A round of better than expected economic data lifted the markets to new highs in another day of light trading.

Introduction

A massive round of global economic data helped propel the equity markets to new highs today. Although there is still lingering softness in some regions, on a whole flash PMI readings from around the world show that the global economy is still expanding.

In Asia stocks were mixed as Chinese PMI dipped to a three month low of 50.5 and Japan's expanded more than expected to 52 from 50. European indices closed higher as PMI readings show that Germany is not slowing as much as feared and that France may be stabilizing. The news was enough to get the futures trading higher by a few points. Domestic data was even better, showing a surprise gain in several key monthly reports. Geopolitics was nowhere to be seen in today's action.

Market Statistics

Trading was light all day today but enough to get the indices up to new highs. The SPX opened marginally higher and gained 3 points in the first couple of minutes and 6 points by 10AM. There was a little resistance at the previous all time intraday high but after a quick retracement to today's opening levels the SPX marched right on up and through to a new high. Action in the other indices was much the same. There was a brief test of near term support and then a move to make a new high. The Dow Jones Transportation Average was the only major index that did not close in the green.

Economic Calendar

The Economy

Like I said, there was a massive round of data today that included 3 key US reports on top of the global flash PMI's and the weekly jobless claims. Initial claims for unemployment was the first to hit the wires , dropping -14,000, more than expected, to 298,000. Last weeks figure was revised upward by 1,000. The four week moving average also declined but remains above 300,000 for now. On a non adjusted basis claims fell by -20,709 or -7.7%. This is double what the seasonal adjustment factors were anticipating. California leads with 10,107 new claims followed by New York at 1,928. Connecticut and South Carolina have the biggest decreases in claims with -397 and -255 respectively.


Continuing claims fell as well, dropping -49,000 to 2.5 million. This is a new low for this figure dating back to 6/16/2007 and a more solid sign that jobs creation is gaining traction. The drop in this weeks data is a continuation in the long term down trend in claims that has been underway for over 6 months. Based on this figure alone I would expect to see a strong NFP number at the end of the month. The total number of unemployment claims for this week is 2.517 million, 18,965 less than weeks report.


Existing home sales jumped unexpectedly but is in line with housing starts and building permits data released earlier this week. The number of existing homes sold in the US rose to 5.15 million from the previous months 5.03 million. This is ahead of the expected decline to 4.9 million predicted by analysts. Permits, starts and existing sales are all above 5 million units and indicative of some strength in the housing sector. Last months figure was revised slightly higher from just below 5 million to just above.

The Index of Leading Indicators rose more than expected as well. The index, as prepared by the Conference Board, gained 0.9% last month suggesting that this month is growing at a rate greater than previously expected. This is ahead of the previous months reading of 0.6% and the expected gain of 0.7%. An economist at The Conference Board is quoted in the report saying “The LEI improved sharply in July, suggesting that the economy is gaining traction and growth should continue at a strong pace for the remainder of the year,” This statement echoes a similar statement given by Mark Zandi and Moody's in their weekly Survey of Business Confidence. The Coincident and Lagging indices also gained in this months reading suggesting that last month was also stronger than expected.

The Philadelphia Federal Reserve Survey of Business Conditions in the northeast also expanded more than expected. The index measuring the survey gained more than four points, rising from 23.9 to 28. This is the third month of expansion in the region. New orders, shipments and employment remain positive although they have all fallen from last month's levels. The future oriented leading components of the survey were all positive suggesting strength through the end of the year and into next.

Federal Reserve President Williams from California made some statements about interest rate hikes today. The remarks were not much different than what we've been hearing except they may be a little more dovish. He says that a rate hike in the summer of 2015 is a “reasonable guess”. I guess, that seems a little late compared to other indications it would happened before the end of the second half. He of course said that the fed would be and needed to be “data dependent”. The data shows that the economy is expanding and gaining traction, Williams himself said that the San Francisco Bay area was “booming” on many levels.

Janet Yellen is scheduled to speak tomorrow at the Jackson Hole conference.

The Oil Index

Oil prices firmed some today. The positive economic data helped to put a positive spin on future demand expectations even as global supply increases. Two such headlines in today's news include Libya and North Dakota. In Libya production continues to ramp up and now the largest port facility, which had been closed for many months due to political violence, is back in action. At the same time the North Dakota Bakken shale region reported a record month of production in June. WTI gained about 0.75% while Brent gained only about 0.5%.

The Oil Index gained about 0.35% in today's action. Low oil prices haven't hurt investor appetite for oil producers to badly. The index extended its move up from the short term moving average and is now trading above resistance at a previous all time high. The index is indicated higher with both MACD and stochastic moving higher, although neither are very strong at this time. There is resistance just above the current level around 17,000 which may keep prices contained in the near to short term.


The Gold Index

Gold dropped today. Spot gold was down over $15 in the earliest part of today's session and lost as much as $21 on an intraday basis. The geopolitical driver of the flight to safety was absent from the market while at the same time strong economic data led to a stronger dollar which equals weaker gold prices. Gold is not trading below $1280 and could move lower. The long term low in gold is just above $1190, nearly $100 below the current level, but I think that there will be some fairly strong support kicking in between $1225 and $1250, if prices even get that low. The market is currently trading just above $1275 which may also prove to be solid support. This is the level from which gold prices rocketed this past June when the Ukraine/Russia situation sent waves of fear through the market.

