The Dow Jones Industrial and Transportation Averages make new all time highs while the S&P 500 is still flirting with resistance.

Introduction

After another volatile day of trading the major indices moved to close at the highs of the days. Data, earnings and more testimony from Janet Yellen were all in the mix. The morning started off on a positive note with better than expected GDP data from China. GDP in the 2nd quarter grew at a slightly better than expected rate of 7.5%. Chinese indices were weighed down with other worries but Japanese and other Asian indices moved higher. European markets were happy with the news thinking that expansion in China will lead to expansion in the EU. This is thought is not far off but there are still risks. Regardless, the US markets were also positive this morning, boosted of course by expectations of robust earnings and expansionary economic data.


There were 6 economic releases throughout the morning from 7:00 to 10:00AM, not counting Janet Yellen's testimony or the Beige Book, released at 2:00PM. Early futures trading put the SPX up about 5 or 6 point with that number strengthening into the open. On top of the data there was also a fair number of positive earnings surprises, including some banks, to help lift the market. The SPX opened about 5 points above yesterday's close and quickly moved higher only to find resistance just below the current all time high. After hitting the early high, about 7 minutes into the day, the indices drifted lower with the SPX hitting support just above 1975. The range between 1975 and 1985 dominated trading the rest of the day. Even with such a good start to the season there the bulk of S&P 500 companies have yet to report and that may be what kept the index in check today. Other majors including the Dow Jones Industrial and Transportation Averages and the Nasdaq Composite all made new highs.


The Economy

First on the list today, released at 7AM, is the Mortgage Brokers Index. The index fell -3.6% last month on a seasonally adjusted basis after climbing in the previous month. On an unadjusted basis mortgage applications rose by 20% on a month to month basis.

The Producer Price Index was released at 7:30AM and indicates that there is some inflation in the economy. PPI climbed 0.4% this month compared to a decline of -.2% last month. This is ahead of the expected 0.2% analysts had predicted but still tame. Core PPI climbed 1.9% on top of a 2% rise last month. This isn't alarming but does lend some weight to the idea that the Fed will increase interest rates sooner rather than later.

Net Long Term TIC Flows rose by nearly $20 billion last month after dropping by over -$24 billion in the previous month. Total inflows of foreign investment money into US securities topped $35.5 billion with more than a third of that private money. Total holdings of US securities by foreign residents also increased, by $34.6 billion.

Industrial Production and Capacity Utilization figures were released simultaneously at 9:15AM. Industrial Production rose for the 5th straight month with another 0.2% gain. There were some revisions to previous data with May revised lower to 0.5% and April revised much higher to 0.9%. June's data was slightly below the expected 0.3% but with the revisions 2nd quarter production rose 6.7%. This is the biggest gain for 2nd quarter production numbers in two years. Capacity Utilization remains basically unchanged at 79.1%. This is down 2 tenths from last month and in line with utilization over the past couple of months.

At 10AM the National Association of Homebuilders released their monthly gauge of sentiment. The index rose to 53 this month, the first time in 6 months, indicating expansion in the sector. This is a 4 point gain from last month. Within the index the current sales component also gained 4 points, rising to 57. Expected future sales rose 6 points to 69 and traffic levels also rose, gaining 3 points to 39. Traffic levels are still very low but rising.

The Beige Book was released at 2PM, as usual, and indicates that the economy is expanding at a moderate to modest pace. This is inline with expectations and current data trends. The report was optimistic about the recovery and sees labor market improvement across all districts. Also up across the board was construction spending and manufacturing.

Janet Yellen's testimony carried on and did not include anything new.

Also in the news this morning was a call from the Obama administration to congress. He wants them to act now to stop tax inversions.

After the bell the administration made moves to widen sanctions against Russia. New moves are aimed at the banks and financing structure behind state run oil giant Gazprom.

The Oil Index

The data, in particular Chinese GDP data, helped to put a bid back into oil. WTI climbed more than a $1.50 today as global demand outlook improved on the same day that crude inventories declined by more than 7.5 million barrels. Global issues persist but did not reach the headlines today. The lift in oil prices was just what the XOI needed to help it bounce from support. The index has been consolidating and testing support for about two weeks and has now made a sharp move higher. The index climbed nearly a percent and a half today and is accompanied by some bullish indicators. MACD is still in the red but has peaked and will likely make the crossover in the next few days provided prices don't fall back again. Stochastic is already signaling the early buy and it is a strong version of the weak signal. There is some fairly strong technical resistance just above the current level around 1,700 with support just below at 1,600. There may be some backing and filling but I don't see any reason why the index won't move up to at least retest the recent all time high, provided earnings and economics remain positive.


The Gold Index

Gold prices climbed today and briefly topped $1300 before moving back below before the close of the US session. Gold prices are now below $1300 for the second day, following the sharp drop from recent highs we saw on Monday. A strong stock market, improving economics, a wee bit of inflation and the prospect that sooner might mean a lot sooner when talking about FOMC interest rate hikes are weighing gold down. Not to mention that with India maintaining its 10% tariff on gold the main source of physical demand growth is out of the picture. My targets for gold include $1275 and $1250 in the near to short term.

