to recover some of the losses. The index gapped down at the open, fell to hit a 9 day low and bounced back to close with a loss of only -0.20%. The indicators are mixed and give little indication of longer term direction, consistent with range bound trading. I remain bullish on the sector due to forward earnings outlook but the near to short-term is cloudy. Price action is showing some signs of possibly bottoming in the range of 1,125 to 1,150 but this support could easily break if oil prices don't stabilize at high enough levels. In the near-term expect news driven volatility.


In The News, Story Stocks and Earnings

Retail remains in the spotlight as earnings season enters its final days. This morning news was dominated by positive reports from both Wal Mart and Ralph Lauren. Wal Mart reported growth in revenue but missed expectations. Earnings of $1.00 beat expectations by 4 cents led by growth in online sales which increased by 63% in the YOY comparison. US comps were also positive if not as strong. Shares of the stock moved higher in the premarket session, gapped by roughly 2% at the open and moved higher from there to set a 2 year high.


Ralph Lauren beat on the top and bottom lines although revenues fell from last year. Positives in the report include expanding margins and lower operating expenses, negatives include a -11% decline in comp store sales. Shares rallied on the news in the premarket session and gapped up at the open. The good cheer was short lived as sellers quickly stepped in to drive prices down to an 8 year low.


The Retail Sector SPDR XRT was able to post small gains in today's session. The ETF gained about 0.20% in a move that created a small spinning top just above yesterday's close and the bottom of a long-term trading range. Price action suggest that the ETF has hit support levels, today's candle forms a a harami with yesterday's long red candle. The indicators however remain weak and suggest that support will be tested further. Support is near $40.50, has been in play for more than 12 months and tested 5 times previously. After hours reports from Gap and Ross Stores were better than expected and may add support to the sector in tomorrow's trading.


The Indices

The indices were mixed today. Action was positive but tentative, near-term fears are still present. The days leader is the NASDAQ Composite. The tech heavy index rose 0.73% in a move up from support at the short-term moving average. Today's candle is long, green and confirms support at the moving average but not overly strong. The indicators have both confirmed bearish signals within an uptrend, consistent with correction/consolidation, so downward movement in prices may not be over. Support is at the 6,000 level, a break below here would be bearish in the near-term with downside target near 5,800 and a pair of long-term up trend lines.


The Dow Jones Transportation Average comes in second today with a gain of 0.40%. The transports created a small green candle near the bottom of yesterday's long red one but does not suggest much in the way of support. The index remains below the short and long-term moving averages with downward pointing indicators suggesting further correction is possible. If support at today's open does not hold downside target is near 8,500 and my long-term up trend line.


The S&P 500 posted the third largest gain in today's session, 0.36%. The broad market created a small green bodied candle above the 2,350 support target but below the short-term moving average. The indicators are pointing lower after confirming bearish signals and suggest that support will be tested again. A break below support would be bearish with downside target near the long-term moving average at 2,300.


The Dow Jones Industrial Average posted the smallest gains today, only 0.27%. The blue chips created a small bodied green candle with long upper shadow confirming resistance at the short-term moving average. The index has entered a consolidation/correction and the indicators suggest it could move lower. Both stochastic and MACD are pointing lower following bearish entry signals and consistent with lower prices. Near-term support is 20,500, a break below there could go as low as 20,000 and the long-term moving average.


The market was hopeful today but not decisive in its approach. The indices moved higher but the gains were muted, volume was low and resistances were hit. Near term political concerns are weighing on sentiment, with us entering a period void of substantial economic or earnings news they stand a good chance of dragging the market the market down. If so, it will likely turn out to be the next great entry point for long-term positions.

I remain bullish long-term for two reasons. Economic and earnings growth remain in the forecast, and both have a growing chance of accelerating in the second half of the year. So long as this remains true I see no reason for market reversal or bear market conditions, any weaknesses are dips to be bought. Nearer-term I am more cautious, sitting on the sidelines watching and waiting to see if today was just a dead cat bounce. There is no scheduled economic data tomorrow and very little in the way of earnings.

Until then, remember the trend!

Thomas Hughes