The Gold Index also fell today, dropping more than 2% on an intraday basis. Today's action initially broke the short term 30 day moving average but did not hold the break. This is not too surprising as the index is still within a tight range and zone of support and resistance. The indicators have just turned bearish and are giving a trend following sell signal. However, the caveat now is that the long term 150 day moving average is now just below the lower range of support in which the index has been trading. This may provide a rocky beach for whatever bearish wave crashes against it and could pause, halt or even reverse the index movement. On the other hand, gold prices are now below the average realized price received by the major gold miners last quarter and will hurt revenue and earnings if they remain where they are. If gold prices decline further, which could easily happen, the index will likely decline as well. The long term trends in gold and the index are down but I am vary wary of the current signal until a break below support and the long term moving average confirms it.


In The News, Story Stocks and Earnings

Bank Of American agreed to pay $17 billion to the Justice Department to settle charges dating back to the mortgage crisis and financial melt down. The charges were related to mortgages sold by Countrywide and Merril Lynch, mortgages that Bank Of America became responsible for when they took over those two companies as part of the whole bank bail out scenario. This latest settlement is the largest in US history and brings the cost of the mortgage crisis for BAC up to $80 million. The news was taken very well by the market as this is the last of any major damages to be incurred by the bank due to the past crisis. Shares of BAC jumped more than 4% today, breaking a long term resistance level.


Ebay shares got a big boost today when a new report suggested that there could be a PayPal spin off as early as next year. Independent news website TheInformation reported that executive candidates being screened to head up the PayPal business within Ebay are being cautioned that a spin off was a possibility in the near future. There are no details about when of how a spin off would take place or any official comments from Ebay itself. The news was enough to get the stock moving, sending it up more than 5% on an intraday basis. The move was halted by long term resistance which capped the move at just over 4.5%. The indicators are weak as is the news, so I don't think this is going to have much of a lasting effect unless, or maybe I should until, more concrete details come out.


Gap stores reported earnings after the bell today. The company reported revenues and earnings above expectations on a 3% rise in sales. Revenues were only slightly above estimates, earnings of $0.75 a little more so. The consensus estimate was around $0.69. The improvements were enough for company executives to raise full year guidance to the upper end of the previously estimated range. Shares climbed in after hours trading but are still below long term resistance.


At least 6 other clothing retailers reported today including Ross Stores, Cato and Aeropostale. The results were generally good but for some reason did not garner much attention from the media. There are some areas of weakness in the group still but that is the same across the market in general. Some are doing well, some really well, and others not so much. Ross Stores and Cato both beat expectations on stronger sales and were both able to increase full year guidance. Teen retailer Aeropostale was not as fortunate and lowered guidance. In between New York & Co was able to improve operations across its stores to reach a break even, much better than last years net operating loss. The Retail Spyder XRT traded down today in a move that appears to be confirming near term support. The ETF has been moving up toward the top of a long term range and is now within striking distance of that top. The indicators are bullish and gaining strength, suggesting that the ETF will indeed reach that level.


The Indices

The S&P 500 and NASDAQ Composite both reached new highs today and yet the transportation sector lost ground. The Dow Jones Transportation Average was the only of the major indices to close in negative territory today. The trannies lost -0.32%, dropping from resistance at the current all time high set last month. The indicators are bullish, strong and on the rise so it looks like the trannies could break out over the next few days if nothing crops up to spook the market.


The Dow Jones Industrial Average trade to the upside today, gaining 0.36%. The blue chips extended their move up from long term support are now approaching the current all time high level. The indicators here are also bullish, strong and on the rise so it looks likely the index will retest the high in the near term. If the trannies are any indication, the Dow will likely pause when it reaches resistance. This pause could last until the summer vacation is over and trading volume returns but that could really be any day now.


The S&P 500 gained 0.29% today, or about 6 points, setting a new all time intraday and new all time closing high in the process. The broad index is also showing some strength with rising momentum and strong stochastic despite the low trading volume of late. This is the 8th up day out of 10 and the 10th day the market has moved upward in a near straight line. This appears to be steady buying in the market and could be setting us up for a longer term movement. The trend is up and the current signal is a long term trend following buy that has been worth between 150 and 200 points in the past. The current bounce from the recent low to today has already produced 80 points of movement leaving up to 120 points more to go with a 2-3 month time horizon. Today's break to new highs was not very strong so there could be some backing and filling along this level or even a small pullback. Short and long term support is a short distance below the current index level around the 1960 region which is where I might look to get in if such a move were to happen.


The NASDAQ Composite closed in the green and set a new high today as well. The tech heavy index gained 0.12% in today's session after dipping into negative territory during the morning hours. Today's movement was not very strong and is the third day the index has traded at this level. Price action over the past three days appears to be a near term consolidation following the bounce from the long term moving average and could lead to another 100 points on the NASDAQ if it plays out. The trend is up, the indicators are strong and consistent with a rising market so I am expecting this index to move higher too.


Today's market action was not very strong but that is most likely due to light trade volumes. The economic data was pretty good and would likely have produced a stronger reaction otherwise. Regardless, the data is in line with the long term trend and pointing to a growing economy. These are the same trends that have driven the indices to new high after new high since breaking out of the secular bear market last year. I can't really think of a reason to be a seller right now, except for profit taking, and that may be enough reason for the market to keep moving higher, even on light volume. If no one is selling, or not many, it won't take very many buyers to drive the markets higher. Eventually market volumes will pick back up and then we'll know for sure. There is no economic data scheduled for tomorrow and only 6 earnings reports.

Until then, remember the trend!

Thomas Hughes