Global worries continue to weigh on markets while traders await more data.

Introduction

A host of global worries weighed the market down today. Starting in Asia news that brokerage houses were reducing the availability of margin sent mainland China shares sinking by -6.5%. Other indices in the region were affected but managed to shrug off the news. European indices were hit by the sell-off in China, and also by another downbeat headline about the Greek debt negotiations.

Officials within the European Commission, and other Greek creditors, do not see the same progress as officials from Greece. They say there is still a long way to go, and were surprised by the positive spin put on by the Greek government. The IMF's Lagarde went so far as to say a Grexit was possible. Needless to say the news sent European indices lower

Market Statistics

The international news was not inspiring so futures trading was negative right from the start. The indices were indicated marginally lower, less than a quarter percent, and held this level for most of the early pre-opening session. Today's jobless claims data, as good as it was, was not enough to reverse the tone of trading. The market opened as indicated and moved lower from there. The first bounce occurred at 10AM and set the level from which several attempts to rally were made. The market was never able to recover the day's losses but it was able to move off the lows and close near the top of today's range.

Economic Calendar

The Economy

Initial claims for unemployment rose by 7,000 versus an expected decline of 5,000. Last week's claims were revised up, by 1,000, making this week's gain a total of 8,000. Claims are now 282,000, the third week of increases but still well below 300K. The four week moving average also rose, by 5,000, but is still sitting near the 15 year low. On a not adjusted basis claims gained 3.3% versus an expected gain of only 0.8%. Michigan and Oregon led with increases totaling 2,384. California and South Carolina led with declines totaling -3,235. Claims have been on the rise in recent weeks but not alarmingly so, claims are still trending lower over the long term and consistent with a healthy labor market.


Continuing claims also rose, by 11,000, to hit 2.222 million. Last week's figures were not revised. The four week moving average continued to fall and it a new 15 year low. Continuing claims may be led higher by initial claims in the next few weeks but remains at/near the long term low and consistent with ongoing improvements in labor market conditions.

Total claims reflects labor market improvement as well, falling -68,872 to 2.126 million. This is the 11th week of decline since hitting peak earlier this year, the lowest level since October of last year and 13% lower than last year at this time. T


Pending home sales was released at 10AM, adding further evidence the housing market is bouncing back. Pending sales rose by 3.4%, well ahead of the 1% consensus estimate and the 1.2% gain last month. Last month's figure was revised higher, adding upward momentum as well. This is the fourth month of increasing sales which are now at a 9 year high. This is a measure of signed contracts for existing single family homes so is indicative of rising existing home sales figures for May and June. According to NAR economists demand is strong and homeowners are in control of the market.

On deck tomorrow, the 2nd estimate for 1st quarter GDP. Estimates have declined to a consensus near -1.0%, more than a full percent below the previously released estimate. Also scheduled for tomorrow ar Chicago PMI and Michigan Sentiment.

The Oil Index

Oil prices traded around $57.50 as supply and production weigh on prices. Today's report from the EIA shows that US production rose to 9.5 million barrels last week, a 43 year high. This news is a mild surprise, the rig count has been dropping steadily over the past few months, but nonetheless shows that supply is ample. We already know that Saudi Arabia/OPEC production are at/near record high levels. Prices may slide further, but there is also still plenty of geopolitical issues adding fear to the market as well.

The Oil Index drifted lower, falling about a quarter percent in today's action. The indicators remain bearish and pointing to lower prices but there is also evidence the move may be running out of steam, primarily diverging momentum. Potentially strong support exists along the long term trend line, about 50 points or 3.5% below today's closing price. The index could continue to drift down to support, particularly if oil prices move lower, where I will be looking for signs of bullish activity.


The Gold Index

Gold prices held steady above $1185 today. Prices are sitting on support levels following last week's sharp rise in the dollar. Strong, stronger than expected, CPI strengthened the dollar, providing a near term catalyst for lower gold prices but at the same time it providing catalyst for long term buyers; inflation is rising or on the cusp or rising and rising inflation is bullish for gold. Gold prices may remain volatile and tied to dollar moves with support in the range of $1180-$1185 and resistance near $1225.

The gold miners were able to move higher today, the GDX Gold Miners ETF gaining a little of a half percent. Today's action held a tight range, just below my rising support line. This line has provided support for 3 months, confirmed by indicators on both the weekly and daily charts, and so looks fairly strong. Gold prices will of course play a big role here, if they are not able to hold support levels the GDX will likely not either. I remain bullish longer term and looking for a bounce back above support/trend with upside target near $21.15. If support fails it could move as low as $17.50.


