Once again we're waiting on the Fed. The upcoming September meeting may be the most anticipated since they announced the taper.

Introduction

Global markets were marginally lower in today's trade as speculation over the September FOMC meeting begins to heat up. Economic data, and a fair amount of Fed Speak, has gotten the idea of a September lift-off more firmly cemented in the minds of Wall Street. We still haven't seen any truly significant increases in economic output but the slow, steady rate of growth of the past few years has brought to us to the point that a rate hike is imminent.

Asian markets were mixed. The Nikkei gained a quarter percent, Chinese indices lost a half percent or more. There were no significant headlines from the region that I saw. European indices were largely flat until the open of our markets. At that time they began to fall off but only incurred losses of -0.01% to -0.5%.

Market Statistics

Futures trading in the early hours of the morning was flat to mixed. The indices hugged the flat line with a slight bias to upside. Economic data, Challenger Job Cuts and Jobless Claims, were mixed as well but still well within trend. Earnings were also of interest. Several big names which reported yesterday were still on the minds of traders today, namely Disney, Tesla and Green Mountain Coffee, due to misses and/or poor outlook.

The market opened positive, marginally, and then immediately sold off. Initial losses were in the range of -0.25% but extended in the first hour to near -0.5% on average. These levels held until mid-day when the bottom seemed to fall out of the market. The SPX was down more than 22 points at one point but hit a target support level and bounce back, if only a little. Weakness persisted all day but all indices were able to move off of their lows before the close of trading.

Economic Calendar

The Economy

The Challenger Gray & Christmas report on planned lay-offs was released first. It shows a 136% increase in lay-off's versus last month, and 125% increase over July of last year. This month's cuts bring the YTD total to 393,368, the highest 7 month total since 2009. This month's total is the highest single month gain since 2011.

More than half of this month's gain is due to cuts by the government. More than 57,000 military and civilian work-force jobs are being cut, over the next two years. Backing this out the total comes down to 48,696 and more in line with recent trends. After that the biggest contributor is the tech sector where more than 20,000 jobs are being lost. Primarily at Microsoft (Nokia bust), Qualcom and Intel. Looking at the full year total and taking into account jobs lost to energy, 69,550, as well as the military cuts it comes down to 212,818 and below last years level. As a point of reference the energy sector only lost about 5000 jobs in 2014.


Initial claims for unemployment rose less than expected from last week's unrevised figure. Initial claims rose 3,000 to 270,000 versus the expected rise to 275,000. The four week moving average of claims fell -6,500 to 268,000 as the July data drops out of the calculation. Although there has been a slight rise in claims over the past two weeks they remain in downtrend and near long term lows. On a not adjusted basis claims fell by -2.2% versus the -3.4% projected by the seasonal factors. On a year over year basis not adjusted claims are -9.2% lower than last year at this time. Kansas and West Virginia saw the biggest increases in claims, +481 and +87, while Michigan and California saw the biggest declines in claims, -4,003 and -3,862.


Continuing claims fell by -14,000 from an upward revision of 7,000 to hit 2.255 million. The four week moving average also fell shedding -18,000. Continuing claims also remain in down trend and near its long term lows.

Total claims for unemployment gained 1,649 to reach 2.301 million. This number too has been on the rise in recent weeks but also remains in long term down trend and near its long term lows. On a year over year basis total claims are more than-10% lower than last July.


Tomorrow's jobs report is going to be a market mover any way you look at it. Based on the ADP report it could come in weaker than expected but the NFP does not always track closely with the ADP number. Not to mention the likelihood of revisions in the coming months. The Challenger report is a harbinger of potential increases in overall unemployment, but not until next month or later depending on when the jobs are actually lost. The upshot is that labor market momentum is on the rise, job openings are at high levels and the quits rate remains strong which leads me to believe that job creation is steady at the least.

What may be more important is the Labor Participation Rate, and any information about numbers of new retirees. The rate of retirement is important in relation to jobs creation in that it is opening up higher level jobs and allowing upward mobility in the work force thereby creating lower level positions in need of filling, all without creating any new jobs.

Also on tap for tomorrow is Consumer Credit, Average Work Week and Hourly Earnings.

The Oil Index

Oil prices fell more than -1.5% in today's session reaching a new 5 month low. WTI fell to near $45.50 despite a draw in stockpiles reported yesterday. The draw, due primarily to high refinery runs, did little to change the supply and demand picture which remains decidedly heavy on supply. Brent also fell, dropping below $49.50 for the first time since February. Prices are likely to remain under pressure in the near term. Short to long term prices are expected to trend above $50 for WTI in 2016.

The Oil Index gained more than 1.35% in today's action, counter to the broad market and the drop in oil prices. Today's candle is moving up from the support line I drew earlier in the week and appears to be confirming said support. The indicators are rolling into what could become a bullish signal, in line with prevailing long term trends. My line at 1175 is near term support, a break below here could take the index down to 1120, resistance should today's move result in further upside is near the 50% retracement line and short term moving average near 1235.


