Introduction

I was very busy this morning getting ready for today's wrap. It's not that so much was happening in the pre-market hours it was because there was so much scheduled to happen throughout the day. No one thing was really a market shaking event but altogether provided a long work day for economy watchers, investors and traders.


The Asian markets were calm in overnight trading, the one bit of important info I found in that market came from the Australian central bank. The bank left policy unchanged for now but made it clear that future easing is still on the table. Australian stocks led with a +2.5% gain.European indexes were in the red at the open of U.S. trading. However, they found a bottom after Ford revealed its June sales increased by 13.4%. The European indexes appear to be in short term consolidation following a support bounce and ahead of the ECB meeting on Thursday. There is little expectation of a policy change from them but the statements and press conference will be important. Mario Draghi usually reveals a lot about what the ECB thinks about the European economy. I am especially interested in how he views the 2nd half recovery in the EU which he has predicted will be led by Germany. Strengthening in the U.S and recent manufacturing expansion in Asia bode well for the EU.

As for us here at home our day started with small business lending, monthly sales from the auto industry, factory orders, the Fed vote on banking requirements, Fed speak from president Dudley and official U.S. auto and truck sales. These events were spread throughout the day and only one was released before the market opened. Each came without a bump, edging the market higher until reaching the daily peak around noon. Selling out paced buying during the after noon trade pushing the indexes into negative territory by 2PM. The release of the expected better-than-expected official U.S. auto/truck sales did nothing to help maintain stock prices.

Today's Events

First on the list for today was the release of the small business lending index maintained by Thompson-Reuters. Lending to small businesses rose by more than 14% in May making the second month of increases. The index rose to 115.1 from a downward revised 101.3. This is a great sign for the economy in my opinion. Small businesses make up more than 50% of our GDP and account for about 75% of the total workforce. An increase in lending to small businesses means an increase (fingers crossed) in spending on equipment, tools and supplies which is also supposed to lead to new hiring. This indicator typically leads the markets by 2-3 months so we could see an improvement in jobs data as early as this month.

Next up was Ford's release of June sales a few minutes after the opening bell. Ford increased Junes sales by 13.4%, nearly 2% better than the expected 11.7%. Sales gains were led by trucks; sales of the F-Series increased by more than 24%. Trucks are one thing that can be bought with a small business loan and is another sign of more work and possibly more workers. The S&P 500 had been down about -1.5 but quickly advanced into positive territory after Ford's announcement. Ford moved up by 1.75 % in early trading and broke the $16 long term resistance level with bullish technicals.

Ford daily

GM followed up with a better than expected increase as well. GM sales in June increased by 6.5% versus the expected 1.3%. On a comparative basis GM increased sales 400% better than expected versus Fords 14.5%. Shares of GM also moved up today with bullish technicals but did not break its long term resistance. On the weekly charts GM is still bullish but faces resistance that could contain prices in the short to mid term. Long term support is in the $30-$32.50 range with resistance at $35. A break above this level would be bullish but will also face resistance until the U.S. is fully divested.

GM daily

Simultaneous to GM's report was the release of factory orders. Orders rose 2.1%, ahead of the expectation. The previous month was also revised up from 1% to 1.3%. The double release of GM and Factory orders at 10 AM gave the markets pause but only for a brief time. The S&P had reached a new intra-day high by 10:20. The next item up on the agenda was the the Federal Reserve vote on banking requirements.

The Fed has been mulling a proposal to increase capital requirements for banks with balances over $10 billion. The proposal is to increase the requirement by 50% from 4% to 6%. Other aspects of the capital requirements put in place after the 2008 crisis were also targeted, some for increase others for decreases. The measures were approved and the results were met with little fan fare. Markets were only marginally impacted and were able to hold onto most of today's gains. Fed President Dudley spoke at 12:30 and basically repeated the same statements he made last week. The market sentiments are “out of synch” with the FOMC's stance on QE. He expects interest rates to remain low until 2015 and that any data dependent thresh holds are just that. If recent trends continue through the summer and fall tapering could begin by the end of the year. The S&P held steady near the early highs for about an hour and then slowly lost ground until the 2PM release of auto and truck sales.

Auto sales were reported with a “wow” headline. The annual pace of auto/truck sales came in at 15.9 million, just shy of the 16 million level we were seeing before the start of the financial crisis. Although a good sign it failed to boost markets. The S&P had turned negative just before the release and did not regain positive ground following. In the near to short term we can expect to see a drop in seasonal unemployment claims due to the scheduled suspension/shortening of the automotive industry summer break. The big three producers are all ramping up production to help build and maintain inventory going into the end of the summer.

Tomorrow the monthly employment starts to roll in. ADP employment, Challenger Job Cuts and an early release of jobless claims are on tap. ADP is expected to gain about 20,000 from last months 130,000. Challenger does come with an expectation however last month planned layoffs declined 42% and hit a long term low. Initial claims is expected to decline marginally to 345,000. There is a chance of positive surprises here but it will take a really big surprise to move the S&P much at this time. Thursday of course the markets are closed for Independence Day and then Friday wraps up the week. Non Farm Payrolls is expected to hold steady around 175,000. Trading on Friday will be a regular day but expect light volume.

