Once again the market tried to stage a rebound but geopolitics persist in keeping them down.

Introduction

Earnings and economic data had the equities market up this morning in an attempt, once again, at rebounding from recent lows. However, once again, the geopolitical scene stepped in the way and sent the market seeking cover. The as yet unresolved Russia/Ukraine situation continues to deteriorate with Russian troops massed on the border, massive sanctions from the west and new retaliatory sanctions from Russia against the west. New developments include a ban against imports of poultry into Russia and an end to a recent cease fire upheld by the Ukraine government. Adding to the geopolitical scene and tension is the ISIS uprising in Iraq which has reached the point in which our own government is contemplating military support for those displaced by the violence. Needless to say, the market was focused on these issues today.

Market Statistics

Equities were depressed on a global level today. In Asia equities finished mostly lower on uncertain economics and geopolitics. In Europe the feeling was much the same, with the added disappointment of no change to ECB rate policy. The ECB released it's monthly monetary policy decision today and, though largely expected to do nothing, still managed to let some steam out of the market. In his statements following the release bank leader Mario Draghi said that the bank, while not ready to act now, had “intensified preparations” and was “ready to act” on asset purchase plans if the inflationary data warranted it. So far this year EU expansion and inflation have been very tame, well below the 2.0% target rate and Draghi has been saying much the same thing all along.

Here at home early futures trading indicated a strong opening and held that lead following the release of the weekly jobless claims numbers. Claims came in much lower than expected but were not strong enough to overcome near term concerns. After the open the SPX and other major indices held onto some gains for most of the morning before dipping into the red. This was blamed on comments from the NATO chief pledging support for Ukraine in the face of Russian aggression. Following the comments the SPX shed about 10 points, followed by a 70 point drop in the Dow. The market then churned between the daily low and yesterday's closing price after hitting intraday bottom around 12:40. The indices tried to rebound in the mid afternoon but were not able to sustain the move and by 3:00 the market was back down near the low of the day. Late afternoon saw the markets set a new intraday low before the close of trading.

Economic Calendar

The Economy

Today's jobless claims numbers were better than expected, dropping back below 300,000 for the second time. In this week's report claims fell by -14,000 to 289,000. Last week's number was revised higher by 1,000 for a net drop of -13,000 from last week. The four week moving average also moved lower, dropping -4,000 to 293,000. This is the second week the average has been below 300,000 and the lowest it has been since 2/25/2006, on an adjusted, revised and recalibrated basis. Claims also fell on an unadjusted basis, by -10,492 or -4.1%, to 247,133. The states with the biggest gains in claims were Washington State with +426 and New Jersey with 346. The states with the biggest declines in claims were Michigan at -3773 and Ohio with -2,701.


Today's data is a sign, providing the number stands through revision, that job loss is decelerating. I also take it as a sign that turnover in the market, on a short term basis, is slowing and could be a sign of increased job availability. Looking at the table of claims provided by the DLS, from a chartist perspective, it appears as if adjusted claims has dropped below previous support and may be confirming resistance at that level, 300,000. Looking at the table of unadjusted claims, which is presented with last years data as a dotted line, it appears as if the drop in claims is accelerating faster than the seasonal trend of last year.


Continuing claims also fell this week, by -24,000 to 2.518 million. Last week's number was revised higher by 3,000 for a net drop of -21,000. The four week moving average also fell, dropping by -17,000 to the lowest level since 2007. This is just off the low set early last month and a continuation of the long term down trend in unemployment. This number is not an awe inspiring piece of data but is one more incremental improvement in the overall picture. Since March of this year continuing claims has declined by roughly 15%. Total claims also fell in this weeks data, dropping -41,623 from last week. Total claims are not revised but also continue to decline over the long term and are sitting just off the long term low.

The Oil Index

Oil prices spiked by 0.75% today on renewed Iraq fear. The new fear is that we will get involved in some way but as yet the oil infrastructure has not been damaged. However, Kurdish and ISIS forces are fighting in the north and could soon become a problem. WTI gained $0.75 while Brent gained more than a dollar. The Oil Index did not fare so well, dropping by more than one percent on an intraday basis. The index fell below my long term trend line at 1625 but did not drop below the intraday low of last Friday. The indicators are bearish at this time with momentum increasing and stochastic pointing the way lower. There is support at the current level, but more just below along the long term trend line which is my target on a full breach of support. The long term trend is still up so I remain bullish but have caution going into tomorrow and the weekend. There are no major economic or earnings releases but lots of chances for geopolitics to impact oil and equity prices.


The Gold Index

Gold was under pressure in the early part of the day as economic data pointed to the longer term economic uptrend. Later in the day the geopolitical situation helped put a bid back into the metal and drove it up about $6 or $7 to near the $1315 level. Once again gold prices have become a safe haven to run to but once again it appears as if $1315-$1320 is going to provide some resistance. My long term view of the economy is bearish for gold but it may be possible that my view has been priced in. Price action over the past few months has been hard to judge due to clashing economics trends and market fears but basically sideways and around $1300 with no real sign of longer term decline.

