Another day of positive data and bullish price action crushed by Greece.

Introduction

Today was shaping up to be a fairly nice global rally until Greece issues regained the spotlight. Greece bail-out negotiations have now stalled due to "major differences" over pensions, taxes and other reforms. The deadlocked meeting has been disbanded and IMF officials have left Brussels. The news is counter to yesterday's headlines which implied a deal was imminent and cut early gains in European and US markets.

Today's action started in Asia where as-expected Chinese data and a rate cut from the Bank of Korea lifted stocks. Chinese retail sales and industrial production both came in as expected and were seen as a sign economic activity in the country was stabilizing. Korea's central bank cut its benchmark rate by 0.25% to 1.5%, a record low and the fourth cut this year. Asian indices gained an average 1%, led by the Nikkei. European indices had been soaring on hopes a Greek deal was about to be announced. The DAX led with a gain better than 2% but that was cut to 0% within a half hour of the latest Greek announcement. This sentiment carried over into our markets which had also been in rally mode.

Market Statistics

Futures trading was indicating a flat opening in the early hours of the morning while traders waited on today's data. There was quite a bit for the market to digest, today's calendar was pretty full and as a whole was positive. This helped lift the indices going into the opening bell and carried over into the first hour of trading. The market rallied by move than 0.5%, hit an early high just after 10AM and then quickly pulled back from that level when the Greek news hit the airwaves. At that time the early gains were halved and those levels held until the end of the day.

Economic Calendar

The Economy

Lots of data today, all from the 2nd quarter and as a bundle has raised expectations for 2nd quarter GDP. The Kansas City Fed's GDP now was revised today to include the latest Retail Sales and Business Inventories. The previous estimate, released June 3rd, was 1.1%. That has been elevated to 1.9% with estimates for consumer spending moving higher as well, from 2.1% to 2.4%. The consensus estimate for 2nd quarter GDP also inched higher to 2.7%. Moody's tracking survey of GDP expectations is now at 3.1% for consensus with a range of 1.9%-4.0%.

Initial claims for unemployment inched higher, adding 2,000 with a +1,000 revision to last week, and is now 279,000. The four week moving average also edged higher gaining 3,750 to hit 278,750. On a not adjusted basis claims rose by 19.2% versus the expected +18.5% predicted by seasonal factors. On a year-over-year basis not adjusted claims are now -12.28% below last June. Tennessee leads with a gain in claims of 1,006, California and Texas lead with declines in claims of -7891 and -2580. First time claims have been rising off of their lows but remain near those long term lows and at levels consistent with trends and expectations.


Continuing Claims rose by 61,000 from an upward revision of 8,000 to hit 2.265 million. The four week moving average also rose, adding 10,000 to reach 2.226. This is the second week of increase in this figure but leaves it near the long term low. It is also at levels consistent with labor market health.

Total Claims fell, counter to the recent uptick in initial and continuing claims, but lags initial claims figures by two weeks. Total claims shed -64,979 to 2.062 million, the lowest level since early October 2015 and the second lowest level in 15 years. Total claims remains in down trend but may bottom in the near term if initial and continuing claims numbers carry through. However, based on JOLTs and NFP data it appears as if there are plenty of jobs/job openings so maybe not.


Retail Sales for May rose more than expected. Consensus was near 1.10%, actual was 1.20%. This is not a strong number but definitely a positive. Ex-auto sales rose by 1%. On a year-over-year basis sales are up 2.7%, on a year-to-date basis up 2.1%. Again, not strong but great in terms of the long term economic recovery, labor and earnings trends. All are slowly and steadily improving together.


Import prices rose by 1.3% led by fuels&lubricants 11.8% gain. Export prices also rose but only by 0.6%. Ex-agriculture prices fell by -1.0%.


Business Inventories rose more than expected, double expectations actually, 0.4%. This is the reading for April so the first for the 2nd quarter and the largest increase in nearly a year. The inventory to sales ratio held flat and is just below the 6 year high. On a year-over-year basis inventories are up 2.6%.

The World Bank agrees with the IMF, the FOMC should definitely hold off on rate hikes until next year because it could upset the global recovery.

The Oil Index

Oil prices fell more than -1.5% today as strong dollar and continuing levels of high supply capped yesterday's gains at recent resistance. New data from the EIA shows that US production continues to rise, along with a marginal increase in demand. This was offset by a reduction in global growth forecast by the World Bank and so the tug of war continues. Oil prices have been relatively flat, if volatile within the range, over the past month and may remain so into the near future.

The Oil Index gained a half percent today despite the fall in oil prices. The index created a small doji/spinning top just beneath the short term moving average and the 38.2% Fibonacci Retracement of the '09-'14 rally. The index has been moving higher over the last few days, in line with the underlying up trend, but may not be ready to break resistance yet. The indicators are rolling over into a trend following entry signal but that signal is not yet confirmed. This signal is consistent with the long term outlook of earnings stabilization and growth but again, not yet confirmed. Resistance may be at the retracement level/moving average and could remain until earnings season gets underway. The near term trend is down with support target just below 1,300 near the long term up trend line.


