Introduction

Today's action was quiet as indices tread water at their post-correction highs. The NASDAQ is today's stand-out setting a new all-time high as it leads the market in recovery. The market breathed a sigh of relief when the Trump Tariffs were less sweeping than feared. This week the market is waiting to see what may happen next. The NFP was a big help in getting the market back on its feet, but it may be a little while before it's ready to resume the rally.

The international markets moved up in today's trade. Asian markets led with average gains near 1.5%. Steel and aluminum producers led the charge as they bounced back from Friday losses. European indices were also higher but gains were muted on trade-war fears. While the exemptions for Canada and Mexico, and the possibility of carve-outs for other US trade partners, is reassuring it did not completely remove the possibility of a trade war, and that possibility weighed on the market.

Market Statistics

Futures trading was positive all morning. The S&P 500 was indicated to open with a gain near 10 points, but that slowly faded as the early morning wore on. A surge in trading just before the open left the market near the high of the morning as the opening bell was ringing. The broad market moved higher in the first half hour of the session to set the intraday high. From that point on the index drift lower and to the side, hovering near break-even for most of the day. Late afternoon saw the index drift down to set a new intraday low and then bounce back to break-even by the close.

Economic Calendar

The Economy

There was no official data today but the week is rather full. There are several regional reads on manufacturing, housing starts & permits, retail sales, the producer price index and the consumer price index. The CPI and PPI are likely to be the biggest market movers because of their relation to core inflation, the FOMC, and rising interest rates. Neither is expected to show much gain or alter current FOMC outlook. There is an 86% chance the committee will raise rates at the next meeting, next week, and a 70% chance they'll do so again by June.

Moody's Survey of Business Confidence gained another 0.4% to hit 40.4 and set a new 30 month high. The index shows global business sentiment is unshaken as Mr. Zandi put it, with gains led by the US. More than 50% of responses are positive compared to only 10% negative showing firm bias toward positive sentiment. The forward-looking responses are the most positive and suggest conditions will continue to improve into and through the summer.


The Q4 earnings season is all but wrapped up with 99% of reports in the bag. Just over 73% of companies beat earnings estimates, about average for the past two years, while a record-setting 77% beat revenue estimates. The final rate of earnings growth is going to 14.8% and a high dating back to Q3 of 2011. On a sector basis, 9 beat estimates and all 11 produced positive growth, the first time that has happened since the oil bubble burst.


Looking forward robust growth is expected to continue in 2018. There have been some revisions to quarterly growth estimates, but they remain double-digit across the board and expansionary from the 4th quarter of 2017. Full-year 2018 earnings growth is expected to be 18.4%, ranging from 17% in the first quarter and peaking in the 3rd at 20.7%, the highest level of annualized growth in a decade.


The Dollar Index

The Dollar Index shed a quarter percent in today's session, but the move is more sideways than down. Today's candle is well within the narrow range that has dominated the index over the past three weeks. It looks like it may continue to do so until the FOMC meeting next week. The CPI and/or PPI could move the index but without a strong ready will not likely break it out of its range. Support is near $89.25; resistance is near $90.90, a break beyond either will be significant.


The Gold Index

Gold prices held steady in today's trade as geopolitical news was quiet and important inflation data is at hand. Spot prices moved within a very narrow range, hovering near $1,320 and the bottom of the near-term trading range. The near-term range is at the top end of a longer-term term range and may result in reversal if prices are not able to move up again. The bottom of the near term range is $1,307, a break below that would be bearish. Looking forward prices are going to be driven by the FOMC, interest rates and the dollar but there is also a lot of political risks as well. This combination is going to result in volatility and the possibility of exaggerated price movement so support and resistance targets are going to be very important.


The Gold Miners ETF GDX moved up in today's session. The ETF gained a little over 0.75% creating a medium-sized green candle. The ETF is trading near the bottom of a long-term trading range and looks like it may try to move up within that range. The indicators are consistent with such a move but do not show much strength. Upper targets are the short term moving average near $22.50 and then the long-term moving average near $22.75. A break above the long-term moving average would be bullish but would not break the trading range.


