World markets rise on future hopes, Non-Farm Payrolls in focus for tomorrow.

Introduction

The global markets were relatively positive today. Asian and European markets were both largely in the green. Asian stocks had been treading water from the previous day's close until the last hour or two of trading. The Nikkei led, helped in part by a weakening yen, with a 1.59% gain. European markets had their eyes on the ECB and the policy statement released today. The ECB maintained their lending rate, as expected, and did not change QE policy, also as expected. The ECB sees signs of stabilization and slow growth but does not see the need to increase their efforts to stimulate the economy. The EU markets closed in the green, barely, after a choppy day of trading. Our own markets were trading to the upside in the early hours as well. S&P futures were up in the +5 range, the Dow around +40, before and after the 8:30 release of jobless claims data.


The initial claims fell this week but the overall trend is still sideways in terms of first time claims. Longer term claims dropped again but may still be feeling the impact of expiring benefit extensions. Other data, such as the Challenger survey of planned lay-offs, revealed more weakness in the jobs sector. Other data, particularly the backward looking Q4 productivity and February factory orders, were also down. The markets did not seem to care as the early gains carried into the open and were extended upon throughout the morning. Eyes seem to be on the NFP report tomorrow and hopes that the current dip in economic activity will end soon. Comments from the retail sector this morning revealed that although weather did impact traffic and sales they saw strong demand in the second half of the month as the weather abated, something I noted around my home town as well.


Today's rally was pretty broad. A look at the Select SPDR's website showed that 9 of the 10 S&P sectors tracked by the ETF's were up in the first half of today's. The only declining sector was the Utilities, XLU. Afternoon trading was a little less robust. The indices retreated from the intra-day highs set during the morning, some moving into negative territory. The Nasdaq hit a new 14 year high before it turned tail and went in to the red. The S&P 500 and Dow Jones Industrials were both able to hold onto positive territory going into the close.

The Data

According to data compiled by Challenger, Grey & Christmas the number of planned layoffs fell in February. The number declined by over 7% to 41,000 after surging in January by more than 50%. Planned layoffs are well above the lows set in December last year but basically flat over the past 12 months. This neither helps or hinders the jobs picture in my opinion. This is the second piece of the monthly jobs bundle, the first was yesterday's ADP report. ADP job creation was reported below expectation but more in line with the last two months of NFP. The previous month ADP number was also revised sharply lower.

Initial jobless claims fell last week by -26,000 to 323,000. The previous weeks figure was revised up by 1,000. The four week moving average of claims dropped by -2,000 to 336,500. This is a three month low and a possible first sign that the labor market is firming a little. If I am not mistaken the weekly release of initial claims, which is lagging by less than a week, is the most current view of labor conditions if also a very unreliable one. Nonetheless, this is a data point to take note of for future reference. On an unadjusted basis initial claims gained 5,702 this week. Nine states reported a drop in claims greater than 1,000 with a total near -22,000. Seven states reported a jump in claims greater than 1,000 with a total just under 20,000.


Continuing claims fell as well. This number fell -8,000 from a downward revision to last weeks data to hit 2.907 million. This is an 8 week low for this figure. Continuing claims have been elevated over the past two months, though slowing coming down. This weeks number could be another indication that labor conditions are firming somewhat going into the spring. This number lags the current by two weeks, and the initial claims data by one week.


Total claims also fell but I still think this number could be affected by the expired benefit extensions. Total claims fell by over -86,000 to 3.399 million. This is a new low. Even if the total claims are being impacted by benefit extensions it could also be moving lower on firming labor conditions. Together, all three measures of jobless claims are lower, moving lower and could be indicating a turn in labor conditions. I don't expect to see much proof of that in tomorrow's NFP and unemployment data but it should become apparent next month providing the trends in the data I see now hold up for March and into the spring.


Some final data for Q4 was also released today but I don't think it matters that much. Productivity in the quarter was revised lower, below expectations, to 1.8%. This is also a drop from the third quarter. I don't think it matters too much because it is the third revision of data for a quarter that ended more than 8 weeks ago.

The Gold Index

Gold prices made a wild swing today. Early in the morning the spot price for gold was down in the -$5 to -$10 range, then it turned around and shot up about $10. I think the ECB decision and unfolding drama in the Ukraine/Crimea had something to do with it. Weak U.S. data could also have had a hand in the move. Prices moved above the $1350 mark today in the U.S. session but had a hard time staying above that level. This could become resistance if prices do not move higher soon. Economic data and the upcoming Fed meeting will be a factor in this move.

The Gold Index moved up today as well but is still below the resistance of the lower boundary of the previous bear pennant. With gold prices up near 5 and 6 month highs another wave of buying in the gold stocks might not be out of the question. However, I think I am going to need to see a break back into and above the pennant before getting truly bullish on the gold miners. The index is finding short term support along the 30 day EMA near the $100 level but faces resistance just above near $105.


