An unclear Fed message and economic data sent the indices back to support while the market ponders what the future will bring.

Introduction

Wednesday's FOMC minutes gave a less than clear message that only served to confuse the market. They are ready, but not quite ready, and data driven. Today's data helped added to the confusion by showing improvement in one area and contraction in another. Needless to say, the talk about when the first rate hike will come heated up again. Some say September is off the table, others say no way.

The Fed minutes helped send indices lower around the world. The Asian markets fell -1% to -3%, led by the mainland Chinese Shang Hai index. It is now trading at new 6 month lows while the government continues to throw support wherever it can. European markets fared no better, they shed nearly -2% on average aided by negative developments in Greece. Prime Minister Alex Tsipras is resigning after a loss of parliamentary majority. A new election will take place this fall and puts the ongoing bail-out in jeopardy once again. On a positive note the ECB says that Greece paid back all of its bond holders as the latest round of debt repayment comes due.

Market Statistics

Our indices were indicated lower from the earliest and were not helped by today's data. Jobless claims, Philly Fed and Existing Home Sales all point toward continued expansion and looming interest rate hikes, the Leading Indicators declined suggesting a rate hike may be premature. The combination left traders uncertain of what's to come and along with option expiration tomorrow was reason enough to sell off.

The first few minutes after the open saw the indices decline by roughly -0.75%. Selling pressure did not let up for the first hour except for a brief bounce just before 10AM. By 10:30 the morning low had been set and that held until just after lunch. By 1PM the market had retreated down to test and break early support levels and push the indices to declines of -1.5% and more. Market declined continued throughout the afternoon, driving them to new lows several times. By end of the day the indices were down more than 2% and closing at or near the low of the day.

Economic Calendar

The Economy

Lots of data today, starting off with jobless claims. Initial claims for unemployment rose by 4,000 to hit 277,000. This is on top of a +1,000 revision to last week and above expectations. The 4 week moving average of claims rose as well, gaining a little over 5,000 to hit 271,500. Despite the rise claims remain near the long term low and consistent with ongoing labor market recovery. Considering the chances for revision and seasonal adjustments a small miss like today is negligible, so long as it does not become a trend.

On a not adjusted basis claims fell -4.0%, slightly less than the expected -5.5%. On a year over year basis not adjusted claims are down -8%. California and Illinois led with increases of 2,498 and 2,042. Virginia and Kansas led with declines of -329 and -236.


Continuing Claims fell by -24,000 to hit 2.254 million. Last week's number was revised higher by 5,000. This is the fourth week that continuing claims have held near this level. The slight uptick in initial claims has not yet carried through into longer term unemployment. Continuing claims remains low and consistent with labor market health and recovery.

Total claims fell by -5,632 to hit 2.254 million. Total claims have also not been impacted by the rise in initial claims and remain at low levels. On a year over year basis they are down more than -10% and consistent with the ongoing recovery in the labor market.

Philadelphia Federal Reserve Manufacturing Business Outlook Survey shows modest growth in the region. The diffusion index gained 8.3 from 5.7 versus an expected decline and shows that economic activity is expanding, contrary to the Empire State data released on Monday. Positives within the report is a rise in New Order to 5.7 from -1, a rise in Employment to 5.3 from -0.4 and a 12 point gain in shipments to 16.7. The future looking component was also positive, rising to 43.1 from 41.5. All in all showing steady growth and promising more steady growth in the future.

Existing Home Sales rose 2%, more than expected, to an annualized pace of 5.9 million units. Analysts had bee expecting a slight decline from last month, to 5.4 million units. This is the third month of gains and the highest level of existing home sales since 2007. On a year over year basis sales are up more than 10% and are expected to continue into the future. Headwinds include low inventory and rising prices which are keeping first time buyers out of the market. On the flip side the improving market should lead to more building.

Leading Indicators made a slight decline in July, -0.2%. This is following +0.6% in May and June and is the 1st month in 5 to decline. Despite the decline Conference Board economist still say that growth in indicated into the end of the year and beyond. Both the Coincident and Lagging Indicators showed gains supporting this view.

The Oil Index

WTI prices toyed with new lows near $40 but managed to recover the loss before the close of the day. Mid-afternoon trading saw WTI gain $0.50 or about 1.25% to trade near $41. Prices are trending lower on supply/demand issues that are as yet unchanged. Today's rise may be in response to a hurricane brewing in the Atlantic, the first of the season. It's still far away but could easily make landfall in an oil producing or refining region. Prices may rise in the near term, due to weather or other concerns, but long factors remain bearish.

The Oil Index lost nearly a full percent and set a new low. The index fell below my support line near 1,150 and may be heading lower. Low oil prices are having an impact on earnings outlook and by extension oil stocks. The index is now trading at a 2 1/2 year low with declining momentum that could lead to another leg lower. However, there is evidence of support at these levels on both the weekly and the daily charts that make the current short term down trend appear overblown and oversold. This does not mean that the down trend is ending, just that it is weak and highly susceptible to reversal. A change in supply/demand outlook or fear could easily send oil prices back toward $50 and take the index with them. Downside targets is near 1,120 and the next Fibonacci Retracment line. If prices are able to move back above 1,150 they may go as high as 1,235 before hitting resistance.


