The possible shooting down of a Malaysian Air flight on the border between the Ukraine and Russia sparked another flight to safety.

Introduction

An early day of quiet trading turned sour when reports a crash was possibly an attack from unknown sources along the Ukrainian/Russian conflict zone. The crash happened but the details remain murky. What matters is that the chance it was an attack or mistaken attack raised the possibility of escalation in the region and sent traders seeking safer havens. Backing up to the start of the day Asian indices were mixed on profit taking and earnings. European indices were impacted by action in Asia but also by renewed tensions with Russia following President Obama's increased sanctioning. Early indications here at home had the indices down about a half percent with that moderating somewhat before the opening bell.


There was quite a lot going on today even without the airline crash. Of course earnings are in full swing, economic data was on the heavy side as well. Earnings are coming in steady with more companies meeting or beating expectations than not. A few companies are not meeting the expectations and some of them and others have also lowered expectations. Three additional reports on top of the weekly jobless claims reveal that things are still the same. Slowly growing but not as strong as we would like to see and no sign of any surprise surge in growth could be on the way. Jobless claims remain steady in the near term and continue to decline in the longer terms. Housing permits, a sign of planned construction, fell last month along with housing starts. Regional manufacturing data rose more than expected and suggest that some momentum is building.


The early signs were that the SPX would open down about 9 points. This moderated as the data was released and earnings were reported. The index opened down only a few points and found early support above 1975. By the end of the first half hour the index, along with the other majors, had bounced back to break even. I thought reports from the Philly Fed would help to get us into positive territory but I was wrong. The indices drifted sideways for the next hour and half with no real indication of market intentions until the first whispers of the plane crash started coming in. At that time the SPX sank close more than 15 points to the intraday low. The news caused sharp movements in some of the safe haven plays like the yen and gold. After the initial drop in equities the news tempered a little and the markets were able to find some support.

The Economy

First up on the economic calendar today was jobless claims. Initial claims for unemployment fell by -3,000 from an upward revision of 1,0000 for a net drop of -2,000 from last weeks reported figures. This is against expectations of a rise near 10,000. The four week moving average also fell, to 309,000, the lowest level since June of 2007. On an unadjusted basis claims rose by 47,000 or 14.6%. State by state Michigan led with a gain of nearly 10,000 new claims while California had the biggest drop in claims with -4,008. Based on the graph provided by the Bureau of Labor Statistics initial claims have been trending near the bottom of the range for some time now and look ready to break below 300,000. Regardless, claims are trending at the low end of the range and holding steady, enough to help other data points trend lower.


Continuing claims fell more than expected to a new low not seen since June of 2007 as well. Claims fell by -79,000 to 2.507 million. This is a sharp drop and an extension of a downtrend in longer term unemployment. As I have postulated before, I view the initial claims as a sign of turnover in the market and continuing claims as a sign of how quickly a person who gets fired can find work and total claims as an indication of longer term unemployment. This is not official, just a theory I have in place. In that light total claims also fell, by -20,292, to 2.446 million.


Housing permits and starts were released at 8:30AM coincident with the claims data. Permits fell versus an expected rise. On the flipside the previous month's data was revised higher to just over 1 million homes. While the new data suggests building permits cooled off a little for the current month the revision shows they were stronger last month and could lead to more starts in the next month. This month housing starts fell by -9.3% to 893,000 missing estimates. Last month's data was also revised higher but not over 1 million. This could get revised higher in light of the higher revision to permits.

The bit of data I thought might move the market a little more was the Philly Fed Survey Of Business. The survey rose to a reading of 23.9 from last month's 17.8 versus an expected fall to near 12. All readings within the report rose in June and all future indications were rose or remained positive. This is the fifth month of positive readings in the survey and reflect sentiment similar to that reported by Mark Zandi in his weekly survey of business. This is also the highest level for this indicator since March of 2011. New Orders are up 17, Shipments up 9, labor is near flat but improved.

Accoriding to RealtyTrac foreclosures are down to 2006 lows and down -16% from last year. Todya's data reveals that nothing has changed. Employment trends are still positive, housing is still growing slowly and business sentiment is positive.

Safety In Gold

The crash report sent traders scurrying in a knee jerk reaction into gold. Gold prices had been up a few dollars and were hovering just above $1300 when the reports started to flow in. At that time gold prices shot up $20 or so. The metal found resistance at $1325 and moderated down to a closing price of just over +$17. This situation could keep some buying in gold in the near future, at least until we get a better indication of what happened. For now no one is taking credit.

The Gold Index climbed more than 2% today in the hopes that gold prices would remain elevated. The index is making a bounce from support but still indicated very weak. Bullish momentum is still in decline and stochastic is moving lower. The long term trend is down, the most recent signal is bearish and today's rise is driven by news/flight to safety reactions. This may be another trap and one to be cautious of.


The Oil Index

Oil prices may have been affected by the crash news but were already on the move. WTI had been up close to to $2 earlier in the day and moved back up to the daily high before the close of the session. WTI climbed $1.92 while Brent rose only about $0.60, narrowing the spread some. The positive Chinese GDP released earlier this week, our own economic data, earnings and a draw down in stocks are providing a reason to think oil demand could rise. WTI settled at $103.10 at the end of today's session. The Oil Index fell today, in line with stocks and not with the underlying commodity. The index is now sitting on the short term moving average with long term support just a few points lower. Bearish momentum is in decline while stochastic is indicating an early buy suggesting that a stronger signal could be on the way. Support is at 1,650 so that is the line to watch for now. A break below that would find support at 1,625 and 1,600.


