An unusually full economic calendar, plunging oil prices and global headlines gave the market pause.

Introduction

This is a big week for economic data, today included. It is once again the beginning of another month and a new round of macro-economic data. Today there were four major releases to move the market and they, along with a few global headlines, gave the market pause.

Starting in Asia data from China is adding to fear of slowing growth. PMI fell to 47.8 in July, more than the previously reported level of 48.2 and other measures of Chinese PMI. Chinese indices fell hardest, losing about -1%, the Nikkei held steady with a drop of only -0.18%.

European indices opened lower but rebound during the day. The Chinese PMI news and reopening of the Greek stock market responsible for the early loss. Shares of Greek stocks fell more than -15% while other major indices closed with gains. The DAX led with an increase over 1%.

Market Statistics

Our market was positive in the early hours of the morning. Futures trading was mildly volatile, within a tight range, but largely indicating a flat to positive opening for most of the indices. Earnings and economic data were the largest contributors to sentiment. Stocks sold off at the open, but not sharply, with losses for some indices reaching -0.5%. A mid-morning bounce had them all flirting with positive territory until a lunch time sell off sent them back down.

Afternoon saw things deteriorate, perhaps due to the sharp decline in oil prices. The indices fell to test the early lows and then set new lows. The S&P 500 was down close to -15 at one point, the Dow nearly -200. Puerto Rico was an also issue for the market to digest today. Early reports the territory had defaulted on its debt payments helped to depress the market. A late afternoon announcement it had made a partial payments helped to lift stocks off of the their lows.

Economic Calendar

The Economy

Lots of data for a Monday. Personal Income and Spending was released first. According to the Department of Economic Analysis Personal Income rose by 0.4%. This is above expectation and in line with the previous month and equal to a gain of $68.1 billion. Disposable Personal Income rose by 0.5%, spending only rose 0.2%. The only disappointment is the spending number which came in below expectations and with a downward revision to last month, 0.9% to 0.7%.

Auto sales were released by the individual auto makers throughout the day. Ford, Fiat, Toyota and GM announced before the bell, all coming in better than expected. Ford says they grew sales by 4.9%, more than double expectations, GM say they grew sales 6%, also double expectations. GM went on to say they see industry wide sales pace for July at 17.6 million, well above current expectations. Fiat also increased sales by over 6%. Toyota is the laggard at 0.6% but is still well above expectations.

Construction Spending and ISM were released at 10AM. Construction Spending rose only 0.1%, below consensus estimates for 0.4%, and the lowest level since January. The good news is that June spending was revised up from 0.8% to 1.8% and that total year on year spending is up more than 12% from June,2014.

The ISM report shows that the economy is expanding, but that expansion has slowed from last month. This month's reading of 52.7 is a decline from last month's 53.5 and the expected reading near 54. Within the report all areas measured are expanding except inventories. Inventories have slipped below the equilibrium level of 50 to 49.5. New orders and production both saw small increases while employment fell to 52.7 from 55.5.

Moody's Survey Of Business Confidence jumped 1.2% in this week's data. The diffusion index moved up to 42.2% from 41%, the fourth week of gains and the highest level in over 5. Despite the dip in sentiment over the past month it still trending near record highs and according to Mr. Zandi's analysis confidence remains strong and stable. He uses words like robust, healthy and ample when describing sales, hiring and credit.

There is a lot of data out this week. Tomorrow is relatively light, only Factory Orders, but Wednesday things heat up. ADP and ISM Services Index are followed on Thursday by Challenger Job Cuts and Initial Claims. Friday rounds out the week with Consumer Credit, Non Farm Payrolls and Unemployment numbers. Look for jobs creation to remain steady with a possible fall in overall unemployment.


According to data from Factset the blended rate for S&P 500 earnings growth improved a full percent over the last week. This is because 9/10 of the sectors are beating earnings estimates, led by the healthcare sector. So far 354 companies have reported earnings, 73% of which have beaten EPS estimates. Only 52% have beaten on the revenue side of the line. This week there are another 92 S&P companies scheduled to report so expect another increase in the blended rate next week.

On a sector by sector basis healthcare is doing best. The sector was projected to grow earnings by 7.6% at the beginning of the reporting period and has just about doubled expectations. The only sector not beating expectations is the industrials. Energy continues to lag with year over year declines of -57% but is 3% better than expected. Looking at earnings ex-energy things are looking even better. The blended rate jumps to 5.36% and near the upper end of my projections.

The Oil Index

Oil prices are falling and lost another -3.75% in today's action. The sell off gained momentum in late day trading and may have been what led the broader equities market lower. WTI fell to $45.25, Brent dropped below $50, both driven by overwhelming supply and production with little to no expected increase in demand. Today's data from China only helps to increase doubts about demand. Oil prices could fall to $43 or lower for WTI.

The Oil Index traded lower today It fell more than -1.9% but has not reached a new low. It is still a little off of the recently set long term low with mixed indicators. Momentum is shifting back to the bear side but so far has not been overly strong. The indicators, relative to the long term trend line(broken in early July), remain consistent with support. It looks like prices will test support at least, target near 1,170. Earnings outlook for 2016 is still positive so I am still looking for a bounce to form, but if prices for oil remain low this outlook could rapidly change.