The Oil Index

Oil prices fell again, the third day of declines after the Putin inspired rally on Monday, before whipsawing back up. Prices dropped to near $100 before bouncing back to the $101 level. Look to the $100 level for support, a break could take oil back to $95, over the next few days. The Oil Index traded to the upside today, challenging resistance but once again failing to break it. High oil prices could mean better earnings for oil companies but were prices elevated high enough, long enough to really make a difference? The index has been fighting the long term resistance level for almost two weeks and could reverse it if not broken soon. The index is struggling to hold the current uptrend, a trend that is now intersecting with resistance set during the 2008 market reversal. A break above the 1485 level has another resistance just above at 1500.


The Dollar Index

The dollar sank to a four month low versus the basket of international currencies. The Dollar Index dropped more than a half percent, breaking the lower end of the four month range and sinking to near a five month low.


The euro strengthened versus the dollar. The ECB decision and statements helped to rally some belief that things are turning around in the EU. Despite low inflation the bank held rates unchanged on the expectation that there were be some gradual upward movement as the economy slowly improved. The EUR/USD pair moved up sharply from the 30 day EMA today but was halted at a Fibonacci Retracement near 1.3875.


The yen finally started to move this week. This pair made a retest of support Monday during the heat of the Ukraine sell-off and then began to move upward from there. The pair has made two strong white candles but at this time is still contained by resistance near the 103 level. Today's move brings the pair up to a five week high with strengthening technicals. As the winter wears on and the spring grows closer so to does the planned Japanese usage tax hike and the chances the BOJ will need to increase QE. Meanwhile, Fed tapering and Abenomic are still moving this pair in the longer term.


Sector Snapshot

The banks were one of today's hottest sectors. The Banking Index moved up nearly a full percent, making the third of what I will call almost a Three White Soldiers. The index is moving up on bullish indicators but is also facing resistance just above the current level around $71.50. Bullish momentum is on the rise and stochastic has plenty of room to move up so a test of resistance is likely. Economic data will play a big role in moving this index. Tomorrow's NFP report could help to move this and other indices as well. Looking a little farther out the next FOMC is in just under two weeks. Statements, policy changes, interest rates and the taper are all factors as well.


Looking at the XLF things are a little different. This index is already breaking out to new highs and could be foreshadowing a similar move in the BKX. One thing to note is that the XLF includes a lot of the smaller and regional banks, unlike the BKX. The indicators here are also bullish. The MACD is converging with today's spike in prices so even if there is a pullback or consolidation it looks at this time as though we can still expect higher prices in this sector. An improving economy, improving jobs, improving spending, improving housing sector and etc can only benefit the banks whose job it is to handle all of that money.


Story Stocks

There were a quite a few earnings reports today despite being after the so-called earnings season. The top name on the list today was Costco, who posted a miss. The company was expected to earn about $1.16, up $0.20 from last quarter, but reported only $1.05. This is down 15% from the same quarter last year. The drop was blamed on weaker sales, weak exchange rates and poor performance from the non-foods group of merchandise. Same store sales grew by 5% in the quarter while new memberships grew just over 4%. This quarter continues the trend of weakening membership growth and is one area of concern cited by analysts. The stock dropped more than 2% before the open but found some support around the $110-$112 level.


The Indices

The indices were mixed today after setting new highs this week. The S&P, Dow and Transports were all able to move into the green while others like the Nasdaq and Russell 2000 dipped into the red. The S&P moved up nearly 8 points in today's trading before peaking out in the early afternoon. The index appears to want to move higher even though the data and the earnings are not really leading the way. I know that I for one am expecting an end to the winter weakness in the economy and think that there could be signs of this soon. Tomorrow's NFP report will likely not be that sign but what it could be is confirmation that the economic dip is only as bad as it has been and no worse. This, to me, would be in line with the longer term trends, the expected winter slow down and the upcoming expected pick up in activity.

The S&P 500 is moving higher with bullish technicals. Momentum and stochastic are both diverging in the nearer term but longer term analysis suggests that higher prices could still come. With the index back at new all time highs it is harder to pinpoint where resistances might be. One way is to look on the calendar for potential market moving events, the next real big one after the NFP tomorrow will be the FOMC meeting in two weeks. There could be some near term weakness once the NFP is released but the long term trends are still up. Near term support is now around the 1850 level.


The Nasdaq traded into the red today, after making a new 14 year high. Even with the afternoon weakness the index is still riding high on a bullish wave. The indicators are strongly bullish in the longer term but diverging in the nearer term. Like the S&P 500, there may be some near term weakness but the longer term trend is still up.


The Dow is right behind the other two indices but has not quite made it to a new high yet. Resistance is about 150 higher near the current all time around the 16,575 level. Indicators are bullish on this index as well, but are also diverging in the nearer term indicating the current rally is losing steam. Be on the lookout for a pullback or consolidation with support around the 16,250 level.


The markets are setting new highs. That is something that is hard to argue with. So long as new highs are being set weakness, dips and corrections are buying opportunities. Until the data, the earnings or something else emerges as a sign that something is changing the trends are up. The dip we are experiencing was expected. The fact it was a little deeper than expected could be the fault of the “weather effect”, or not. The important thing is when will it end and when will the next uptick in activity begin. This weeks employment data could be an early sign of this happening. Don't expect to see too much in tomorrow's data but pay attention to any forward looking components and the weekly claims. Next month's data and NFP may be better, showing a resumption of growth, or not.

Until then, remember the trend.

Thomas Hughes