The Gold Index

Strong economic data helped to strengthen the dollar and put pressure on gold prices today. Gold fell about a half percent but remains above $1180. The near term churn driven by economic data, the dollar and Fed speculation wears on. Prices have been hovering in a range near $1200 for months, 3 months, while we wait on the June FOMC meeting. Tomorrows PPI data is very likely to be a mover of the dollar and gold. Last month weak data helped gold to reverse at the top of the 3 month range, perhaps tomorrows expected strong data will help it to bottom. I think gold could stay in this range, between $1170-$1215, until the first interest rate hike. The FOMC meeting is next week, there is an outside chance of a hike because the data is firming, but consensus is still next fall sometime. Long term fundamental factors supporting gold, aside from my inflation/hedge outlook, include year-on-year net purchases of gold by global central banks and above average demand for jewelry.

The gold miners are testing support. Today's move in gold has the miners ETF GDX pushing a new two month low. The indicators remain bearish but incredibly weak/divergent so I still think this is just a test of support and not a break. Gold prices will of course lead this sector but I remain bullish in the long term and viewing this dip as a potential buying opportunity. The PPI is going to make or break my theory, a move lower could take the ETF down to the long term low near $17.50. Resistance is now the underside of my rising trend line and the short term moving average.


In The News, Story Stocks and Earnings

Citrix Systems got a boost from news activist investor Elliot Management wanted to talk to the board. Elliot hold greater than 7% of the shares and sees significant upside potential in the stock. Their target is nearly 40% above yesterday's closing price. Today the stock shot up more than 8% in the pre-market session, opened with a large gap and sold off through the day. The stock is now trading near the top of the 1 year range.


Lululemon made the news when founder and 14% shareholder Dennis Wilson filed to sell all of his shares. The news was unexpected and without official reason but does not he will be selling them tomorrow. The statement released by his people simply states that he is filing in order to be able to sell some or all of his shares at some time in the future. The stock responded by dropping more than -1% on the news and providing a possible buying opportunity.


The retail sector did not get quite the boost I might have expected from this morning's retail sales data. The XRT Retail Spyder only gained 0.29% in a move that may have been capped by the Greece news. Today's action would have broken the short term moving average but resulted in a black candle and failed break above $100. This candle confirms resistance exists at $100 but other indications are contradictory. The over all trend is up with indicators firing a trend following entry. MACD is bullish and ticking upward with today's price action, stochastic is forming a bullish crossover with both %K and %D pointing up. The sector appears to be range bound in the near term, with a bullish bias. A break above $100 would confirm the trend following signal with a target near $102.50.


Dick Costolo, CEO of Twitter, announced in after hours news that he will step down from his position. This is not unexpected, he has been getting a lot of flak from just about every corner and has been looking frazzled on TV. Jack Dorsey, co-founder, will act as interim CEO. The news was taken well and helped to send shares up 7% in after hours trading.


The Indices

The market wanted to rally today. The global markets were positive, the data was positive, outlook is improving and then wham! The IMF pulls out of its negotiations with Greece because of “major differences”. The good news is that the bad news was not enough to completely erase today's gains. The funny thing is that Greece credit got downgraded to default imminent just yesterday, looks like S&P was right.

Today's move was led by the Dow Jones Transportation Index. The heavily beaten down index gained more than 1% in today's session in an extension of the move up from support. The index appears to be bouncing off of support, in line with the underlying long term up trend, but there is still resistance to overcome in the near term. First is the short term moving average and the bottom of the recently broken trading range near 8,500, and then just above that is the bottom of my up trend line. Data may help lift the index tomorrow and next week, along with the FOMC, but I remain cautious here until a there is a break above resistance.


The next largest move was only 0.22% and came from the Dow Jones Industrial Average. The blue chips started out strong but the move was reduced to near nothing and created a very small bodied candle. Today's move, regardless of size, is an extension of yesterday's rally, in line with the trend and moved above the short term moving average. The indicators are mixed but rolling into a trend following entry; stochastic is forming a strong bullish crossover, MACD is receding from a bear peak but not quite back to zero yet. Current target is near the all-time high, about 18,325.


The S&P 500 made the third largest gain, 0.17%. The broad market also started out strong, Greece news was just too much. Despite the weak day, today's action was able to move above the short term moving average and extends the rally we saw yesterday. The indicators are rolling over, in line with the move and the long term trend, but are not yet showing a strong signal. This move has a target near the all-time high and the bottom of my long term up-trend line.


The NASDAQ Composite made the smallest gain, only 0.11%. Today's move, while moving higher, created a small black candle just below the current all-time high. The indicators are rolling into a trend following signal with only a few tick between the current level and resistance. This index, more than any other, looks like it is on the verge of breaking out to new highs. A break above resistance could carry it up as high as 5,250. Support is between 5,000-5,050.


The market tried to move higher today and not just a little. The morning was off to a good start with early indications of a 0.50% move or greater. Nothing emerged today that would have halted that except for Greece and even that was not enough to derail the long term trend. Greece has been in trouble for years and has yet to hurt US business or economy. That being said, the situation will either get fixed in the next few weeks, or a whole lot worse. Greece is due to pay the IMF at the end of the month.

Today's data, and the move sparked by it, are good signs. The correction that appeared to be shaping up may have been put off for a little while. The data was good, has caused positive revision to the 2nd quarter and helped to boost outlook. So long as the summer economic rebound doesn't stall, and the FOMC doesn't scare the market, the secular bull is intact. Earnings outlook for the 2nd quarter may still keep stocks range bound but I think once we get start looking to the third quarter the rally will continue.

Until then, remember the trend!

Thomas Hughes