Global data and earnings pushed the S&P 500 a little closer to the elusive 2,000 mark.

Introduction

A combination of global and domestic macroeconomic data and earnings from nearly 230 companies combined to send the S&P 500 to a new all time high. Chinese and European flash PMI readings started the ball rolling in the early sessions. Chinese PMI rose to an 18 month high indicating that manufacturing in that region is responding to stimulus measures. The index came in at 52, versus the previous 50.7 and the expected 51. In the EU net PMI came in at a surprising 54 with expected weakness in France and other peripheral countries. In Germany PMI rose to 52.9, ahead of the expected 52 and last months reading. Asian markets were mixed but mostly in the green while in Europe buyers were able to lift the indices across the board with an average gain around 0.5%.

Market Statistics

Futures trading indicated a higher opening throughout the pre opening session. There were some fluctuations but the indication for the SPX was about 3 points higher than yesterday's close. A flood of earnings reports and a much better than expected jobless claims number had little affect on the market but did help to support it. At the open trading was in the green with some pressure to test yesterday's closing price in the first half hour to an hour. The SPX and other indices were pushed back to break even and into the red for a brief time before moving back up to the intraday high. One cause for the early pressure was a weaker than expected new home sales number that did not inspire a lot of confidence in the housing recovery. The remainder of the day saw the indices drift between the lows and highs of the day, closing near the mid point of the range.

Economic Calendar

The Economy

Today initial claims for unemployment was released with a surprise drop. Claims fell by an unexpected -19K to below 300,000 and a new low not seen since before February 18, 2006. This is the first time claims have been below 300K since before the crisis and a sign I have been on the watch for. This is not the holy grail of economic data by any means but is an important level in terms of this one particular indicator. This is a sign that near term unemployment, layoffs and job turnover are improving and could lead to improvements in other areas. Last weeks figure was revised upward but by a mere 1,000 claims. The four week moving average fell by more than -7K and is on the verge of breaking 300K as well. This is also a new low, one not seen since before May 19, 2007. Now that intitial claims have fallen below 300K it may be time to start looking for another marked improvement in the jobs data. The next round of which is just next week. Initial claims lag by a week, continuing claims by 2.


Continuing claims fell as well in this weeks data, by -8,000. Claims for a second week of unemployment dropped to 2.5 million and another low not seen since June 16, 2007. Last week's data was revised up by 1,000. The four week moving average of continuing claims fell by -17,000, also a new almost 7 year low. Looking at the table of adjusted claims provided by the DLS it appears as if they are trending lower with no sign of bottoming. Total claims was the negative surprise in today's jobs related data, climbing by more than 165,000 to 2.611 million. This is off of recent lows but still near the somewhat recently set long term lows.


On an unadjusted basis claims fell by more -78,215, or -21.1%. This is more than 30% more than expected. On a state by state basis New York and California led with gains in claims of 14,427 and 11,126, respectively. Georgia was next runner up with a gain of 6,112. Michigan and New Jersey both had drops in claims with Michigan's -6,846 leading the way. Now that the jobs market seems to be stable and possibly picking up some analysts are calling for an increase in wages as the next sign of recovery. Based on the results of Moody's weekly Survey Of Business Confidence that sign may come soon. The last two weeks summary of the survey has included positive sign that wage increases are in the works and could begin to appear in the hard data soon.

New Home sales posted an unexpectedly large drop. Sales fell -8.1% to an annualized rate of 406,000. This is below the expected rated of 479,000 annualized sales. The headline drop is not counting the downward revision to last months data which would put this month's figure closer to the -20% mark. On a year over year basis sales are down -11.5% with an increase of inventory of 3.1%. The caveat here is that the numbers are based on estimates with a margin of error of +/-12.3%.

Tomorrow Durable Goods Orders is the only thing on the economic calendar. Next week however is going to be a big one as it is the next FOMC meeting and the end of the month. End of the month means ADP, Challenger, NFP and unemployment data along with several other key reports.

The Oil Index

Oil prices dropped about $0.50 for WTI in the early part of the session. Later that drop extended to $0.90 and then $1.25 as diminishing concerns for global unrest merge with high stockpiles and improved supply. WTI settled near $102 today, down near -1%, but is still elevated over the longer term. Oil over $100 is good for oil company earnings, at least in theory, and that theory seems to have oil companies on the move. The Oil Index is bouncing off of its long term support line and is now moving higher. The index moved up about a half percent today and crossed the 1,700 line for the first time since breaking and being rejected by that same line last month. The move is approaching the current all time high and is accompanied by bullish indicators. Stochastic is firing off the strong trend following signal and that was confirmed today by MACD. Longer term bulls will need a break of resistance but a test of the current all time high seems likely in the near term. Support is at 1,650 with resistance near 1,725.


The Gold Index

Gold broke $1,300 today and fell to a potential support level near $1,290. Early indications had the metal trading just above round number support at $1,300 but once prices dipped below they quickly retreated down to the next level. US economic data and in particular the jobs picture have helped to strengthen the dollar and bring prices down. The Gold Index made a similar move to the down side, breaking a near/short term support line and then later the short term 30 day EMA. The indicators are bearish and gaining strength, in line with the underlying long term trend, and point to lower prices. Downside targets are $95, $92.50 and $90 in the near to short term with resistance just above the current level. Longer term there is some signs of a possible bottom around $85.


