Introduction

The international scene was fairly quiet today. There was not much of real interest to me in the news from Asia and Europe beside the typical business news. Asian indices were mixed, fear of the taper still on the minds of traders. In Europe stocks traded to the downside but closed off of the daily lows. Weaker than expected industrial production data was the cause. Here at home trading was little affected by the international action. Eyes are on the FOMC meeting next week and data scheduled for release today. Jobless claims were much better than expected but come with a grain of salt. Two states, “one large and one small”, did report complete data due to computer systems updates.


Futures trading was flat ahead of the release of jobless data. If not for the caveat this figure would have been very bullish in my opinion. As it is, the market did not know quite how to take it. We need to expect revisions to the data but just how much? The two states in question reported some of their data, just not all of it. After the release futures trading remained flat going into the open at which time trading was basically flat throughout the morning. The S&P and other major indexes traded in a very tight range going into the noon hour. The remainder of the day saw the indices drift sideways through the afternoon.

The Data

As I said, initial claims for unemployment fell to hit new lows. Claims dropped by 31,000 to hit 292,000. This is the lowest level of first time claims since 2006. Last weeks figures were unrevised. The four week moving average dropped by -7,500 to 321,000. Of the states that did report full figures CA led the way with a drop of nearly -5,000 followed by NV with -2125. Only one state had a gain in claims more than 1,000, Oregon with a reported 1087. analysts had been expecting a small gain in claims in the range of 7,000-8,000. It is possible the data will still show a drop in claims. Initial claims had been falling in recent weeks reaching a new low just last week. The question is just how much of a revision are we going to get? Based on the reports we can certainly expect the number to go up. The problem with the data centers around a computer upgrade which prevented the data from being entered. Some of the data was entered, just not all of it. The rub is that we have to wait until next week, after the FOMC meeting, to find out.


Continuing and total claims also both fell by huge margins in this weeks data. It is unclear how the computer issue affects these numbers though since they are both lagging the initial claims by at least a week. Total claims is unrevised and is based on data recorded in previous weeks. Continuing claims fell by -73,000 from last weeks data which was revised lower. This week continuing claims reached a new five year low, echoing the decline in initial claims over the previous three weeks. Total claims also fell to a new low. Total claims fell by -122,971 to 4.272 million.



Other data released, import/export prices, was not faulty so far as I know. Import prices declined by -0.2%, export prices by -0.1%. Tomorrow be on the look out for Retail Sales, PPI, Michigan Sentiment and Business Inventories. Next week begins this months round of housing data, the Leading Indicators and of course, the FOMC meeting. The Fed is scheduled to announce their policy decisions (taper no taper) Wednesday at 2:00 PM.

Oil And The Oil Index

Oil traded back to the upside today. Oil prices are still being impacted by the Syria issue but that fear is subsiding. Unrest in other parts of the world such as Libya and Egypt are also helping to keep oil prices higher. Today's EIA release of Natural Gas inventories was bullish for that aspect of the sector as well. Infection totaled 65BCF, less than the expected range of 68-74 BCF. The sustained higher oil prices has been helping the Oil Index which has now broken above the first resistance line. The index is still indicated up but not very strongly. The Fed and tapering is still providing long term resistance, without a break above the second resistance line the short term outlook is range bound. Even without the Fed there is still a risk premium in the oil markets due to Syria that could evaporate very quickly.

Oil Index

Gold And The Gold Index

The declining chances of a U.S. strike on Syria is the major cause for today's decline in Gold, at least according to the headlines. Today's unemployment data also helped to pressure gold prices. Even with the caveat traders took the data as a sign that tapering would start next week. So far this week gold has fallen more than $60, or 4.5%, and looks like it may hit $1300 soon. The Gold Index traded lower as well but not as sharply. The index is indicated down, but not strongly. The $100 level could emerge as support but that may depend on where gold prices go. The Fed meeting will likely have a big impact on gold prices and the Gold Index. If taper yes then I see a stronger dollar and weaker gold, if taper no then weaker dollar and stronger gold.