The Euro

European markets are waiting for the ECB meeting, announcement and press conference scheduled for Thursday. The European indexes, as I said earlier, appear to be in a holding pattern. The same holds true for the EUR/USD. The pair has been trading at or near the long term support/resistance of 1.3000 with near term resistance at 1.31000. Thursday will likely be a turning point for the Euro, I will be watching for a break above or below the 5 day trading range.

EUR/USD

The Yen

The yen is continuing its trek back up to retest the 104 level set in May. The pair is well above the target Abe set but looks good to move higher in the nearer term. Next resistance is at 104. MACD and stochastic are both moving up. The next BOJ policy meeting is next Wednesday but there is no expectation of changes. There may be some indication of how QE is working and the state of the Japanese economy. Currently Japan is experiencing an uptick in sentiment, manufacturing and earnings expectations. It will take a few months for enough data to come in to really establish a recovery but at this time signs are that it's working. Until then the USD/Yen could be range bound with longer term top and bottom limits at 95 and 104.

USD/JPY

Oil Trades Near Top Of Range

Oil traded up today, gaining as much as $1.57 intra-day. Supply concerns stemming from Africa and the Middle East added to a slightly improved demand outlook to keep prices up at the current levels. Protests in Egypt are still raging across the country with unrest possibly spreading to other countries. The dead line set by the military is fast approaching and could result in even more turmoil in the region.

The primary concern at this time is the possible shut down of the Suez Canal which would add a lot of time to oil shipments. The Oil Index also traded up but is not mirroring the underlying commodity. The index has fallen below long term support and then bounced from the long term up trend. Momentum is bearish at this time but very close to the zero line. Stochastic is pointing up but the longer term analysis is wishy washy. This may be a good time to get into some oil stocks but I would need to see the index break back above 1,350 first. Downside targets on a break below the trend line are 1,300 and 1,250.

Oil Index

Gold

Gold traded to the down side today. Not surprising after the $50 bounce in prices yesterday. I am still bearish on gold simply because the metal broke down through my previous targets so quickly. Momentum analysis also points to a retest of the recent lows. The Gold Index is following closely along with the price of its underlying commodity also traded down today. The $100 dollar may be emerging as a near term resistance level on the index move down to fully retrace the 2008-2012 bull market.

Gold Index

Story Stocks

Zynga popped today on news that it had lured X-Box chief Don Mattrick to its CEO position. The move is being questioned by the media but sentiment seems to lean toward the positive. Mattrick is responsible for the X-Box's rise to profitability and could be just what Zynga needs. Shares of the stock jumped about 8-10% on the news to gap open near a long term resistance. This one is a good one to watch going into the summer and fall. The stock faces serious technical resistance moving forward, a break above $3.50 has strong resistance at $4.00 and that's just the middle of the $2 window opened last July.

Zynga

Constellation Brands was the one earnings report that caught my attention. The stars failed to shine when the company reported earnings of $0.27 per share, a drop from the $0.38 from a year ago and well below the $0.45 expected by the consensus. The stock traded to the upside initially but soon fell back under selling pressure to reach the long term support of $50.

Constellation

Earnings reports are near non existent the rest of the week. Monday the big boys start revealing their results. Alcoa reports Monday after the bell followed by Wells Fargo and JP Morgan on Friday.

The Indexes

The U.S. markets appear to be in a similar near term consolidation as the European indexes I mentioned earlier. The S&P 500 is making a bounce from long term support but that bounce is finding resistance in the form of the previous up trend line and the short-term moving average. This week is tough to gauge for a number of reasons. First it is the summer time so volume will be on the lighter side to begin with. Second its the Fourth Of July week so volume will be impacted by that as well. Third we have the ever important jobs data bundle on tap for tomorrow and Friday. These number could clarify or muddy the water, adding volatility to the market. Wrapping it up next week is the “official” start to earnings season. Alcoa is not expected to post any huge surprises but the outlook and guidance will go a long way toward helping judge the next quarter or two.

Looking at the daily charts the S&P looks likely to be range bound for now. Indicators are suggesting a retest of support is possible but they are also suggestive that support is actually there. Long term support still exists at the previous all-time highs in the 1570-1575 level. Upside resistance at the new all time highs with sideways pressure occurring along the previous long term up trend line. I think earnings season could be a time of consolidation in the index while investors position for the second half of the year.

SPX daily

Longer term the index is bouncing from support. Momentum is mildly bearish and stochastic is pointing down at this time but does not indicate long term weakness yet. My range theory still looks good here but keeping a close watch on support will be important.

SPX weekly

The long term up trend is broken but that does not mean that the new trend is down. It doesn't even really mean that the new trend is sideways either. The market could easily catch a wind and move higher but I'm not holding my breath. For now I see a lot of reason for stocks to hold their ground while data, earnings and outlook are digested. Without a break out I look for the S&P to bounce between the previous and current all-time high levels.

Until then, remember the trend!

Thomas Hughes