Introduction

Global fear of economic slowdown and tapering fears continued to ease. Asian indexes made a sharp rebound on the new stance of Chinese central bankers. The relaxed attitude carried over into the European markets which were relatively calm ahead of today's economic releases here at home. U.S. stock futures were up as well going into the 8:30 time frame and were lifted by somewhat surprising new data on the consumer. Following the announcement European and U.S. stock indexes were indicated higher.


At the open stocks held early gains before moving slightly higher ahead of the pending home sales data. Just before the release of today's housing numbers NY Fed President Dudley went on the record and stole the spotlight. In his remarks Dudley reiterated earlier comments from other Fed officials that the markets expectations of tapering and rate cuts are misplaced and “out of synch”. Rates hikes especially could some much later than expected, long after any thresh hold is reached. He also stated that policy depends on the outlook and not the data, exactly what Ben has been telling us. He went on to say that QE might even be increased if the labor market does not improve and that current assets were likely to be held by the Federeal Reserve for a “long time”.

Dudley's statements put some pressure on stocks. The SPX, INDU and COMP all shed a few points but held onto most of the mornings gains. By Mid-day the indexes had recovered the early highs. An auction of 7 year notes at 1 PM was also met with improved demand resulting in lower yields. Rick Santelli gave the auction a B+ which means it must be OK. Going into the close stocks sold off a bit but managed to maintain the lions share of today's gains with the Dow making another triple digit move.

Today's Data

The weekly jobless claims figures were accompanied by consumer spending and personal income figures. Later in the day pending home sales were added to the mix. Personal income was well ahead of expectations while spending fell a hair short. Personal income rose by 0.5% over the last month and spending rose by 0.3%. Income had been expected to rise only 0.1% with a 0.4% gain in spending. This bodes well for the state of the consumer and leads me to think that buying power is increasing. Stronger income and a growing workforce should lead to stronger GDP growth.


Initial jobless claims fell by 9,000 to 346,000 in this weeks data. This number is in line with expectations and keeps the 4 week moving average below the 350,000 mark. The four week moving average fell by 2,750 to 345,700. At this time it looks like initial claims is holding fairly steady just below the 350,000 line as compared to last year when it was holding steady just above that same line. I drop in claims would be a good sign for the labor market but for now holding steady is OK. So long as job creation out paces lay offs unemployment should tick down, not counting the recent increase we have seen in the participation rate. Next weeks releases of Challenger, ADP, NFP, Unemployment and jobless claims should be closely watched for signs of improvement.



Continuing claims and total claims moved in opposite directions from each other but both held basically flat from last week. Continuing claims fell by -1,000, total claims gained +23,146. Both metrics have been relatively flat over the last three weeks and at historic lows. On a state by state basis it looks like lay offs are mild and widespread, California is the only really volatile area and tops the list for increases in claims once again with +15,000. The next two highest states are Pennsylvania and Florida with +4,000 each. Next weeks employment data bundle may shed new light on the direction of labor trends. This time last year both figures flattened out as well before turning lower into late summer, perhaps this will happen again.

Pending home sales were releases at 10 AM. Pending sales rose only by 0.3% in April, the expectations were for a gain of 1.5% in May. The actual 6.7% increase was well above the expectation but did not provide any lift for the markets. The statements from Dudley that came out just prior may have stolen the thunder this data would have otherwise brought. This week has been a good one for the housing market. The mortgage index and new home sales both reached long term highs and are expected to keep improving. There is worry that rising rates may keep buyers out of the market but the flip side to that argument is that rising rates are also spurring some who are on the fence to get in and buy now.

Tomorrow's data includes Chicago PMI and the final reading on Michigan Sentiment. Chicago PMI is expected in at a low 52 versus the previous reading of 58.7. Michigan sentiment is expected to be near 81 versus the previous 82.7. Next week will be the really important data week. Once again we are at the end of the month and have the monthly releases of car and truck sales, construction spending, ISM, factory order and trade balance as well as the ADP employment figures, Challenger job cuts, Non-farm payrolls, jobless claims and U.S. unemployment figures. Because of the July 4th holiday next week there will be no trading or data on Thursday so next Friday will be a full one for economy watchers.

Oil Holds Steady On Demand Hopes

Signs of improvements in the housing market, easing fears over tapering and the economy are helping oil prices to hold steady. The FOMC driven jitters that emerged last week have pressured oil prices down from the recent peak but the trade found support around the $92.50 earlier in the week. Now prices have risen again to regain the $96 and the $97 level on the hopes that the economy really is improving, that demand/consumption may increase and that tapering fears are misplaced or at least too early. The Oil Index appears to be finding support at the long term trend line drawn from the 2012 lows from early June. Momentum is currently bearish but Stochastic shows there is some underlying support. Shorter term the index is above the 150 day moving average but faces resistance at 1350. Indicators suggest that support may exist around 1,300 but a retest of that support is likely. A break above 1,350 is needed to get bullish on this index again.

Oil Index

Gold Rush, But Not The Good Kind

When gold decides to make its move it makes its move. The metal has lost over 10% in over a week and nearly 30% since the January/February peak of $1700. Trading today began positive, but only by a dollar or two, but later in the day reversed and dropped by $5 or so before really taking the plunge and shedding another $25. Not much compared to the $50 and $70 dollar declines we have witnessed yesterday and last Thursday but another big decline nevertheless. My target of $1200 has been reached but the metal is still indicated down.

The Gold Index

The Gold Index has also been moving lower since breaking below the 78.6% retracement level last week. Momentum is bearish but may be peaking and the index is oversold. This is not an indication of a bottom but merely a caution against new bearish positions at this time. The index is bearish and oversold in the longer term as well but indicated lower. My target at this time is for a full retracement to the 2008 low around $65/$70.