The Gold Index was able to recapture some of its losses climbing more than 1.75% in today's session. The candle action is worth taking note of; a harami pattern and one that can often precede a reversal. The other indications do not support that but it could mean that a bounce, test of support or some form of consolidation may happen at this level. Today's action was centered around a previous support/resistance line so again, worthy of note. Looking at the indicators MACD is still highly divergent and now signaling with a bearish crossover while stochastic is moving lower following its own bearish cross. It looks like the bulls are going to put up a fight with $100 as the line in the sand but the long term trend and short term signals are bearish. Downside target on a break below $100 are $95, $92.50 and $90.


Movers And Shakers

Rupert Murdoch wants to buy Time Warner Cable. The bid was announced this morning, was unsolicited and rejected, weeks ago. We are just finding out about it now but the news was market moving none the less. Now speculation is rampant over what he will do now. In order to get the deal to pass FCC and other regulatory scrutiny 21st Fox has already offered to give up CNN due to it competing with Fox News. Shares of Time Warner barely budged but shared of FOX tumbled on the news. The stock fell more than 4.5% today on high volumes and indications it will remain trapped within its long term range.


The Banking Index

Today was another in a string of big days for the banks. This morning at least three big names in the mega and regional banking category reported better than expected earnings, in line with the trend set Monday by Citibank. Now the bulk, all but one or two, of the biggest banks have reported and all but one have beaten the expected results. Yes, revenue and earnings are down from the previous comparable period but not down nearly as much as expected. In general the bankers are reporting improvements in places like margins, deposits, loan growth and other key areas of business. Today's names included Bank of America, US Bancorp and PNC Financial. Also in the mix was Piper Jaffrey, investment bankers, with another better than expected report. Bank of American reported earnings that beat on the top and bottom lines and yet shares of stock sold off today.


The Banking Index fell today from long term resistance. This is because not all the banks are participating in the rally. JP Morgan and Citigroup were still moving higher but Bank Of America, USB and PNC all fell today with PNC at the top of the group with a near 3.5% decline. The Banking Index fell a little more than 1$ today and appears trapped inside a tight support/resistance range between $71.50 and $72.50. This may be due to the mixed nature of trading in the banking sector today and could change at any time. Indicators are indeterminate for now, stochastic is indicating the early, weak, buy signal but it is so far unsupported. Tomorrow the last of the really big financial institutions report, Morgan Stanley and Capital One.


The Indices

The Dow Transportation Average led the market again today. The index climbed a little more than a half percent, 0.62%, and set another new all time high. The indicators are bullish but the stochastic is persisting to trend sideways, creating a divergence from price that is a little troubling. This may just be a sign of caution in the market as we wait on the real onslaught of earnings report next week but in need of watching. Momentum is on the rise at this time with no resistance ahead save what might come around by way of economic data or earnings. There may be a retest of support, currently about 150 points lower than today's around 8,250.


The Dow Jones Industrial Average was right behind its cousin with a 0.45% gain and also set a new all time high. The blue chips are also making a bounce up from support and the short term moving average but with much better looking indicators. MACD momentum is rising, but so is stochastic. Both %K and %D are moving higher, indicating an upward trend in the near and short terms. Stochastic is low in the range so there is plenty of room for it, and the index itself, to trend higher providing no market reversing events take place. Near term support is just below at the now old news level of 17,000. A break below that will find the 30 day moving average about 125 points below that.


The S&P 500 gained a little shy of 0.4% in today's session. The broad market, which is loaded with financial stocks, struggled some with resistance today. The surprising sell off in the regional bank names is partly to blame. The index is also moving up from the short term average, like the blue chips and the trannies, but has not yet made another new high. The indicators are rolling into the early trend following buy sign but MACD is still below zero and stochastic is showing a very weak version of the early buy signal. I think earnings may be a hurdle for the broader market until we can say for sure that most companies are meeting or beating expectations. To date about 67% of the 85 S&P companies that have reported are beating estimates, good but not as good as in previous quarters.


The tech heavy Nasdaq Composite only gained about a quarter percent today. Although there have already been some nice reports from the likes of Intel there have also been a few that are only OK. This index made a gain from yesterday's close but traded down from the open, creating a bearish candle. Along with the indicators this is making a correction in the index look like a possibility, the Nasdaq is a little more than 10% above the long term trend line I have been tracking. Bearish momentum is persisting and stochastic is moving lower in the range. Currently, next support is just below the at the short term moving average and previous long term high. Earnings season, and guidance, will tell the tale and it's still a little early to tell I think. I will be looking for the index to hold at support in the near term until the earnings picture becomes more clear.


There is a lot for the market to ponder. The economy is improving, the Fed said so. The Beige Book sees labor improving around the country. Economic trends are up for the most part if a little hit or miss. Earnings so far are good, some a little surprising but mostly just good. Guidance is also OK, not stellar but OK. Overseas things are still muddling along. China is growing but is it really? Europe is still on shaky footing but improving in fits and starts same as us. Things in general are OK and getting better a little at a time but there still hasn't been that spark, that one surprise jump in jobs, or unemployment or housing, or earnings or a combination of several factors to really convince the market that things really are OK. Just the same old incremental, steady improvement. Tomorrow is another round of weekly jobless data along with monthly housing starts, building permits, Philly Fed and Leading Indicators. Any one of them could be the ticket.

Until then, remember the trend!

Thomas Hughes