US equity indices faltered today as traders await a massive round of economic data and earnings reports.

Introduction

The US equity markets dipped early today as traders await the month end macroeconomic data, an FOMC meeting and upwards of 700 earnings reports. The drop, which began after the open, was slow to start but accelerated after the 10AM release of pending home sales. The SPX found near term support just above the short term moving average, as did the other majors, and was able to reclaim most of the early losses. During the afternoon trading picked up a little, pushing the major indices into the green but after some mild late day volatility the markets closed mixed, with some above and some below Friday's closing prices.

Market Statistics

All eyes are on the week ahead. This is a real whopper of a week in terms of data and earnings with the added possibility of numerous geopolitical situations impacting the markets. Today alone there were about 80 earnings reports with about 700 or more scheduled for the rest of the week. On the economic front it is the end of the month which means monthly macroeconomic data in the form of jobs numbers and several other important data points. We will also get the first estimate for Q2 GDP and an FOMC meeting. Ordinarily Friday's NFP and unemployment report would top my list of important market moving days for the week but I think Wednesday may take that spot this time. Wednesday morning the ADP number will be released at 8:15AM followed by the GDP estimated at 8:30AM, both before the FOMC announcement later that same day. The ADP isn't too important but can foreshadow NFP which is more important, the GDP is going to be closely watched as will the Fed.

Economic Calendar

The Economy

There was one data point released today, Pending Home Sales. Pending sales dropped by -1.1%, slightly more than expected. Analysts had expected an average drop close to -0.8%. This is of course depending on which estimates you are reading. At least one report I read had the expected number at +0.3%. Regardless the drop was not what the market wanted to hear and helped to send the indices to the day's low. Last month's number was revised lower by a half percent to +6%. On a year over year basis the number of homes under contract is only down -4.5%, better than the expected -5%. Other housing related data this week includes the Case-Shiller 20 City Index and Construction Spending. Case-Shiller is expected to rise nearly 10% while spending is predicted to drop by at least -0.5%.

Also on Tuesday new Consumer Confidence numbers are scheduled for release. Wednesday the calendar heats up as I've already described with that bubble of data spilling over into Thursday. The weekly jobless claims figures are accompanied by Challenger Job Cuts, Employment Cost Index and Chicago PMI. Friday wraps the week with Construction Spending, ISM, Michigan Sentiment, Personal Income/Spending, auto/truck sales, unemployment and NFP.

This weeks summary of Moody's Survey Of Business Confidence starts of on a somber note. Mark Zandi begins by saying that “business sentiment outside the US has softened”. This is the first mention of this or anything negative in some time but he goes on to reiterate previous reports by saying “U.S. business confidence remains strong, as it has all year, consistent with an economy that is expanding well above its potential. . . Responses to the survey questions are strong across the board, but hiring intentions are especially robust; more than half of respondents are hiring.” Hiring has been an underlying theme for many weeks now and is in line with last weeks drop in initial claims for unemployment.

The Oil Index

Oil prices remain weak. WTI traded down by nearly a dollar on an intraday basis, dipping down to $101.00 before bouncing back in the afternoon session. Lack of supply disruption and large stockpiles are pushing prices lower while increased sanctions and continuing violence in global hot spots is keeping the fear factor in play. In Libya fighting sparked a fire in a fuel plant that is feared to be out of control. The Libyan government has asked for international assistance in putting it out. In the Ukraine fighting is ongoing while in Iraq focus has shifted from ISIS to the dispute between Iraqi and Kurdish officials over ownership of Kurdish oil. Newly emerging in the headlines is another round of fighting in Syria which may threaten regional stability.

The Oil Index traded lower today, in line with the broader market, and found support along the short term moving average. The index traded lower by about -0.25%, finding bottom within one point of the 30 day EMA. The index has been firing off some weak trend following signals over the past week or so but has yet to move higher with conviction. Today's move is another retest of support and sign that traders are waiting for either the FOMC, earnings, economic data or a combination. Most of the big oil companies report this week and could provide catalyst through revenue, EPS and/or guidance. The indicators are neutral to bullish on the daily chart following the aforementioned series of weak signals; MACD right at the zero line, stochastic is rising in the longer term and falling in the shorter. There is support along the 1,650-1,675 level with resistance at the current all time high near 1726.


Exxon Mobil is scheduled to report earnings on Thursday. The largest oil company is expected to earn $1.91 versus last quarters $2.10. Today the stock rose more than 1% from the short term moving average to approach a new all time high. The stock has been in a consolidation range for 3 months and is now moving up toward the upper end of that range. The indicators are bullish but not strong, consistent with a stock approaching the top of a range. The longer term charts are a little more bullish but a break to new highs is a requirement with prices at the current level. This quarter's earnings could provide the catalyst but I think it will be guidance, future outlook and economic data that carry the trade.


The Gold Index

Gold traded exactly flat for today. After an initial pop of $2 that took prices briefly above $1305 gold retreated to close UNCH for the day. There is risk in the market due to global conflict and that risk is causing some to seek safety but the underlying trend of improving economics is still present as well. For now they are balanced just above $1300. Conflict could escalate at any time but so could the economic outlook and the prospect for rising Fed interest rates. The combination of the two, especially with so much of both on the table, may have gold traders on edge. It is not hard for me to imagine one with an eye on mainstream news and the other on CNBC, watching for any kind of sign while having their fingers poised above the buy/sell button in anticipation of whatever this week may bring. I would not be surprised to see some volatile gold trading because of it.