Gold Index

The Dollar

The dollar fell today versus the yen. The USD/JPY pair has been fighting with the 100 resistance level over the last week and has so far not been able to hold it's ground. The pair currently has support at the short term moving average, which is coincident with the top of the triangle range breached last week. Indicators are bullish but may be indicating a near term top or at least resistance. This resistance is likely related to the FOMC and tapering, which of course we will find out about next week. The BOJ is still committed to printing more yen and tapering is coming, even if not next week, so I am still bullish longer term on this pair.

USD/JPY

The dollar held it's ground versus the euro today. The pair is now trading under a Fibonacci line and above the short term moving average. The move back above 1.3200 was a surprise but perhaps should have been expected. Anytime something looks like a sure thing in the market it's usually a sure thing that the opposite will happen. This pair could experience more volatility going into next week and certainly after the FOMC meeting.

EUR/USD

Story Stocks

The big story in stocks today focused on earnings. Only about 2 dozen companies reported when I looked at the list I was reminded that Adobe and Oracle report next week. Even though Alcoa, which reports in about four weeks, is the “official” start of earnings season I view Oracle as the herald of the approaching season. Of the companies reporting today Lululemon was the one at the top of the list. LULU was able to maintain earnings versus the year ago period but revenues fell. Further, LULU lowered full year guidance to just below the previously expected range of $1.97-$2.00. Shares of the stock fell more than 5% in today's trading.

Lululemon

Moving on to next week Oracle is scheduled to report earnings on Wednesday. The expectation is for quarterly earnings to fall more than 50% on a sequential basis. The stock has been trading up over the last few months but is still down on a YTD and trading under resistance. The previous two earnings reports sparked huge down gaps in trading each worth about 5-6%.

Oracle

Oracle competitor Adobe reports the day before on Tuesday. Adobe is expected to report higher earnings on a sequential basis but lower on a year-over-year basis. Expectations are for earnings near $0.34 per share, versus last year's $0.55. The stock is traded lower today but has been moving up recently. Indicators are bullish and point to higher prices in the near future.

Adobe

The Indices

Trading was subdued today. Without much in the news, wishy washy data and the Fed hanging over everything it is no wonder. The SPX hung around flat line for much of the morning before moving down to the daily low around lunchtime. During the afternoon the index moved up off of the lows but remained in the red. At the current time momentum is still on the rise but that could change soon. Stochastic is overbought near term but still has plenty of room to move higher in the short and long terms. Today's trading range hovered the resistance level of 1687-88. This level is coincident with the intra-day all time high set in late May this year. For now, the trend is still up and the index appears to be moving higher. However, the FOMC is still ahead of us and could alter the course of the market. I remain bullish on the S&P but with caution. Next resistance is the current all time high, a break above here would be bullish longer term.

SPX

The Dow Industrials traded around the flat line today as well. This index appears to be taking a breather after forming Three White Soldiers over the first three days of this week. The indicators are bullish here as well, but likewise, there is still resistance ahead in the form of technical levels and the FOMC. The three white soldiers would be a very bullish sign if not for the Fed, it is possible theindex is merely moving up to the top of the resistance range ahead of a sell-off. A break above 15,500 would confirm the bullish stance here.

Dow

The techs are still leading the general markets. While the S&P and the Dow both remain below their all-time high resistance the Nasdaq Composite is making new highs. Today the index traded in similar fashion to its cousins but managed to put a positive spin on it. Momentum is still weak here but is rising, stochastic is pointing up with room to move higher.

NASDAQ

The Transports suffered today's largest losses. This index is falling back from resistance but is indicated higher. Stochastic is indicating a solid support base and the volume spike associated with this weeks moving average bounce confirms it. However, to take a bullish stance the index needs to break above the current resistance level. The impending Fed meeting may keep the index in check.

Transports

It looks to me like the markets want to move higher. This may mean that the tapering has been factored in like I have suggested in previous recaps. However, the Fed is still providing some resistance to the markets, resistance exacerbated by the Syria issue. For now, the major indices are still trending up but caution is due. Volumes are picking up but still subdued. Traders and investors may be waiting to see what happens next week.

Until then, remember the trend!

Thomas Hughes