The rhetoric remains the same in regards to White House and congressional posturing over the fiscal cliff. However, a new development in today's headlines points to dealings behind closed doors that may pave the way for a concrete solution. Senator ( R) Jim Demint announced today he was leaving the Senate in favor of the private sector. He is leaving to take charge of the conservative Heritage Foundation. Demint was seen as an obstacle to republican measures to reach a compromise. Earlier in the week Demint was critical of Speaker of the House John Boehner's proposals for increased tax revenue. Even though Demint was already planning on retirement there is already speculation that this move was arranged to help smooth the way for a quick end to the negotiations.
Stock markets around the world have rallied to new highs. Markets ranging from Germany to India, South Africa and Japan are reaching multi-month and multi-year highs. Investor confidence seems to be on the rise despite the gloomy outlooks put forth by world leaders and our own major corporations.
Futures were slightly negative this morning ahead of today's releases of economic data. As a whole the new numbers were mild and show a return to pre-Sandy conditions. On the jobless front it appears that Sandy has had little long term effect on unemployment. There is still some lingering effects on regional employment numbers but the overall impact has been negligible.
Initial claims dropped back to the 370,000 range we saw just before the storm came. This is a drop of 25,000 from the previous weeks upward revision and 10,000 below this weeks estimates. The four week moving average continued to climb, reaching a 14 month high. This new high in the average should be the peak unless we get a sudden jump in initial claims.
The Challenger report states that planned layoffs jumped more than 20% in November, a number that suggests we could see a spike in initial claims. However, this spike probably won't be enough to do any long term damage to the labor market. There are some seasonal factors to consider in this as well as the fact that lay offs are still down 30% from last November and 13% on a year to date basis. Most of the job cuts can be attributed to two factors, Hostess and HPQ. The most losses occurred in the food industry, led by Hostess going out of business. The sector with the second largest number of layoff's was the computer industry, led by HPQ and its restructuring plans.
Continuing claims and total claims for unemployment both fell to new low levels. The continuing claims fell by 100K to 3.21 million for the week ending 11/29. This is the fourth week of declines in this data since the storms and the second lowest weekly data point this year. Total claims for unemployment fell to a new multi-year low of 4.9 million. This is 224K lower than last week and the lowest levels since 2008. The total number of people on unemployment is about 25% lower than last year. Based on these two number I might expect to see unemployment fall despite the potential impact from hurricane Sandy. The November unemployment data is scheduled to be released tomorrow at 8:30AM. I have seen a couple of different estimates ranging from holding steady at 7.9% to an increase of as much as 0.2% to 8.1%
We also get new jobs data from the Labor Department. Yesterday ADP reported their data, showing a slight drop in jobs creation. The US data is expected to show a similar decline. The consensus estimates are ranging from 90,000-100,000, a drop of about 70,000 from last month.
Around The World
European markets climbed today with several reaching new highs in the face of even lower expectations. The ECB held their meeting this week and today announced their rated decision and outlook going into 2014. The rates were held steady at 0.75%, which was not unexpected. Draghi went on to say in the statements prepared by the ECB to say that the outlook remained weak going into 2013 and lowered the outlook once again. Now the ECB is expecting the Eurozone to grow at a rate of -0.9%-+0.3%, which to me is quite a large range and a sign of real uncertainty. They also lowered this years expectation by -0.1%. Looking forward the ECB expects the region to return to growth in late 2013 with 2014 showing GDP in the range of 0.2%-2.2%.
Asian indexes closed the day mixed with most hovering around flat line. The Heng Seng and Thai Set indexes both flirted with and/or made new highs. News from the region was tame, focusing primarily on business and earnings. Japan led the region with a gain of 0.81%, reaching a 14 month high. The impending election, depreciating yen and expected easing from the BOJ are driving this trade in the short term. Anyone trading Japan needs to keep a look out to next weeks elections as a possible turning point.
Oil And Gold
Today's new Eurozone statements, which really did not say anything new in my opinion, helped to send the price of oil down by around 2%. Oil remains trapped in this range between $85 and $90 and is now down near the lower end. This commodity, and gold as well, could remain range bound until the current fiscal issues are laid to rest. World growth and oil demand are in question and at this time the ol fiscal cliff is clouding the view.
The Oil Index has been trading sideways in similar fashion to the underlying commodity. The index has been consolidating between a support level and a convergence of moving averages. A break above could take the index to 1250-1275 while a break below could take it down to 1150 or lower. I am tending to think the index will move up rather than down in the short term but it will be affected by every bit of economic news.
The Oil Index, daily
Gold traded to the plus side today and regained the $1700 level. Gold has also been trading in a range over the last few months as world wide easing measures have taken effect. Gold could bounce back up to $1750 on weak European expectations and fiscal cliff worries.