The Gold Index traded in line with the broader market today, moving lower in the early part of the session and then higher in the after noon. The index is bouncing off the short and long term EMA's but is still trapped inside a longer term resistance zone. The prevailing trend is still down as are the indications but there are some signs of longer term buying around the 150 day EMA. Earnings are going to be important as is guidance and outlook for gold prices. The big names in the sector are scheduled to report toward the end of this week. The gold companies were able to boosts earnings in the past quarter through cost reductions but those can only go so far in the face of low gold prices.


Barrick Gold is expected report earnings on Wednesday after the close of trading. The miner is expected to report EPS of $0.14, roughly 50% below last quarters results. Shares of the stock traded down from Friday's close, testing support at the long and short moving averages. Current price action is firmly in the middle of a long term range with the possibility of growing support. The indicators are bearish at this time but prices have been able to hold above $18 with multiple tests of support. A break below $18 could take the stock back to the low end of the range near $17 or lower. Resistance is just above the current level near $19. Earnings will be crucial, but so will gold prices and economic data affecting gold prices.


In The News, Story Stocks and Earnings

Earnings. Today there were only about 80 reports and not too many names of big interest on the list that I noted. Herbalife was one that caught my eye, if only because of the battle raging over it. The company reported earnings below expectations for the first time in many quarters and sent the stock down by more than 7% in after hours trading.


Merger Monday was more in the spotlight than earnings today even though there are so many reports this week. Big in the news is the purchase of Trulia by Zillow. The deal is worth over $3.5 billion in stock and sent shares of Zillow lower, intitially, and Trulia higher. Trulia gained close to 20% on an intraday basis while Zillow fell at first only to find support later in the day. Shares of the stock did not gain so much as the target company but did manage to climb more than 1.5%. The candles and indicators are strong and in line with higher prices over the long term.


Also in the news is an offer from Dollar Tree to buy competitor Family Dollar in a cash and stock deal worth $74.50 a share. Shares of both stock gapped up at the open but only Family Dollar was able to hold the higher prices. Shares of FDO climbed higher than the offer price raising speculation the deal would go higher and that other players could get involved.


The Indices

While most of the market was able to trade higher for at least part of the day the Transports were under pressure from the start of trading to the end. The Trannies lost more than a full percent in today's session, making the fourth day of decline since an all time high four day's ago. The index is just above support at the 8,250 level and the short term moving average. The indicators are bullish but showing weakness in the nearer term, weakness that could result in a test or break of support. The long term trend is still up so I will be looking for support to kick in during the week as earnings and data are released.


The Nasdaq also closed in the red today but by a much smaller margin, only -0.10%. The index dropped after a mildly weak open, approached the short term moving average and then moved back up to the closing level. The candle formed is not overly large but big enough not to be considered another spinning top like the previous 5 candlesticks. This is a small but positive sign of support along the moving average and in line with the prevailing trends. Support is currently at the 4,400 level, just below today's low and a hairs breadth above the 30 day EMA, with a previous all time high just below that.

The indicators are mixed on face value with the MACD in the red and stochastic showing a weak buy. The MACD peaks are bearish but also consistent with support, convergent with stochastic and in line with the trend. The risk at this time is for earnings to disappoint, economics to falter and/or geo politics to take hold of market direction. A break below support would confirm a potential double top that has been forming and put a downside target near the long term moving average. This move would be equal to roughly 10-15%.


The Dow Jones Industrial Average traded closed in the green after a morning spent testing support. Today the blue chips managed to eke out a gain of +0.13% after moving below the 30 day EMA. This is a good sign of near term support at least as we wait for the week to unfold. This index has been bobbing along the moving average since mid February and looks like it could keep on doing the same. The indicators continue to trend at/near the midpoint/equilibrium levels respective for to each. MACD is bearish now, but very weak as it has been, and peaking and in line with past bounces. Stochastic is overbought in the near term (%K) while in the longer term (%D) it is still in the middle of the range and apparently going nowhere fast. This combination leaves the up trend intact and in control with the appearance of slow, steady buying. A drop below support, currently indicated at the short term moving average, would find next support around 16,750.


The SPX made a move very similar to the blue chips. The broader market opened mildly weak, moved lower to test support at/near the moving average, and then moved back to set a new intraday high and close in the green. The index found resistance at the all time high set at the beginning of July but looks set to bounce higher provided nothing spooks the market. The indicators are moving lower in the near term but also setting up for a possible follow up signal to the weak signal I noted last Thursday. The SPX has basically been moving sideways all month, consolidating between previous and current all time highs, and pressured from beneath by the short term moving average. The forming pattern is taking on an upward bias and is poised for a potential break out.


The market tried to get scared today but in the end decided to wait and see what the fed and the data and the earnings have to say. There are a lot of reasons to worry but in the end the trends are still up and there is no reason to suspect change just yet so waiting for the data is only the right thing to do.

In the nearest terms, geopolitcal concerns have the power to cause a sharp movement but one that is likely short lived. There are at least four hot spots flaring up now including Iraq, Libya, Ukraine and Israel/Gaza. In the short term earnings and earnings growth are a concern and then longer out is the economic outlook.

Political turmoil or earnings may cause a correction but the economics dominate the long term trend. On an individual basis no one sector of the economy is carrying the recovery but as a whole everything is getting better a little bit at a time. Housing is not booming, but it is steady. Jobs creation isn't booming but it is also steady. The consumer isn't spending like crazy but is spending. As the one grows in turn does the other and sooner or later I think they will start to grow in tandem. For now be prepared for whatever may happen.

Until then, remember the trend!

Thomas Hughes