The equity markets continued to churn today in the wake of last weeks less than expected jobs report.

Introduction

The week opened with mixed feelings in the wake of last weeks lack luster NFP report. Needless to say, the 142,000 jobs added in August was well below expectations, including my own. Analysts, pundits, the media, you name it all are in dismay over the number. What does it mean and how does it affect the market. The general consensus of opinion is split between a combination of factors that probably all had some affect on today's trading. First, August and September data is always weak and subject to major revisions. Second is that it is an anomaly and likely to be revised higher in next month's data, which jibes with the first opinion. Third is that even if it is real it may not matter that much because despite the low number of new jobs created, overall unemployment fell.

My take on the number; one month's data does not make a trend plus the fall in unemployment along with falling jobless claims and planned layoffs are a combination of signs that job turnover is on the decline and retention is on the rise. In light of overall economic recovery, employment growth and the goal of “full employment” declining job loss is equally as good as increasing job creation.

Market Statistics

Asian and European markets were mixed to start the week. Our NFP data and weaker than expected Chinese trade data were to blame although the tenuous cease fire between the Ukraine and Russia helps to limit the losses. In China exports grew above expectations but imports fell in the face of an expected rise leading to fear of slow down. Market volume was very light across Asian market as some were closed for a holiday. In Europe indices were mostly lower but lifted into the close with some regaining positive territory. EU trade data was strong but not enough to overcome fear of slowing brought on by the weaker than expected Chinese imports.

The data had a little effect on trading here, the early futures trade was slightly lower with the indices indicated only a few points below Friday's close. At the open trading was very light, volume still has not returned to the market, and hung just below flat line for the first 15 minutes before moving down to the early low just above 2000 for the SPX. Later in the day the indices fell to a new intraday low; 1995 for the SPX, 17,080 for DOW and 4570 for the NASDAQ. The late afternoon release of Consumer Credit data put a bottom in and noticeably helped the indices move higher with the SPX regaining the 2000 level.

Economic Calendar

The Economy

As typical for a Monday there were no US economic announcements this morning except for Moody's weekly Survey Of Business Confidence conducted by Mark Zandi. This week's report ready much like it has each week this summer. According to his results business confidence is upbeat and strong looking forward to the end of the year. Hiring intentions among his responders is high, in line with the downtrend in unemployment and unemployment claims and inconsistent with the August jobs report. Mr. Zandi is one opinion I have heard suggesting the NFP will be revised higher next month.

At 3PM consumer credit numbers were released. The number was hotter than expected at 9.7% over last month totaling $3.2 trillion. Both revolving and non revolving credit surged with non revolving topping 10%. The gains were led by a jump in auto loans. The data was encouraging and helped to lift the markets off of the afternoon lows. A rise in consumer credit is a sign that the consumer is spending but also that credit conditions have loosened, the caveat is that credit conditions have loosened.

There are a few important releases scheduled for the week. Tomorrow JOLTs job openings data is followed by Wholesale Inventories on Wednesday. Thursday is the weekly jobless claims data along with Retail Sales, Michigan Sentiment and Business Inventories on Friday. Next week, next week is the next FOMC meeting where there will likely be some new fed speak and another taper of QE.

In the UK a growing chance that Scotland will vote for independence has emerged. Aside from the obvious changes in currency for the pound, euro and whatever the Scots decide to use it is unclear how this may affect the US economy. UK is a large trading partner of course, and Scotland is about 25% of the UK economy so there could be some backlash however small.

The Oil Index

Oil prices fell to a fresh 8 month low today on rising fear of slowing demand growth on top of high supply and storage levels. WTI fell more than $1.25 in early trading, falling below $92 for the first time since early February. Brent also saw a decline but not quite as sharp as West Texas Intermediate. The Oil Index also fell today, dropping -1.75% in today's session. Today's drop was sharp but looking back over the past two months the index is still trading more sideways than down. This is considering the fact that oil prices are down nearly -12% in the last two months compared to the Oil Index less than -6%.

Today's drop has brought the index down into a long term support region marked by the previous all time and all time intraday highs. The indicators are a little bearish but in line with longer term support at these levels. Near term momentum could bring the index down to the bottom of this range or even to the long term trend line but for now, the trend is still up. Current support is indicated about 1,625 and just below along the long term trend line.


The Gold Index

Gold fell another $15 today, on an intraday basis, to move below $1255. This is a continuation of the drop began last week as the flight to safety effect wore off in favor of global macroeconomic conditions. The strengthening US economy helped to boost dollar value and interest rate speculation that had been pressuring gold. The real catalyst though was last weeks move by the ECB that really sent gold to new lows. Spot gold is now trading just above potential long term support at $1250 with no real reason for investors to get long and lower prices indicated on the charts.

The Gold Index responded as expected to today's drop in gold prices and fell another -3%. This is the third down movement out of 5 days and has extended the drop below the 150 day moving average. Momentum is on the rise and could carry it down to the $90 level in the near term. Longer term support is between $85 and $90 for this index and is where I suspect the long term bottom may be located based on the two bounces from that level we saw earlier this year. That being said we'll what happens when and if the index gets there.


In The News, Story Stocks and Earnings

Apple is scheduled to reveal their newest product/innovation or what-have-you tomorrow. There has been a lot of speculation about what is going to be unveiled so there is a huge chance for the market to be disappointed. An iWatch, some other kind of wearable, a larger phone, a new iPhone in general or something else will have to be pretty spectacular to top previous product launches. What really matters though is will whatever it is sell? Will it sell enough to improve earnings, and will it do this without cutting into sales of other products? We'll find out tomorrow. Today the stock lost about -0.70% and traded just under the 30 day moving average. The stock appears to be supported here, at least in the near term, following the drop last week. The market is obviously waiting for the press conference tomorrow and could go either way. I would be careful about any knee jerk type reactions that might ripple through this market tomorrow, especially during the event, and cause false signals. If Apple is still going up there will be plenty of time to get in.


