The difference between overseas and US economies was put into further contrast today.

Introduction

The market was down from the very earliest, but bounced back to set a new high. Economic data from Europe is to blame for the early dip although there was some negative news from China as well. Flash PMI in China fell to 50 indicating neither a gain nor a loss of activity. Asian markets were mostly flat on the news and had little impact on early morning trading. One ray of light among all this international gloom was a rise in imports and exports for Japan, the second monthly rise in a row and a sign that maybe Abenomics is helping a little bit after all.

European flash PMI fell to new lows, the November reading for the entire EU is 51.4. The reading fell to 52.1 in Germany, expansionary but a decline form last month and less than expected. France is worse, falling to 47.6. These numbers underline the shaky nature of the EU recovery and added fuel to speculation of potential central bank action from the ECB. European indices were down on the news but managed to claw their way back to break even by the close, largely aided by US data and the rally that carried our indices to new highs today.

Market Statistics

As I said, futures trading was negative this morning. The S&P 500 was indicated about 8 points lower ahead of the 8:30AM release of economic data and then fell to new lows of the premarket session. Jobless claims and CPI were both decent but not enough to spark the round of buying we saw later in the day.

The market opened lower and then quickly moved down, only to hit bottom and bounce back within the first 30 minutes of trading. At 10AM surprisingly strong numbers from the Philly Fed, the Conference Board and the National Association of Realtors provided lift to break the market out to what would become new highs, for some indices at least. The market drifted above break even for most of the afternoon and then strengthened into the closing bell.

Economic Calendar

The Economy

There was quite a lot of data released today and as a whole are pointing to an ongoing uptrend in economic activity.An uptrend that is expected to continue through the end of the year and into the start of 2015. First up was CPI. The Consumer Price Index was unchanged in October. This was due to a big decline in energy prices which offset gains in other areas such as housing. Ex-food and energy prices rose 0.2% for the month and are up 1.7% on a 12 month basis. This is below the Fed target rate for inflation.

Initial claims for unemployment fell, by -2,000, to 291,000. This is from an upward revision of 3,000 to last week's figures so is a wash on a week to week basis. The four week moving average fell by -1,750 to 287,000. On a not adjusted basis claims fell by -7.4%, slightly more than the -7.2% predicted by the seasonal factors and down -12.7% from last year at this time. First time claims remain low and at levels consistent with the ongoing recovery in labor.


Continuing claims fell by -73,000 to a new low. This low dates back to 12/16/2000 and extends the downtrend in this metric. Last week's number was revised higher by 11,000. The total number of claims for unemployment rose by 81,659 to 2.183 million. This is the highest number of total claims since early September and could be an indication that the overall decline in unemployment is stalling. However, with all the other labor data, it could also be an indication of an increase in the participation rate; if more people are participating in the workforce it may be harder for those who are unemployed to find new work, kind of a bad news is good news scenario. The LPI rose last month, perhaps it will rise again this month.


Philly Fed, the Index of Leading Indicators and Existing Home Sales were all released at 10AM. All were better than expected and point to continuing economic expansion. I'll start with the Philly Fed because it was the biggest surprise, rising to 40.8 in November, nearly double the October reading. This is much better than the small decline expected by analysts and makes me wonder who may have made a mistake. The rise is due to increases in new orders, shipments and employment. The employment index rose by 10 points to a 3.5 year high, the hours worked index also rose, from -1.3 to 7.8. The forward looking component of labor was positive for the next 6 months. Among the special questions asked in this month's survey was about hiring intent and outlook for the next year. Answers indicate that business in the Philly region are expecting to be hiring more employees for the next 12 months.

The Index of Leading Indicators rose by 0.9% from last month's reading of 0.7%. This is better than the expected 0.6% and indicating the economy is gaining momentum. All components of the index rose in October indicating a broad and strong expansion, according to economists quoted in the report. The coincident indicator also rose, by 0.1%, while the lagging index fell by -0.1%, indicating the past two months were basically unchanged from what we already knew.

Existing home sales rose by 1.5% in October, to an annualized rate of 5.62 million. This is the second month of gains and the first time that sales have shown a gain from last year. Last month was revised higher, to 5.18 million.

The Oil Index

With everything else going on in the world of oil economic trends helped to underpin price today. WTI and Brent both gained more than 1.25% while natural gas rose by over 2%. Cold weather is helping to lift both oil and gas.

The Oil Index also gained a little more than 1.25%, helping confirm support at 1430 and the 23.6% retracement of the October correction. Both MACD and stochastic confirm support and are rolling over into a bullish signal. MACD has already begun to tick back up and stochastic right behind it. Together, the two are looking pretty strong but there is still resistance at 1485 to break through. This move is going to be impacted greatly by oil price direction, which is still in question. OPEC is still a wild card but it's in their interest to keep prices as high as the market will bear. Another factor that could keep supporting oil prices is weather. The winter is looking pretty cold from where I am sitting and the colder it is, the more oil and gas we'll use and the higher prices will go.


The Gold Index

Gold prices rose today to trade just below $1195. Reports are, physical buyers of gold are stepping into the market due to low prices. If so, and if this continues, the bottom in gold may indeed be in. However, I still think it is too soon to say because there are some near term factors that could pressure gold lower, specifically dollar strength. The rally in the dollar has stalled of late but is still at four year highs and susceptible to moves expected by both the ECB and BOJ that could weaken their respective currencies and drive the dollar higher. Gold faces resistance at $1200.