I am about to hang up my bearish stance on gold for a more firmly neutral one but not quite yet. This is also true for the Gold Index, providing it can maintain its position above the 150 day moving average. The index traded down today and is sitting just above support, in the middle of a short term consolidation range. This support is consistent with the short term and long term moving averages as well as a previously marked support area. The index is still within a longer term bear market but has created a potential long term bottom this year with a base at $85. Currently the index is within the short term consolidation band, but also near the mid point of the potential double bottom reversal pattern. The indicator are consistent with support along these levels and could be leading the index to move up and test resistance at the $105 level in the short term and possibly the $110 level in the near term. In the end though I think it will come down to gold prices and at this time those seem tied to fear inspired by Putin, Russia and to some extent ISIS and Iraq.


Randgold Resources, one of the top gold producers in Africa, reported earnings that were below expectations. The company posted EPS of $0.53 versus the expected $0.79 and last quarters $0.79. Production for the quarter was down from the first quarter marginally but up from last year. Improvements to operating mines helped to boost production while increasing costs hurt bottom line results. Shares of the stock lost over 1% in today's session, breaking the short term moving average but coming to rest on a long term support. I have two support/resistance lines marked on this chart, forming a zone of potential support coincident with the long and short term moving averages. A break below the upper boundary along the $85 level could see the stock fall down to the lower end and longer term support along the 150 day EMA. Gold prices will have a lot to do with any move in this stock, as they d do with the index so the risk at this time is geopolitics vs fundamental economic improvement and how that plays out in the gold pits.


Royal Gold also reported earnings today, beating the estimates. The company reported $0.96 per share, down 12% from the same quarter last year, but well ahead of the expected $0.29. The gains were made on improvements across the mining portfolio but were centered on the Mt Milligan project. The company reported average price for gold last year was down 19% from the previous year at $1296 per ounce. This is below the $1300 level I mentioned above and perhaps the tipping point for gold stocks. If we can assume the average price for gold sales across the industry is in the $1300 region we can expect gold company profits to rise when gold prices are above and for gold company profits to fall when gold prices are below$1300. Shares of Royal Gold gained 1.63% in today's session, climbing above a long term resistance and Fibonacci retracement level. The indicators are weak but show support is growing at this level along the short term moving average.


The VIX

The VIX gapped lower today as the open of trading was strong. The VIX opened near the bottom of the one week range, above 15, and traded higher from there as fear crept its way into the market. The fear was capped at the 17.50 line and seems to be capped there for now as the indicators are consistent with resistance and range bound trading. Without a major catalyst to move the market one way or another I see volatility remaining elevated. Geopolitical concerns, where they will lead and how they will hurt the global recovery are in control right now leaving the market susceptible to sharp movements in either direction.


The Indices

The Dow Jones Transportation Average was today's leader, more or less. It lost the least, only shedding -0.22%. The index, today and yesterday, is now sitting on the long term trend line and below some technical resistance. The trend is up and I see no reason for that to change but there are some things to consider. First and foremost is that near term fears are piling up and have been weighing the market down. With that in mind the index now faces resistance and the longer it lasts the stronger it will get. At this time there is no reason to think that Putin/Russia will go away and leave the Ukraine alone any time soon so that is going to be an ongoing problem. Now, long term bull that I am, the longer term picture is still pretty good in my opinion. The data is not too hot and not too cool, just right for slow and steady growth. When that picture comes back into the market focus the long term trend should continue. The index may find further support along the current trend line or on a break below that at the long term moving average around 7,750. The indicators are bearish but at extreme peaks, peaks that usually result in trend following snap backs. The MACD is making an extreme not seen for nearly 3 years while stochastic is overbought in the near term and very close in the short term.


The Dow Industrial Average fell -0.46% in today's session. The blue chips fell from the 150 day moving average to make a new low well inside a strong support zone based on a consolidation pattern earlier this year. The indicators are bearish but momentum is rolling over and stochastic is overbought. The index may go down and touch the bottom of the support range around 16,250 or news could turn overnight and send it up to the upper end of the range. Longer term the trend is up so I am waiting to see what happens tomorrow and next week.


The NASDAQ Composite also fell by -0.46% today, dropping from recently broken support. The indicators are bearish and growing in strength, and added to today's action, look like the index is set to run for the long term moving average about 100 points lower. Longer term the index is still trending up and that will take over sooner or later. In the near term geopolitics are going to be a hurdle that may persist.


The S&P 500 was today's big loser. The broad market lost -0.56%, breaking near term support set earlier this week and falling to a new 2 ½ month low. The correction that began last week has reached the 3.5% mark and could be gaining momentum. The peak on MACD is large here and on the rise but not extreme, yet. Support is indicated just below the current level along the 1900 line with the long term moving average and a long term trend line just below. Tomorrow's action could easily bring the index down to that level at which point I would expect to start seeing some more bullish activity begin. The long term trend is still up and this still looks like a near term correction.


Geopolitics remain in control of the market. Today we saw the expected gain in the early trading due a good piece of data like the jobless claims number but had that gain wiped out by the rising tide of global concerns. While the concerns are still mostly near term in nature the picture has started to change. The weakness that the EU has already been experiencing is likely to be exacerbated by the growing sanction battle between Russia and the West. If this keeps up it could have a longer lasting impact on the market than just a correction. In the meantime our own data is still chugging along, leading us up the path of slow and steady growth. For now I remain a long term bull, with caution in the near term and an eye on the short term. The fundamentals still support a bull market, when that changes so will I. Tomorrow be on the look for productivity numbers, labor costs and whole sale inventories.

Until then, remember the trend!

Thomas Hughes