In The News, Story Stocks and Earnings

Today more than 230 companies reported earnings on what is one of the single biggest day's of the season. Action before the bell was mild considering the number of those meeting or beating expectations. The percentage is now around 79% in favor of those S&P 500 companies at least meeting the expectations. After hours was active as a number of high profile names reported. A quick round up of names reporting before the bell includes 3M, Ford, General Motors, and American Airlines. Those after the close of trading include Visa, Starbucks and Amazon.

3M reported earnings that were more or less in line with expectations. The company reported earnings of $1.91 per share and reaffirmed their guidance. Earnings are up 11.7% and are a record for the company. The stock rose today to touch a new all time intraday high but fell back from before the close. The indicators are neutral within the current uptrend but could be rolling into a buy but more confirmation is needed to get bullish on this one from here.


Ford reported better than expected earnings, driven by a surprise profit in Europe. The European arm of the company reported its first profit in 3 years, at least a quarter or two ahead of the general expectations. Adjusted EPS of $0.40 is 11.1% better than consensus estimates and on top of a slight miss in revenue. This suggests that operations are better than expected although sales are light. Shares of the stock opened higher, climbed to a new three and half year intraday high before falling from long term resistance. The indicators are bullish but weak and could be indicating the top of a range. The longer term charts are more decisively bullish so I am not counting out higher prices, but with the possibility of near to short term consolidation or pullback. Support is around $17.50 with the next level just below along the short term moving average in the $17.25 region.


GM did not meet expectations due to the impact of the recall on top and bottom line numbers. On an adjusted basis GM earned $0.58 per share, just shy of estimates, on revenue that also fell short. On a non adjusted basis GM reported earnings more than 70% lower than last year at this time due to the massive cost of the recalls, scandal and compensation fund which is just an estimate. Shares of GM fell more than 4% today, dropping below the short term moving average with strongly bearish indicators. A retest of support near $35 or $33 looks likely.


American Airlines, among other air carriers, reported earnings that beat expectations. The airline reported record earnings and initiated a stock buyback along with a dividend, the first since 1980. The company also reported further plans that are intended to reduce debt and costs. The stock, which has been trending higher since the first of the year, moved higher on the news before falling in the late afternoon trade.


After hours action was a little hot as a number of S&P and Nasdaq companies reported. Visa beat on the top and bottom line as consumer spending increased. Starbucks also beat top and bottom with 22% EPS growth, 6% comp store growth and an improvement in gross margins. Amazon was a disappointment, reporting a much wider than expected loss on revenue that was in line with estimates.

The Indices

The SPX moved marginally higher today to set a new all time intraday and closing high. The index moved about 0.1% higher after a day of light trading. Economic data and earnings helped to push the index to the high but next weeks FOMC meeting and round of economic data may be keeping the rally in check for now. The index is firing a stochastic trend following signal that is yet to be confirmed by MACD. However, similar trend following set ups over the past year and more have resulted in upward movements in the range of 40-60 points in the near to short term. The daily charts, shown here, are convergent with the longer term weekly charts which adds even more weight to current bullish analysis. This leads me to think the so-called summer melt-up that folks have been talking about could happen. Next week there are quite a few events on the calendar that could be the catalyst including the FOMC and the NFP.


The other indices were not able to hold positive territory today but closed more or less flat. The Dow Jones Industrial Average lost about -0.02% or just under 3 points. The index has been consolidating over the past week and is inside a narrowing range supported by the short term moving average and the current all time high. The indicators are on the bullish side but still more neutral than not. There is no sign of reversal or stopping here, just not much sign of strength. The index is still moving slowly and steadily higher and that is supported by the indicators.


The Dow Jones Transportation Average lost -0.03% today, or just under 2 points. The index moved lower after a flattish opening and a mild test of the new all time high set yesterday. This index is also moving slowly and steadily higher, like the blue chips, but with more strength. Bullish momentum is steady, even with today's mild drop, and stochastic is pointing up while moving higher in the upper signal zone. There is a chance for some near term weakness but short and long term indications are bullish. A short consolidation here could be expected as it is the first target based on the break out of the flag pattern from the beginning of the month. The next upside target on a continuation is 8,750. Should a dip ensue support is about 250 below the current level along the 8,250 level and the short term moving average.


The tech heavy Nasdaq shed the most today, -0.04%. The index found resistance less than a half point below the current all time high after an opening just above yesterday's close. This indicator is at resistance set last month with indicators that suggest it will test this level in the least. MACD is on the verge of crossing the zero line, an event that will attract momentum traders, while stochastic is giving off a fairly strong trend following signal. Earnings reported after the bell may weigh on the index tomorrow but the long term trend is up and the indicators are supportive of it. Resistance is at 4485 with support along the short term moving average along the 4400 line.


The indices started to make their move this week, ahead of the FOMC and data, just like it has done over the past 2-3 months. Each time the FOMC or NFP approaches the market gets ready to move, then creeps across the line to a new high even before the news is released. Today that move paused as traders digested the data and earnings in preparation for the reality of what next week will bring. The jobless claims data today is one indication that next week we may get some strong numbers from ADP, NFP and unemployment. The new home sales data not so much. In the end the key is how the data all fits together, no one piece is the answer and no single sector can carry the weight of the economy. It is the broader view and the data trends as a whole that matters. Next week we will get a another piece of the puzzle. Tomorrow be on the lookout for durable goods orders and prepare for some potentially volatile trading driven by today's after hours reports and new reports in the morning.

Until then, remember the trend!

Thomas Hughes