In The News, Story Stocks and Earnings

GoPro CEO made a hero of himself announcing two new product developments during an interview yesterday. He revealed plans to enter the drone space as well as products designed to work with those filming for virtual reality. The new was well received, analysts like the fact the company is trying to diversify itself, and sent the stock up by nearly 7%. Shares have been moving higher since hitting bottom in early March and could continue. Momentum is bullish however weak and stochastic is making a bullish crossover of the upper signal line. Next potential resistance I see is just above $60.


Abercrombie & Fitch continues the parade of retailers earnings reports. Today the company reported a wider than expected loss but better than expected comp store sales that sent shares of the stock flying higher. The increase in comp store sales is seen as a positive development in the company's ongoing strategy to re-position itself in the new era of teen retail. Shares initially traded lower, the report came out well before the opening bell, but sentiment had changed by the time the market opened. The stock gapped up at the bell and then gained more than 13%. Today's move is on high volume and driven in large part by short covering.


The retail sector as a whole has held up fairly well over the past three weeks. The sector has had an onslaught of mixed earnings reports that have left one question unanswered, when is the consumer going to start spending some of the money the labor data suggest is being earned? Today the XRT Retail Spyder gained about a tenth of a percent in a session of light trading. The ETF is trading just under the short term moving average and near the middle of the 30 day range. The indicators are neutral with a bullish bias and indicate support near $97.50. Without any catalyst and no major earnings expected tomorrow a test of support is very possible. The trend is up with positive expectations into the end of the year so any test of support would be a potential entry point.


The S&P China ETF GXC lost 3.25% in today's session. The ETF traded down to a support level near $95 with momentum turning bearish and stochastic making a bearish crossover near the middle of the range. It looks likely that this sector will continue to trade lower and possibly move below $95. Next targets for support near $92.


The Indices

The market moved lower today but remains near long term all time highs. All except the transports which for some reason continue to move lower. While the rest of the market declined by more modest amounts, the Dow Jones Transportation Index lost nearly a full percent, -0.91%. Today's move set another new low, below the long term trend line, and increases the chance of reversal. The index is also back in correction territory with a net loss greater than 10% from its high. The indicators are bearish and point to lower prices but are yet to show much strength. This, along with the lower shadow on today's candle, make the 8,250 level look like a candidate for potential support. The trend line is broken, but the trend is not yet reversed and requires a retest of resistance and rejection at the trend line/bottom of the previous trading range. Until then I am neutral on this index.


The Dow Jones Industrial Average was the next largest decliner with a loss of only -0.20%. The blue chips continue to test support, today at the 30 day moving average, and support is holding. Today's action crossed the moving average, approached the 18,000 mark and bounced back. The indicators are both moving lower but momentum is so weak it does not look like support will fall. If it were to be broken it would help confirm a possible double top forming on the index. Target for this move would be the long term trend line, about 5.5% below the current level.


The NASDAQ Composite made the next largest decline, about -0.17%. The techs were not able to hold the new all time high set yesterday which, depending on how you look at it, is either good or bad. Its natural for a market to periodically pull back from new highs during a rising trend: lack of follow through could mean the new highs are more whipsaw than break out. The indicators are bullish so I am leaning toward the former rather than latter. Support is along the short term moving average and near the previous all time high around 5,050, upside target is near 5,250.


The S&P 500 suffered the smallest loss today, only -0.13%, less than a quarter the loss experienced by the transports. The broad market is also testing support, support which is still looks strong, at least for now. The index is trying to bounce from an area of potentially very strong support, the intersection of two major trend lines, with indicators that help underscore the potential for strength. MACD momentum is bullish, weak but bullish, and stochastic is holding above the upper signal line. Support is along the trend line and the short term moving average in a tight range around the previous all-time high near 2,120.


The market continues to churn and, except for the transports, are looking as if they might maintain their current levels. Causing the churn is a mountain of global fears, lack luster data and FOMC rate hike speculation.

Tomorrow's data has a high potential to add to the churn. The GDP revision is expected to be weak, very weak, but is also very rear looking. The Chicago PMI and Michigan Sentiment are less important in the macro sense but are current and could point to rebound, not to mention the fact that next week is the next round of monthly labor data, auto sales, ISM, construction spending, the Fed's Beige Book and many other reports that could renew belief in ongoing economic expansion.

Until then, remember the trend!

Thomas Hughes