The Gold Index

Gold prices fell about -0.75% in today's session on stronger dollar. Economic data remains positive and in-line with FOMC rate hike time lines and likely to keep pressure on the metal. Inflation remains a concern for me but is so far low to non-existant and adding little support. A break below current levels could take it down to $1150 with quickness.

The gold miners are moving. The miners ETF GDX hit a new closing low today, dropping -3.5%. Despite the drop today's action is still within the three week congestion band, stochastic is oversold and momentum is shifting back towards bullishness. This does not mean that the recent down trend is over but a better entry point for bearish positions may be forthcoming. A move to $15.75 would bring price back to the short term moving average and the recently broken retracement level as well as closing the gap formed when prices broke that gap. However, if gold prices continue to fall then the miners are likely to fall with them.


In The News, Story Stocks and Earnings

Noble Energy reported before the bell. The company reported a net loss that when adjusted beat expectations. The company says production is up and should grow through the end of the year, causing them to raise full year volume guidance. The company is moving forward with recent plays in the Eagleford and Delaware Basin that should help to keep oil prices low for the foreseeable future. Shares of the stock lost -3.7% in today's session.


Tyson Foods reported before the bell and did not please investors. The company reported earnings of $0.83, up from the previous quarter but well below consensus of $0.93. The company also lowered its full year guidance. Results were blamed primarily on beef markets where the company is experiencing export issues as well as higher costs. Chicken and pork are both experiencing headwinds but not to the extent as beef. Shares of the stock fell more than -9% in early trading and created a long legged doji around the $40 level.


Clorox gave a mixed report. Both earnings and sales beat estimates but full year guidance was a little short. Results were driven by increases in sales, volumes and margins. 2016 guidance is calling for only 1% growth due to currency conversions (3-4% constant currency) with a 25 basis point increase in margins. Shares of the stock responded well despite weak guidance, climbing more than 2.7% after initially opening lower.


AIG reported after the bell and barely moved the stock. The company reported $1.39 per share, beating expectations for revenue and earnings. Execs also announced a $5 billion stock buy back plan and increase to the regular dividend by 124%. Shares of the once bailed-out company lost ground in after hour trading, falling about -0.20% after trading marginally higher in the open session.


The Indices

Today's action was a little wild but not crazy. Data and earnings helped to support the market but the day's trading was focused on bad news. Indices closed mostly lower, after poking into positive territory early in the day, but not all of them. The Dow Jones Transportation Average was the one major to eke out a gain, climbing 0.30%. Falling oil prices has increased optimism in the sector and sparked another round of upgrades for the airlines and other sectors who rely on fuel as a primary cost of business. The index created a small bodied candle, the third spinning top since bouncing from the long term low last week, and is accompanied by increasing momentum. The index appears to be moving higher with sights set on resistance at the 8600 level.


Today's biggest decliner was the Dow Jones Industrial Average which fell a little over -0.5%. The blue chips fell from resistance with bearish indications but bounced from support at the long term trend line, near 17,500. The indicators are pointing lower at this time so further testing of support along the trend line could come. The indicators also remain consistent with long term support, along the trend line, so any test or break is likely to result in buying opportunities. This level is also consistent with the recent lows For now, the index is trapped between support and resistance waiting to break out.


The broad market S&P 500 made the next biggest decline, -0.28%. The index is trading above the short term moving average and test support at the average in today's action. This support is consistent with previous support bounces near the 2,100 level. The indicators are mixed but setting up for a potential trend following signal; MACD has turned positive with today's candle, stochastic is pointing lower but trending higher and on the cusp of a bullish crossover. Potential resistance is just above the current level, about 20-30 points higher, and needs to be broken for more significant upside movements. If resistance is not broken the index could remain within the recent range between 2050 and 2020.


The NASDAQ Composite made the smallest decline in today's session falling -0.25%. The tech heavy index is in mid-bounce and tested support along the short term average. The indicators remain weak and suggest further testing of support could come but the trend remains up. A fall below the moving average could take the index to support along the long term trend line near 5,000. A move up would find resistance at the all time high near 5218.


Today's action was a little wild, primarily driven on news. Near term fears helped to drive stocks lower, economic and earnings trends helped to provide support. China, Greece and Puerto Rico all played a part, including President Obama and his new Clean Air Plan. The plan allows the EPA to regulate carbon emissions under the Clean Air Act and will require each state to develop its own schedule for reducing emissions.

The market faces potential headwinds this week, on top of declining oil prices. Falling oil prices could help the market move lower as energy stocks get hammered but are a bonus for all other sectors longer term. Other headwinds include economic data and earnings. The data needs to remain in the Goldilocks range, showing growth without inflation, and growth without so much strength it forces the FOMC into more than what the market is expecting. Earnings need to remain better than expected, with positive forward outlook.

The indices appear to be moving higher but August is notoriously a tepid month for stocks so I am cautious. It is important to remember that although it is the end of the summer but market volumes usually remain low until after Labor Day leaving the market highly susceptible to daily news events. This alone is reason enough to keep the market bouncing between support and resistance, when you add in earnings season, economic data, FOMC anticipation, China and Greece the chances of range bound trading increase.

Until then, remember the trend!

Thomas Hughes