It was a quiet day of trading today as the market remembers the 9/11 attacks.

Introduction

The markets were relatively quiet today. The anniversary of the 9/11 terrorist attacks dominated attention but did not completely halt trading. Volume remains low I think because of next weeks FOMC meeting. To start the day international markets were mixed, fear of the FOMC and a weakening yen impacting Asian markets while European traders had the additional worry of Scotland's apparent drive to independence. Index futures were weak here as well with the SPX indicated down about -8 points going into the open. There wasn't much data today except the weekly jobless claims which provided a small but unexpected negative surprise. Initial claims rose, slightly, while longer term total claims fell.

The early morning news was dominated by remembrance of the 9/11 attacks. The President, Vice President and first lady all made an appearance at the White House and there was a moment of silence on Wall Street as well.

Market Statistics

The opening was weak, as expected, but did not produce the drop indicated by the futures trade. The SPX opened about 3 points below yesterday's close, dipped down to -8 only for a minute and then bounced higher, nearly reaching break even. Later in the day early lows were tested and broken but produced another bounce, this time taking the index all the way to within 0.25% of yesterday's close. Afternoon trading remained mixed but held close to break even until later in the day when the SPX, NASDAQ and Russell all traded into the green. By the end of the day the indices were mostly higher, if barely, with only the Dow Industrial Average holding on to losses.

Economic Calendar

The Economy

There wasn't a whole lot of data today and what there was the media spun by the media. Initial claims for unemployment rose by +11,000 from a +2,000 revision to last weeks data. This brings initial claims up to 315,000 and a three month high. While unexpected, it is not a very large gain and as a single piece of data has little impact on the longer term employment picture. On an unadjusted basis claims fell by -15,377, about 10,000 less than the seasonal factors had been expecting; enough difference to account for this weeks gain. I'm sticking with my theory that initial claims is more of a sign of job turnover than it is of overall unemployment so even if elevated not serious until longer term unemployment picks up. We must also remember that this is September, a month known for poor jobs data and volatility in revisions. Some of these claims at least are due to changes in seasonal employment. The four week moving average of initial claims rose as well but remains low at 304,000.


Continuing claims also rose this week, gaining 9,000 on top of a +14,000 revision to last weeks data. This week continuing claims were 2.487 million, just off of the long term low set last week. Continuing claims, a better look at long term employment trends, is still trending lower and is now below 2.5 million for the second week. The four week moving average continued to move lower, counter to the rise in this weeks numbers, dropping to a new low not seen since mid 2007.

Total claims, the figure in this group with the biggest impact on overall unemployment levels, fell this week. Total claims shed nearly -82,000 bringing the number down to 2.374 million, a new long term low. Based on these numbers it looks like initial claims are near term noise while longer term trends show jobless claims and overall unemployment moving lower, which is consistent with the NFP and unemployment data last week. Looking at the table provided by the DLS we can see that over the past two months initial claims (near term) have been edging up while continuing claims (longer term) have been moving lower.


Tomorrow heats up a little on the economic scene. There are four macroeconomic indicators on the list that will have an impact on trading. Starting off is Retail Sales, followed up by Import/Export prices, Michigan Sentiment and Business Inventories. Retail sales are expected to rise about a quarter percent, as are business inventories. Michigan Sentiment is expected to rise slightly from last months reading of 82.5.

The Oil Index

Oil prices were a little volatile today. Early trading had WTI down a dollar or more before a late day turn around sent prices above yesterday's close. Adding to the turnaround was speculation over the outcome of President Obama's new strategy for ISIL as well as renewed tension between the US, NATO and Russia. Other news impacting oil prices today was a down grade of global demand expectation from the IEA but this was largely ignored from what I can tell. By the close of today's session WTI had moved up more than 0.75% and then higher in the after hours market.

The reversal in oil helped the Oil Index find support along the long term trend line. Early trading had the index trading lower, testing previous all time highs and the long term trend line. The index has been correcting to trend, albeit very calmly, in the face of a 12% correction in oil prices. The oil index is down only about 5.7% from mid July, oil's peak, and is sitting on long term support. The indicators are bearish at this time but until the index breaks trend I will be looking for signs of a bounce.