The Gold Index also traded higher today. The index gained over 2% from yesterday's close and is still above the 100% retracement line. This line could be support, assuming a reversal of the long term downtrend, but just as easily not. The index is in a long term down trend, driven by low gold prices, and there is no evidence yet of that having changed. The indicators are currently bullish but suggestive that the move above the retracement line is a whipsaw. The MACD is showing what could be a double top and stochastic is weak in the longer term and overbought in the shorter term. Additionally, price action is currently caught in technical resistance at the point of the triangle I drew around the October price pattern. Resistance is between $70-$72.50 with possible support around $66.00 and then $60.00.

Gold prices, as always, will drive the course of this trade and presents an interesting conflict. If the bottom in gold is in then so might a bottom in the Gold Index, but if not the long term downtrend will continue.


In The News, Story Stocks and Earnings

Retail was the sector in focus today. Several well known retailers reported today, both before and after the bell. Best Buy reported before the bell, beating street estimates. The struggling electronics retailer reported EPS of $0.32 versus the expected $0.25. Revenue also beat. Comparable store sales increased 2.2% and was largely the reason for the improvements; there was an expectation for store traffic to decline. The company also issued positive forward guidance for the holiday shopping season. Shares of the stock jumped more than 7% during today's session, breaking above resistance set last January when the stock gapped down more than 20%.


Ross Stores reported after the bell, also beating estimates. The clothing retailer reported earnings of $0.92 per share, a nickel above estimates. The company also reaffirmed current guidance, guidance that is slightly below analyst estimates. The report was met with approval and sent shares soaring in after hours trading and could open at a new high tomorrow.


Gap Stores also reported after the bell. The teen retailer reported earnings and revenue that rose from last year, but not enough to match estimates. The company also lowered guidance for the upcoming quarter. The news sent shares of this stock down in after hours trading following a gain of 1.5% in today's session.


The retail Spyder XRT gained over 1.5% today. Price action created a long white candle and completed a text book continuation signal. Over the past 7 trading days the ETF created a long white candle, moving up from a break above resistance, followed by a week of consolidation ending in another long white candle that breaks to another new high. The indicators are also bullish and support the signal. MACD is bullish and ticking up, stochastic is strong and on the cusp of a bullish crossover. Upside target for this move is equal to the distance from the October bottom to the early November high, about $11.50, putting it just over $101. By all accounts the holiday season is going to be a good one and the retail sector is responding accordingly.


The Indices

The market opened lower today, hurt by continued poor economic performance in Europe and Asian. However, the poor international data helped to contrast our own economic data and show it for what it is, good and not dependent on international trade.

The NASDAQ Composite led today's rally. The techs climbed just over a half percent, falling short of a new closing high. The index is trending higher and setting up for a potential move higher. The indicators are bullish but have declined from their peak, set at the beginning of the month. Momentum has retreated to near zero but that is not overly concerning for now as stochastic is still high in the upper signal zone and indicating underlying strength. Stochastic is also flattening out, rolling over and about to produce a bullish crossover. Current support is indicated around 4,650 with resistance less than a point above today's close.


The Dow Jones Transportation Average were another leader in today's rally with a 0.46% gain. The trannies did not set a new high but came close, and helped confirm support along the 9000 level. The indicators are still in decline but are beginning to show signs of rolling over, stochastic most notably. Current upside targets include 9,250 in the near term with resistance near 9,125.


The S&P 500 only gained 0.20% but was able to set a new closing high. The broad market gained just over 4 points to close above 2050. The indicators are in decline, as with the others, but also showing some underlying strength. The current MACD peak is an extreme dating back for several years and stochastic is still high in the upper signal zone. The trend is up and at this time there is no indication from price action that is ending. A decline in indicators is natural during the consolidation of an uptrend and that is what looks like is happening now. Support is around 2020 with little in the way of resistance.


The Dow Jones Industrial Average brings up the rear in today's action. The blue chip index only gained 0.19% but was able to set a new all time high above 17,700. The indicators are similar to the other indices and like the others, indicative of some underlying strength. The decline in the indicators is reason to keep tight stops but as yet not a concern as it is setting us up for a possible leg higher. First target for support on a pull back is 17,500 and then 17,250 with upside targets near 18,000.


The market is moving higher on a wave of economic recovery. The data says it all, things are not only steady but beginning to gain momentum. The rest of the world isn't doing great but do we really need it if our own economy is gaining momentum? At the end of the day exports are only about 15% of GDP.

To date, the economy has been improving in fits and starts. One sector would improve, then another, and then another, but not all at once and yet the stop-and-go nature of the recovery has produced economic growth. I have thought for some time that there could be a real surge in activity if each independent segment of the economy were to improve at once and this could be it. The Philly Fed number may be a one off and something we won't see from any other data but what if it isn't? The leading indicators are on the rise and gaining momentum, the labor market is improving and gaining momentum and there is a lot of optimism going into the end of the year and next year. With all of this in mind it is really hard to be a bear....but that could change. There is a lot of data being released next week, all on Tuesday and Wednesday because of the holiday. One that jumps out is the 2nd estimate for 3rd quarter GDP.

Until then, remember the trend!

Thomas Hughes