The Gold Index

Gold prices rebound in today's action as we wait on the jobs data. Weak ADP has led some to expect a weak NFP which reduces the chances of a September rate hike ever so slightly, putting pressure on the dollar and giving gold a boost. Gold prices have so far not broken below the recently set low near $1175 and have been trending sideways within a consolidation band for nearly 3 weeks. This may continue up to and until the next FOMC rate hike provided data does not sway expectations. However, steady to strong data may help to strengthen the dollar which would provide additional downside pressure. Inflation remains very tame and is not supporting outlook for higher gold prices down the road.

A new though I have had is this, what if the FOMC is the missing link in the inflation picture? A rise in interest rates will cause a chain reaction of higher prices that could ripple through the economy. If so the rate hike itself could weaken gold in the near term while providing the catalyst for longer term inflation and rising gold prices.

The gold miners ETF GDX gained a little over 2.0% in today's session. The ETF is moving up from the recently set all time low with momentum shifting to the upside. The ETF remains below the previous all time low and the short term moving average which are potential targets for a snap-back rally. The fund is in downtrend and tied to the price of gold.


In The News, Story Stocks and Earnings

Mondelez made the news this morning when Pershing Square's Bill Ackman announced a $5.5 billion stake. The stake is equal to 7.5% of shares and is expected to lead to action from Ackman and Pershing. Ackman is expected to “engage” with management and the board over operations and other matters. Shares of the stock opened with a +6.5% gain but sold off during the day. Prices closed near yesterday's closing level on high volume. Mondelez has recently set new all-time highs on a strong earnings report.


A number of top gold producers reported today including Randgold and Royal Gold. Both companies reported record quarters for production. Randgold says production is up 7% over last year at this time with improvements to quality of recovery. Costs have fallen by 3% and will likely continue to fall in light of plunging oil prices. The company also said that it was in position to continue investing in new projects as well as strengthen the balance sheet. Royal Gold increased revenues by 3% in the quarter and produced record cash flow, up 37%. Shares of both companies traded in similar fashion to the miners ETF GDX with indicators pointing toward higher prices. It seems as if the miners are able to perform well, and improve operations, despite the low price of gold. Low realized price will continue to be a headwind but the miners are set up for significant gains once prices stabilize. Increased production, higher realized quality and lower costs can only lead to profits...provided gold prices cooperate.


Shares of Michael Kors jumped more than 10% on better than expected earnings. The company reported earning and revenue above consensus as well as reaffirming full year guidance above current estimates. The stock had been trending lower but may now be on the move up toward possible resistance at the bottom of May window near $50. Today's move took the stock back over the short term moving average with rising bullish indicators.


A lot of today's down side can be blamed on the media sector and led by Viacom. The company reported earnings that were well below expectations and lowered guidance. The reason is rapidly declining subscriber numbers for pay TV as on-line and streaming lure more and more customers away. Viacom fell more than 20% at the lows of the day and closed with a loss of -13.5%.


The Indices

The market sold off today on weak earnings from a few big names and anticipation for the NFP release tomorrow morning. The drop was led by the NASDAQ Composite which dropped a little more than -1.6%. The index created the longest black candle in over 4 months but was halted at support. The index is now trading just above the long term trend line and the 2000 all time closing high. The indicators are bearish in the near term so a test of support could continue with the long term trend line as target. Longer term the indicators remain consistent with support along the trend line so this test appears to be setting up another buying opportunity at this time.


The Dow Jones Transportation Average made the next biggest decline, -0.83%. The index fell from resistance at the bottom of the previously broken Nov 2014- May 2015 trading range but did not fall below the short term moving average. The indicators remain weak but so far consistent with up trend following the recent bottoming pattern near the 8,000 level. Price is now within a tight range bound by two previous support/resistance lines consistent with the June consolidation. It looks like the index has reversed from the April-July short term down trend, consistent underlying longer term trends, but this may only mean sideways action. Upper resistance may be strong, near 8,600, and needs to be broken for additional upside movement.


The S&P 500 comes third in today's action, posting a loss of -0.78%. The index broke through the short term 30 day moving average but was halted near the 2080 level. The indicators are weak and pointing to potentially lower prices but there are several possibilities for support just below today's closing price. The index could fall as much as 30 points before hitting my best target, near 2050, with a chance of moving to the long term trend line if it is broken. Longer term the indicators remain consistent with support along the trend line.


The Dow Jones Industrial Average made the smallest decline but fell beneath its trend line. The blue chips lost -0.69% and also set a new 6 month low. Even with the new low prices remain within the 2015 trading range and above support targets. The indicators are pointing lower in the near term but remain consistent with support in the longer. Prices may continue to test support or move lower with downside target near 17,200.


Earnings and data are fueling market churn. The news has been a bit mixed this week but nonetheless long term trends in both are positive as are future expectations. In between now and then is the upcoming September FOMC meeting and all the speculation that goes with it. It seems more and more likely that this meeting is going to be a rate hike and that I think is ultimately what is keeping the market range bound and trading as it is.

Tomorrow could be a big day. The NFP could be as expected, weaker than expected or better than expected. I am leaning towards as expected, in the 225K range, but any number has the power to move the market. In any event one month of data does not a trend make, the economy is improving and fast approaching interest rate lift off.

Until then, remember the trend!

Thomas Hughes