The Gold Index

Gold prices fell again today, dropping more than $5 to fall below $1240. Long term fundamentals, those supporting an improving economy, stronger dollar, and end to tapering and an anticipated rise in interest rates have overcome near term fears. The price of gold has been dropping steadily since mid August and are now at a 7.5 month low. Momentum is building to the down side and unless some reason emerges for gold to become an attractive investment I see it moving down to test support in the $1200 - $1225 region. The Fed will have a huge impact on gold prices next week based on its statement and actions concerning interest rates.

The Gold Index at first fell in tandem with gold prices, losing about -0.85% in today's session. Later in the day, one gold prices seemed to find an intraday bottom, the index was able to power into the green. Today's action took the index into a targeted support zone before the reversal and so is not completely unexpected. Gold prices of course will be the driving factor for the index at this time. MACD is peaking in the near term but in the short term shows that momentum is on the rise. In the near term I am looking for resistance around $95 with support in the range between $90 and $92.50. However, the long term trend is down, the short term signal is down and gold prices are moving lower so I think the lower end of this range, around $90, could be reached.


In The News, Story Stocks and Earnings

The US and the EU partnered up for a new round of sanctions against Russia despite the ongoing peace process in the Ukraine. The new sanctions targeted already sanctioned areas of the Russia economy including finance, energy and defense sectors. The announcement had little to no affect on stocks but did elicit a response from Russia. They don't like it.

Alcoa and Boeing announced a new multi year deal that is worth $1 billion for the aluminum giant. The deal is no doubt linked to the recent contract, announced just Monday, between RyanAir and Boeing for all those new jets. Alcoa will be supplying aluminum sheeting for wings as well as ribbing and other important structural and non structural parts made from aluminum. This deal is the largest ever between the two companies and sets Alcoa up as the sole supplier for many products used in manufacturing aircraft. I will also point out that Alcoa's purchase of Firth Rixson earlier this year (a manufacturer of high end aluminum aircraft parts) is also likely a key element of this new deal.

Shares of Alcoa, which have been trending up steadily over the past year, lost close to 2% on the news. The stock is trading up near long term resistance set during a head&shoulders reversal in 2011. The indicators are consistent with resistance so there could be a little downside but the long term trend is up so I will be looking to buy this one on the dip. Current support is around $16.50 and the short term 30 day moving average with less than one month until the next scheduled earnings report.


Lululemon reported earnings today, beating on the top and bottom lines. The company had been expected to earn about $0.30 per share and reported $0.33. The beat was driven by the ongoing management turnaround and an unexpected rise in online sales. The results led the company to raise full year guidance and sent shares soaring in the pre market. The move took the stock up more than 15% at the open, closing the gap formed at the last earnings release three months ago. The move met with significance resistance once it broke above the upper window sill and formed a long legged doji with high trading volume. While bullish for the stock there is still a lot for the company to do to regain its former standing leaving my a little leery of this move. The indicators are weak as well and do not support a break out at this time. I would expect the stock to retrace some of today's jump up as it opened a new window/gap while closing the previous one.


RadioShack reported earnings today, posting a wider than expected loss. The stock however jumped on the report due to plans to begin a major overhaul of the balance sheet. The company reported it was in active talks with lenders, bondholders, shareholders, landlords and financial institutions in an effort to explore debt restructuring and recapitalization. Many of the analysts however do not share the optimism displayed by the market and are suggesting a possible rapid failure of the company. Shares of the stock traded higher for the day, breaking above $1, but found heavy resistance at the short term moving average and was not able to hold.


Super market chain Kroger also reported earnings today. The company reported earnings of $0.70, a penny above estimates. The company was also able to raise full year guidance to the high end of the previous range as well as same store comp sales estimates. The gains are made with the help of Harris Teeter stores which were added to the fold earlier in the year. Within the report executives said that they are planning on maintaining current plans to return money to shareholders, reinvest in the company and to continue with capital investment. The company also expects core business growth to continue accelerating.