In The News

Microsoft made a big headline today announcing 18,000 new job cuts. The cuts are focused on the Nokia branch of the business, purchased last year, and are part of the overall restructuring process begun by the new CEO. The move will cost the company close to $1.5 billion dollars over the coming quarters and is expected to reduce long term operating costs, streamline and focus business segments. The stock popped on the news during the early session and gapped up at the open. Strong selling ensued driving prices down from the open but not below yesterday's close.


The Banking Index

Morgan Stanley was the last of the big financials to report earnings today. They too beat estimates, by a nickel. Adjusted EPS is $.60 and comes on slightly better then expected revenue. The report says that loan portfolios continue to grow and that the company expects this to continue into the future. The stock moved higher in pre market trading and then gapped up to resistance at the open. After trying to move higher selling pressure took over and sent shares lower. Morgan Stanley has been trending sideways for almost a year and is now moving down from the upper end of that range. The indicators are listless and without direction, in line with a trading range .


The BKX fell pretty hard today, aided by lack luster revenue guidance from regional bank FifthThird. The index dropped more than 2% to come to rest on a near/long term support line. Indicators are weak and point to a further move lower. Bearish MACD is picking back up and stochastic is trending lower in the range with a potentially bearish crossover. A break below this level could take the index to the next support around $67.50. Earnings this quarter were good, I think now there is concern for more improvement into the future.


Earnings Roundup

There was a flurry of reports before the bell today including the banks. Phillip Morris, tobacco maker, beat on the top and bottom lines. The company also reaffirmed full year guidance. Shares of the stock were one of today's few gainers. SAP, one of the fastest growing cloud companies, beat expectations and raised its full year guidance. The company said that it is experiencing subscription growth and higher revenue rates for cloud computing. Shares of this stock gapped up at the open and then sold off during the day, closing with a small gain. United Health Care also beat earnings expectations. The health company reported $1.42, $0.16 better than the consensus estimates. Investment company Blackstone beat on the top and bottom lines. The company reported the gains come on the back of sales of assets in the private equity side of business. Shares of Blackstone carried the trend of gapping up at the open, then selling off during the day. Medical products maker Novartis also reported profits and revenue above estimates and reaffirms full year guidance. Novartis shares bucked the trend, gapping lower and rising during the day. After the closing bell earnings from Google had the market moving a little. The internet giant beat expectations with an increase of profit on better than forecast revenue.

The VIX

The VIX spiked with today's sell off. The so called fear gauge climbed by more than 25% today creating one of the longest candles I have ever seen it make. Looking back over the past 3 or 4 year the index has made a few candles of this nature but they always precede a subsequent drop. Nearly every time the index makes such a strong move the next day it moves down with an equally strong movement. The few times it did not the down move came a day or two later. This could be a sign of something good for the market as it could be wiping a lot of negativity and expectations of pullback or correction out of the market. In the near term and going into tomorrow the news will have a lot to do with how the index and the market reacts. If the crash scenario detoriates, or looks like Russia was behind it, then there will likely be more selling.


The Indices

The Techs and the Transports tied for biggest decline today with a drop of -1.41 each. The Transports are falling from a brand new all time high and still above near term support. The indicators are still on the neutral side although bullish at the time. The recently turned bullish MACD is already peaking and stochastic is still moving sideways, just under the upper signal line. There is something going on here and I'm not sure what it is yet. If the selling persists there is support for the index just below today's closing price along the 8,250 round number level, and then just below that at the 30 day moving average. The long term trend is up but it looks at this time that the index may consolidate some in the near term with a chance of it moving down to the long term trend line about 300 points lower.


The Techs were also hit hard today as traders moved out of the riskier assets and into the safer plays. The Nasdaq Composite has now made a lower high and is in danger of making a lower low. Today's move down took the index below my long term support line and the short term moving average with increasingly bearish indicators. Momentum is on the rise and stochastic is moving lower in the range. I expect to see some more weakness here with a possible strong retest of support. A break below would find first support near 4,300 with a short term target down around 4,100.


The broad market fell more than 1% today for the first time in nearly 3 months. The last time I can see for sure, without measuring, was April 10th. That was during a long term trend line bounce and I think that is what could be happening now, a move down to the long term trend line. Today's move was a drop down from the resistance of current all time highs and has the look of a consolidation or correction to trend. The long term trend line is not far from the current level and could be reached with only a few days of moderate selling.


The Dow fell by just under a full percent, also moving down from a freshly set all time high. Today's move brought the index back below 17,000. The index is still above the short term 30 day moving average with indicators that are positively neutral. MACD is at the zero line and has been over the last few peaks while stochastic is firmly trending through the middle of the range. These readings are highly divergent and could be leading to a correction or pull back in the index. Support for the index is found below the 17,000 line at 16,750 and 16,500.


There has been some underlying near term weakness in the markets of late and only needed a catalyst to set it off. Not anything overtly bearish but as if the market was waiting for something and this is what it got. The geo politics in Ukraine and Israel are near term problems just like they ISIS last month, Ukraine the month before and others along the way. The long term trends are up and I expect them to continue but for the near term earnings haven't been strong enough to keep the market elevated. This correction is good for the rally as it will provide a cooling off time and potential trend following entries in the future. Tomorrow may be a tough day because of the plane crash story that is still unfolding but keep in mind that economic data and Fed outlook point to continued, steady growth through the end of the year at least. What was once called the most hated rally I now dub the Tortoise Rally, slow and steady, slow and steady.

Until then, remember the trend!

Thomas Hughes