On the earnings front nearly all 500 S&P 500 companies have reported for this cycle. Fact Set reports 74% of them have beaten the mean estimate for earnings growth while 64% have beaten on sales. Looking forward to Q3 the expected earnings growth is 6.5%, down from the 8.9% at the beginning of the quarter and 6.9% for this quarter. This is due to a large number of earnings downgrades that have occurred since late June. Telecom is expected to lead in earnings growth, with consumer discretionary and more specifically Pulte to be the big drag on the index. Currently 76 companies have issued negative guidance for the coming earnings season while only 27 have issued positive expectations.

Campbell's, which reported today, is one of the very last S&P 500 companies to report in the cycle. The company met expectations for earnings and revenues but added another negative guidance for FactSet to put on their list. Reason for the poor guidance, a “challenging consumer environment”. Probably more like consumers are eating fresh soup more than canned. The stock lost more than -2.5% on the news, trading on heavy volume. However, support kicked in at long term support limiting the fall and creating a nice looking doji in the process. The bullish indicators are weakening and about to turn bearish but with the amount of volume, doji candle and proximity to long term support might not stay that way long. Support is around the $43 level with resistance above in the $44-$45 range. Some speculation that Campbell's could be a takeover target emerge today as well which could lend some support to the stock.


Boeing announced a very large order from Ryanair which sent the stock trading higher. Ryanair is going to buy 100 737 MAX jetliners valued at $11 billion. Shares of Boeing moved over 2.5% higher in a climb from the 30 day moving average on the news. The indicators are bullish and in line with an early/weak signal that could take the stock up to test resistance in the range between $130 and $135. Longer term there is resistance ahead.


Darden Restaurants and Olive Garden announced that they would be selling 1000 “all you can eat” coupons for $100. The “all you can eat pasta pass” was made available on line and I am sure by now sold out. The gimmick generated $100,000 in sales and some publicity but compared to the +$3.5 billion brought in by Olive Garden each year is just a drop in the bucket. Shares of the stock popped on the news but fell back from resistance. Resistance is right around $48.50 and the bottom of the gap formed at the last earnings release. The indicators are very weak and do not lead me to believe the stock is moving higher at this time.


The Indices

There really wasn't a whole lot to move the market today or even this week. Early trading was sluggish due at least in part to the NFP numbers and perhaps a little “wait and see”. Later in the day the consumer credit report was enough for near term support to come into the market at least enough for the SPX to regain 2,000. The broad market had lost as much as -0.50% during the day, dropping below 2,000 for a while, but was able to close above it with a loss of only -0.31%. Today's action was yet another spinning top in a series that has been going on for two weeks. The index is trading above the previous all time high and establishing what looks like a solid base of support. The indicators have been in decline and have receded from extreme levels, possibly setting up for another trend following signal.

Support has been evident between 1990 and 2000 several times over the past two weeks and appears to be moving up to the high end of the range over 2,000. A drop below 1990 would be a little bearish at this time but would find the short term moving average in the near term and the long term moving average in the short term so if there were to be any pull back right now I think it would be another buy on the dip opportunity. That said I don't see much catalyst for either rally or reversal this week so the index may just keep churning until the FOMC meeting next week.


The Dow Transports lost -0.32%, just a bit more than the broader S&P 500 index. The transports however have not been trading sideways but are just off an all time high. Today's move brought the index gently down to test support at the recently broken previous all time high. Momentum is bullish and on the rise although there is a possible divergence forming in the MACD. Stochastic is strong in the upper end of the range and producing a follow up signal to the strong trend following signal given off last month.


The Dow Industrials fared a little better in today's action. The blue chip index lost only -0.15% in today's session. This index is trading in a tight sideways range, similar to the broader SPX, but is below resistance instead of above it. Looking to the transports we can see it traded in a similar range as well, just before breaking out to its current high. Since the transports are a recognized leader of the industrials it looks like a break out for the industrials is possible in the near to short term. The indicators are both bullish but showing near term weakness, weakness that is being supported by a rising level of strong support that is now in the 16,750-17,000 range. The index looks like it is being pressed up into resistance and wants to break through, it just needs a reason.


The NASDAQ did not lose in today's session. The tech heavy index traded higher most of the day finishing with a +-0.20 % gain. This is the second day of gains for this index and has it up near the current all time high. The indicators are still bullish here but like the others, are showing some near term weakness. The next couple of days are going to be important simply on a technical basis. Without much catalyst to drive trading the long term trends and fundamentals will have to do it on their own. A pull back from this level will find support around the 4,500 level coincident with the short term moving average with additional support about 100 points below that along the longer term 150 day moving average.


There really isn't much on the horizon that I see as a major catalyst for the market this week. Economic data is very light, earnings is very light and for now, the geopolitical scene is quiet. Traders will have to decide for themselves which way the market is going and that means, I think, more indecision. Looking ahead I see that next week is the September FOMC meeting and that is more than enough in my book to keep the market churning along just the way it has been. This week may just be a gimme while we wait on the fed. Adding to that there is quite a bit of economic data next week including regional manufacturing reports and housing data.

Until then, remember the trend!

Thomas Hughes