The Gold Index

Gold gained more than 2% and hit my target at $1150. The metal is getting support from flight-to-safety concerns with China, weakening dollar and diminished, if possibly misplaced, September rate hike outlook. Price has now returned to previous support levels that are a likely target for resistance at this time. A further move upward could take it as high as $1,200 or $1,215. There is no economic data tomorrow so trading will be focused on other news.

The miners got the lift you might expect from such a significant move in gold. The gold miners ETF GDX gained nearly 4.5% in today's session. The move takes the index back above the previous all time low, is a bounce from the 30 day moving average, moves above the 100% retracement line and confirmed by bullish indicators. Higher gold prices mean better revenue for miners and value for investors, the caveat is that significant upside resistance is present in the form of the November 2014 low. The indicators confirm that a test of this resistance is likely but suggest it may be the top of a range, at least for now. The index is closely tied to gold prices, which could reverse on the next piece of data, so a test or fall to support near $15 is also a possibility. Longer term support is near $13.


In The News, Story Stocks and Earnings

Disney got a down grade and was responsible for a lot of today's decline. The company, along with Time Warner, was downgraded at Bernstein after analyst came to some kind of epiphany about how the market has been valuing TV based media. They are going to change the way these companies are valued, they say, and began with lowering Disney to market perform from out perform. Shares of Disney fell more than -6%. Time Warner only fell about -1.6%.


Charlotte based retailer Cato reported earnings before the bell that were in line with expectations. EPS of $0.56 was also flat compared to the same quarter last year although overall sales were up. Guidance for the second half was reaffirmed in a range around $0.50. Shares of the stock fell sharply on the news and extended the drop during today's session, closing with a loss greater than -8.7%. Cato is now trading at a new 10 month low with bearish indications.


Hewlett Packard reported after the bell. The long suffering technology company reported another quarter of declining revenue that led to a miss on revenue. The company was able to beat on the earnings side and reconfirmed its upcoming split. The bad news, or the worse news, is that the company lowered its guidance but the market did not seem to mind. The stock did not lose much ground in after hours trading but is trading at a new 52 week low as of today's close.


Gap Stores reported after the bell and was in-line with expectations. The jeans company reported $0.64 per share on a 2% decline in comp store sales but was able to reaffirm guidance. There several impacts to earnings of which one is not likely to disappear, currency fluctuations. The other is a $0.13 loss associated with port closings. Shares of the stock traded at a new low during the open session but rose in after hours trading following the release.


The Indices

The bulls went ducking for cover today. FOMC minutes, data, earnings and news each put their spin on market sentiment and caused the biggest down day we've seen on many months. The move was sparked, maybe, by the FOMC minutes but I think it has more to do with options expiration that anything else. News from around the world, tepid earnings and confusion about the economy and the Fed rate hike are today's catalyst but you can't ignore that the move is connected to the unwinding of positions.

The tech heavy NASDAQ Composite led today's decline with a loss of -2.82%. The move created a long black candle but not one larger than others seen over the course of the past 12 months. It did break the long term trend line and is setting up for further declines. The indicators are bearish and moving lower with a noticeable spike in MACD momentum. Downside target is near 4,750 where support may be strong. It looks like the index is in for a slightly deeper correction but is approaching additional up trend line, also near 4,750.


The Dow Jones Transportation Average is today's second biggest loser. The transports fell nearly -2.5% and created the longest black candle in several weeks and one of the longest of the last 12 months. Today's action is a move down from the short term 30 day moving average but within the range set over the past three months. The indicators are pointing lower so a further move down is likely but they are not strong and consistent with support forming along the 8,000 or slightly above.


The S&P 500 made the third largest decline in today's session, -2.10%. The broad market created the largest black candle in several months and appears to be heading to test or break the long term trend line. The indicators are making a bearish crossover in confirmation of the move but are not yet strong and more consistent with range bound trading than market reversal. Support levels should start to be hit around 2,020 and get stronger as they break 2,000 and approach 1,950. The caveat is that prices typically snap back after declines of this type, even if they eventually move lower in a few days, so tomorrow is likely to see more volatility.


The Dow Jones Industrial Average made the smallest decline today, only -2.06%. The move created the longest black candle of the year, broke support levels and closed at the low of the day. The indicators are rolling into a bearish crossover and pointing to lower prices with 16,600 as a first target. MACD is weak and stochastic remains near the middle of its range so there is room for it to move lower.


The market sold off with plenty of reason but not reason enough for the depth of the move. Yes, the FOMC rate hike is looming and yes, the Fed is causing some confusion but its only the first of many rate hikes and a sign the economy is healthy. Yes earnings are tepid and the consumer is not showing up the way we'd like to see but labor trends suggest its only a matter of time before that changes. Yes, China and Europe are worries but when is China not a worry and Europe is recovering the same as us.

Eventually market focus will return to the ongoing economic recovery, improving labor markets, expanding housing sector and the expectations for earnings growth by the end of the year and all of next year. Short term concerns have kept the market range bound and near term concerns are causing a dip. This dip may go a little deeper than ones we've seen over the past 6 months but that will just make a better opportunity for bulls.

Until then, remember the trend!

Thomas Hughes