The Gold Index continued its bounce downward over the last week. The thought of prolonged higher prices for gold was not enough to keep investors interested in the gold miners. The index is retracing the run up it made over the summer and is nearing the 78% level. Before reaching the 78% retracement the index will have to break the rising up trend line created by connecting the two dips of May and July 2012. If the index does reach the 78% level, breaking this trend line, a full retracement becomes probable. Momentum on the Gold Index is diverging from price. This suggests that the down leg is nearing its end and that the index could find support at the uptrend line.
The Gold Index, daily
Well, its less than 30 days to the fiscal cliff and many corporations are racing to fight it. Another round of special dividends was announced today bringing the practice into sharper focus. I tried to find an etf or index that tracks dividend payers but couldn't find anything like what I wanted. If anyone knows of a good one please let me know. I heard of three today. Sirius XM, General Dynamics and Safeway FoodStores. Sirius upped the ante adding a $2 million stock buyback to the deal. Sirius XM jumped on the news, much like other stocks providing the special dividend, and then sold off during the day.
Sirius XM, daily
Apple had a $35 turnaround today. The stock opened under heavy selling pressure in continuation of yesterday's declines. After reaching bottom in mid morning trading the stock regained all its daily losses and then some of yesterday's. Today's candlestick is very bullish and supported by an increase in volume.
Broadcom updated its guidance and sent shares of its stock higher. The company raised the lower end of its guidance range based on stronger than expected sales. Strength in mobile and wireless sales increased more than expected in the fourth quarter and will significantly impact revenue and earnings. The stock gained more than 2% in trading on average volume, moving up toward the middle of its 52 week range.
Men's Warehouse reported that earnings were up 20% over last year but a disappointing outlook sent shares lower. The company now expects earnings to range from -5 cents per share to +1 cent per share. This is down from a previous estimate of +12 cents. The stock dropped sharply in pre market trading but the new low prices were met with enthusiasm. Buyers stepped in and drove prices up from the day's low of $27.50 to regain most of today's losses.
Lululemon also reported earnings today. The company surprised investors with earnings and an 18% jump in comp store sales. The yoga/workout clothing retailer posted earnings of $0.39 per share, 2 cents above expectations. Revenue increased 37% in the quarter, also ahead of expectations. The company also issued fourth quarter guidance that was slightly below consensus estimates. The stock sold off after the open but quickly found support and regained yesterday's closing price on high volume.
The S&P 500
This morning the futures trade hung just under flat line. There was little movement ahead of and after the release of the economic data. The index has been trading in a tight range over the last two weeks, just above a support level confirmed by long and short term moving averages. This consolidation is a good sign following the support bounce of mid-November. The bounce was fueled in part by perceived fiscal cliff progress, and I use that term loosely, and is now awaiting further developments.
S&P 500 with consolidation, daily
I see two short term technical possibilities at this time. The first is that the index is making a flag formation following the bounce. This suggests that the bounce began last month is only half over and that the market will drift upward, maybe until we get a fiscal cliff solution. This could take the index up to the 1490-1500 level and significant resistance by the end of the year. This resistance dates back to the 2007 market reversal and 2008 bear market.
S&P 500 with flag formation, daily
The other is a short term rounding top. This top could bring the index back down to the recent lows, a move that is also being forecast by momentum indicators. As I have noted many times before the series of lower lows in the index from mid-October to mid-November are coincident with a series of lower peaks in bearish MACD. This coincidence suggests that the recent selling is not over and that a retest or at least an attempted retest of the November lows is in the cards.
S&P 500 with MACD, daily
Longer term the index is still in an uptrend and making a bounce from the long term trend line. This uptrend is weakening, as evidenced by declining peaks in momentum, and possibly nearing completion. The index is trading at/near resistance and faces more when it moves higher. At this time there are still no signs of long term topping or reversal in the S&P 500. The index looks good for another advance but faces resistance at 1465, 1500 and 1565.
S&P 500, weekly with MACD
It is without doubt that the fiscal cliff is important to us, our country and our future. However, I think that in the end it will only be a blip on the screen. The term Fiscal Cliff gives the situation an ominous name but one more ominous than may really be deserved. Something will be done to move past this just like every other time the national budget has been in question and we will move on.
It is possible the rest of the world is already moving on. China has had its transition for the year and is now focusing on the work at hand. Europe is getting its house in order; Spain requested aid and Greece got its funding package. The point is that much of what has been clouding the future is dissipating and world markets are responding to all this by reaching new high levels. Is it possible that a resolution will send our markets to new highs?
There is a lot to consider and it is all being clouded by fiscal cliff conjecture. The stagnant economy and weak global outlook is leading many to speculate on further fiscal easing from world central banks as well as our own. We may get some more insight into that next week when the FOMC makes their interest rate decision. However, the current budget negotiations are still in the way, preventing a clear view of 2013 and what our economy will need. Once the fiscal cliff is off the table, or at least shelved for a while, Ben and the FOMC will be able to make better estimates of our own needs.
As always, keep a close eye on your technicals and choose your underlying stocks with care. Look for stocks with liquid markets, tight bid/ask spreads and favorable technicals. We're in a stock pickers market and there are good plays out there for every trader.