The Oil Index

Oil prices fell in today's session on news fund managers had reduced their bullish bets. The decline in long positions is the first in 3 weeks and was matched by an increase in net shorts. This move is not surprising as US production hits record highs and offsets the OPEC production cuts. The average price forecast for 2018 has been raised but is still well below current prices at $58.


The Oil Index shed about a quarter percent on the decline in oil. The index is hanging below the short term moving average, at the $1,300 support/resistance line, and struggling with resistance. The index has fallen from the short term EMA twice in the last month and looks like it might again. The first support target is just below today's close, at the long-term moving average near $1,275, and has been tested several times in the last month. A break below the long-term EMA would be bearish but is not indicated at this time. The indicators are both pointing up, consistent with the trend following bounce from the long-term EMA, and suggest there is still some strength in the market. A move above $1,300 would be bullish.


In The News, Story Stocks and Earnings

Take-Two Interactive Software, a distributor of all things video game related, is going to join the S&P 500 this week. The company is moving up from the S&P mid-cap 400 and takes the place of Signet Jewelers. The company recently reported a miss on revenue that is sure to be remedied in 2018. The company was able to raise full-year guidance on expected sales based on early trends. A third party group reported that video game sales jumped 59% in January to hit a seven-year high backing up the company's statement. Shares of the stock fell more than -1% in today's session but remain above the short term moving average and in an uptrend.


Disney was one of today's leaders, driven higher by the success of its latest blockbuster the Black Panther. The movie has been top in the box office for four weeks and has now brought in over $1 billion dollars worldwide. This makes it the 9th most popular movie of all time and it is expected to continue bringing in the crowds for another few weeks. Shares of Disney jumped more than 0.65% to test resistance at the converged short and long-term moving averages. This resistance may be strong but if broken, will lead to upward movement in prices. The indicators are bullish in support of the move, all that remains is for it to happen. If resistance is broken the first upside target is near $110, if resistance holds prices may fall back to $102.


The VIX rose about 7% in today's action and is bouncing on a support target. Today's bounce is very weak and likely to result in further testing of support. The indicators are both bearish and pointing lower, consistent with a test of support, and may lead the market to new lows. A break below the long-term moving average, near $13.87, would be bearish for the VIX and very bullish for the broad market. If support is confirmed at the moving average another spike in volatility may soon follow.


The Indices

Today's market was calm and quiet. The indices moved down and to the side from Friday's close with losses firmly centered in the Dow Jones Industrial Average. The blue chips shed -0.62% in a move that created a small red candle just above the short-term moving average. This move is not inconsistent following Friday's surge and offers entry close to support. The indicators are both bullish and pointing higher consistent with a strong following entry signal. There may be another test of support or move below the short term moving average, but I would view it as an entry point.


The Dow Jones Transportation Average posted the second largest decline, -0.31%. The transports created a small red candle near the top of Friday's long green candle and are falling from a resistance target. The indicators are both pointing higher in confirmation of the trend-following bounce so higher prices should be expected. Resistance is near 10,750 and the recent high, a break above which would be bullish.


The S&P 500 posted the smallest decline, -0.13%, and created a small spinning top doji. Today's candle set a new post-correction high and is supported by the indicators. Both MACD and stochastic are pointing higher following bullish crossovers. These crossovers confirm the index bounce from support, the break above the short term moving average and are trend following. Higher prices should be expected for the index with targets at the all-time high and possibly beyond.


The NASDAQ Composite was today's market leader posting a gain of 0.36%. The index created a small spinning top candle but set a new all-time high in the process. The indicators are both bullish and in support of the move, converging with the new high in a sign of strength. The MACD peak is at an 18-month extreme peak that adds additional weight to the bull case. Upside targets are new all-time highs, possibly as high as 8,600 in short to long term.


Today's action was weak but the action over the past two week's is looking more and more bullish. The indices corrected, hit long-term support targets, retested those targets, bounced higher and are supported by strong signals in the indicators. I am bullish near, short and long term, no other way to say it than that. I remain cautious in my position sizes, no need to get risky especially with the VIX still elevated, tomorrow's CPI could be a market spooking event.

Until then, remember the trend!

Thomas Hughes