Dollar Strengthens Versus The Yen

The new developments from China's central bankers and easing fears of FOMC tapering helped to boost Asian indexes in overnight trading. The major indexes all closed in the green with the Nikkei leading the way. The Nikkei gained close to 3% versus more modest 0.5% gains made by other regional indexes. The volatility is linked to the yen value and ongoing QE programs of Abe and Kuroda. The yen has been wavering versus the dollar and may have finally broken through an important resistance level. The pair has been trading up on a bounce from the 95 level and met with resistance last week when the FOMC put tapering firmly on the table. The pair is indicated up on the daily charts but faces resistance around the 100 level. Failure to hold the current level could bring the pair down to retest support at 95.

USD/JPY

U.S. Data Lifts European Markets

European markets had been treading water before the release of jobless claims, income and spending data. After that there was a noticeable pick up in the European markets and in the euro trade. The euro has been losing ground against the dollar, dropping the last 6 days in a row. Today's bounce also comes at the important long term support/resistance line of 1.3000. Long term indicators show that support exists at this level but trend is neutral. On the daily charts the pair is indicated down but oversold in the near term. The pair may hold at this level until the next cue from the ECB which is due out next week.

EUR/USD

Story Stocks

Earnings reports were not plentiful but there were a couple of big names on the list. For starters Winnebago nearly doubled its revenue from last year and posted earnings in line with the expected $0.27 per share. The stock popped initially on the news but failed to hold a previous area of resistance. The stock has been in a range since the beginning of the year and is indicated to remain so at this time.

Winnebago

KB Homes reported a smaller than expected loss. The home builder was expected to reported a net loss of -$0.06 but cut that by a third. The reported -$0.04 came on a 73% surge in revenue from the year ago quarter. This is the seventh quarter of net gains in home sales for the company with a 39% jump this quarter alone. The company says the 2013 outlook remains “favorable” and that they expect to see significant profits in the third and fourth quarters of this year. KBH is expected to be profitable by year end and for that profitability to continue into next year. The stocked popped initially but sold off throughout the day. The stock is sitting just above the 150 day moving average and just below the 30 day EMA with indications of support at this level.

KB Homes

ConAgra Foods reversed the previous years loss in this quarter and matched expectations. The company reported $0.59 per share but also guided the full year low a little lower than expected. Other news within the report were higher than expected cost “synergies” from a recent merger that are expected to lower operating costs. The stock jumped in early trading and was able to carry that through to the end of the day. The stock did meet with resistance that was able to contain prices for today. Indicators are bullish and point to possible higher prices.

Conagra

Nike reported after the bell and beat expectations with increased revenue and earnings. The company reported $0.76 per share versus the expected $0.74. Revenues are up 8%, future orders are up 7% and inventories are up 7%. The company was also able to increase gross margins through pricing and other means. Management has big expectations for the coming year as it positions itself to capitalize on the growing yoga wear trends and its core brands. While the company did not give any guidance the 8% increase in future orders is indicative of expected revenue and earnings growth in the coming quarters. The stock traded higher all day and increased those gains in after hours trading. The stock is moving up from long term support and is indicated higher on the daily charts. There is resistance around the recent highs of $66.30.

Nike

The Indexes

The indexes have completed another big day. The Dow made another triple digit move, I forget how many in a row it has been, the S&P nearly closed in double digits. The NASDAQ moved up more than 25 points as well and all the indexes closed off the day's highs. Starting with the SPX we can see that the index did indeed break the longer term trend set at the end of last year. After the initial fall it found support at the previous all time highs and is now bouncing higher. The bounce is finding a little resistance around the 30 day EMA and will likely find more if it tests the previous trend line. The indicators, which would be bullish if the index had not broken the trend line, are at least showing support at this level. This chart looks like it could be range bound, without a strong break back above the trend line that range is more likely. I have a neutral to bullish stance in the short term on this index.

SPX daily

Looking at the Dow the picture is a little different. This index is only just now bouncing off the same long term trend the SPX broke through last week. This index is showing similar MACD and stochastic signals that were only neutral for the SPX. The SPX was in this same position just a week ago and broke the trend. There is risk here that the general market could pull the Dow off track. It is also possible that one or more of the blue chips could be the next market leaders. Alcoa reports first and is scheduled for Monday July 8th, just two weeks away.

Dow daily

Longer term the SPX is still well above the primary trend but momentum is bearish and stochastic is moving lower. The index is still above the 150 day moving average however, and long term overbought conditions have been alleviated. This takes some of the bearish pressure off, now its time to see if the the bulls can keep prices above long term support. Earning season kicks in for real about two weeks from now, plenty of time for the index to consolidate above or break support at 1560-1575.

SPX weekly

Once again the Dow picture looks a lot different. Longer term the index is making a nice bounce from the trend line (remember these weekly candles are only partially formed at this time, tomorrow could make all the difference) and the indicators are in perfect position for a quick snap back into bull mode. These early earnings reports could stoke expectations for the rest of the season, two weeks of hoping is enough time to get the Dow back up to retest its recent highs. A break above those highs would be bullish longer term while a failure may lead to a longer term market reversal than the one we just had.

Dow weekly

It seems that the Fed, the FOMC and tapering may get moved to the back seat for a couple of weeks as earnings season comes to a boil. The index are in prime position to move up on hope or break down on fear. Since fear of the Fed appears to be receding, and so far earnings are good-ish, I think the next two weeks could see the markets drifting up. There is also the barrage of economic data we're going to get next week to consider as well. For now, the indexes are within trading ranges that may take two or more weeks to play out. As ever, be on the lookout for good trades and keep an eye on the Fed. The data may not trigger tapering but it will point to when the thresh hold, and timing of tapering, will be reached.

Until then, remember the trend!

Thomas Hughes