The Indices

The Dow Jones Transportation Average was today's market leader. The trannies moved nearly a half percent higher in today's session after testing support earlier in the day. The index is now sitting on support and looking like it could bounce higher. The indicators are still weakening so there may be more sideways action which I think may end once the Fed meeting and rate announcement is made. The index is trading just below all time highs and is still in an uptrend, an uptrend that is being aided by low oil prices. Current near term support is at 8,500 with additional short and long term supports just beneath that level.


The NASDAQ composite was runner up in today's action. The tech heavy index gained 0.12% in today's action coming very near to the current all time high. This index is moving sideways in a consolidation that is now taking on the appearance of a bullish flag. If this is the case and the index breaks to the upside the targets will be 4,700 in the near term with 4,800 and 4,900 real possibilities in the short to long term. Momentum is bearish right now but the peaks are very very small, and as I have mentioned in earlier wraps not a problem so long as the index holds support levels. Bearish indicators, in relation to current price action, are a positive as they indicate a market that has cooled off within a longer term trend. At this time it is key to monitor near term support and resistance in anticipation of expected catalysts next week.


The S&P 500 had a harder time today but was also able to move up into the green. The broad market index gained only 0.09% but it was enough. Like the others, this index also tested support today, moving down through previous all time highs, touching the 30 day moving average, and then bouncing back higher. It looks a lot like the index is finding support at the previous all time high, the all time high set before the August correction, the correction associated with the peak of the Russian Incursion and the onset of the summer “traders holiday”. Looking at the indicators they are moving lower at this time but still consistent with support and the longer term trend. The MACD peak is very small and stochastic, while pointing lower, is overbought in the near term and comfortably in the middle of the neutral zone in the short term.

This is a perfect what I will call a “pre set-up” for a trend following signal. Everything is ready for it to happen (a trend following signal) it just hasn't yet. This is where real patience comes into play. I think the market is waiting on the Fed, or at least the meeting to start, before committing to a direction. During the last two meetings at least the markets began to move higher out of thier consolidation before the Fed even released their decision. Support is looking good around 1990 for now, a break below that could go as low as 1950 but would find a more considerable support level there.


The Dow Jones Industrial Average was today's laggard. The blue chip index lost -0.12 after struggling to make it to break even. Looking at it from the perspective of capitalization and focus, it looks like the large cap dividend producing industrial stocks are not as attractive as the broader growth oriented and technology driven markets. In any event, today's action tested the bottom of the two week range that I have decided to officially call a congestion band.

This index has traded exactly sideways for nearly three trading weeks and today's action bounced off that bottom. The short term 30 day moving average is just below the near term bottom of the band and helped provide support. The top of the band is consistent with the current all time high and could keep the index trading sideways until next week. The indicators are in decline following the peaks of last month but the longer term analysis shows strength in the underlying trend. Current support is around 17,000 with additional support below that around 16,750.


There is a lot for the market to consider right now and not a lot of catalyst. At least not yet, and not a whole lot of volume either. I have to ask myself at this time, if I had left the market mid summer and just come back now, what would I do? The trend is up, the economic trends are up, earnings last quarter were better than expected, GDP growth is good, oil prices are down, tapering is almost over, 3rd quarter expectations are uncertain but positive, the charts are looking OK.... not much reason to get bearish in my opinion but I could be wrong, it certainly wouldn't be the first time. Of course, with the FOMC next week I might want to wait for that too.

The chart of the Dow Jones Industrials in particular looks bullish to me. It makes me think of a crowd of people standing up against a wall or fence. As more and more people join the crowd the edge pushes up against the wall and spreads out against it until eventually it topples. The way price action is keeping the index trading up against resistance in that tight congestion band is telling me support is pushing the index up against resistance, a line on the chart. If support remains in the market eventually it will topple that line. All it takes is one person to set foot, or bid, across that line to start a flood.

Until then, remember the trend!

Thomas Hughes