A round of positive economic data helped support the market while we await tomorrows NFP, the last major employment report before the September FOMC meeting.

Introduction

A round of positive data helped to support the market today. News from Challenger, the jobless claims report and ISM Services suggest that labor markets remain stable and that the US economy is still expanding.

Early morning news was focused on the data, as well as the ECB meeting and press conference. Asian markets were quiet, China is closed for a two day government holiday and will reopen on Monday. Japan was able to bounce back from recent lows, if only marginally, and close with a gain of 0.48%. European shares were able to post a nice rally, spurred on by comments from Mario Draghi that have renewed hopes of additional QE measures.

In the official statement the ECB lowered its EU GDP and inflation growth targets for the next 3 years. In comments following the release Draghi said that downside risks have reappeared despite ongoing asset purchases and that that program could be increased. No changes to current policy were made, rates were held at current levels. In other news from the EU PMI came in at 54.3, the highest level in 4 years.

Market Statistics

Futures trading indicated a positive open for equities all morning. The trade spiked following the release of data and the ECB statements but did not hold the highs going into the opening bell. After the open the indices waffled for a moment and then began a steady climb that took them to the highs of the day by 11AM. Once the early high was hit the market began to sell off in a slow and steady decline that took the indices back to the low of the day by 1:10PM.

A small bounce formed once the low of the day was hit. This lasted for about an hour but did not rally take hold. The afternoon high was hit around 2:30PM at which time the market began to fall back once more. A new low was hit late afternoon, just below break even levels, but these levels too did not hold. Another small bounce, going into the close of the day, carried most indices back into positive territory .

Economic Calendar

The Economy

The Challenger, Grey & Christmas report on planned lay-offs was released in the early morning. The report shows a -61% decline in planned lay-off's from last month's 4 year high. This month the number of lay-offs was reported as 41,286 and is +2.9% higher that this same time last year. On a year to date basis 2015 lay-offs are now at 434,554, 31% higher than last year at this time. Retail led this month with planned lay-off's totaling 9,601, most of which are due to the bankruptcy of grocery chain A&P. Low oil prices were blamed for 3,808 job losses bringing the total to 82,268 for the year. This is still a little less than expectations which called for energy related losses in the range of 90,000.

Now, if we back out job losses related to energy the year to date total drops down to 352, 256 and only +6% from last year (don't forget that last year there were less than 5,000 jobs lost in the energy sector, -93% less than this year).

There are some other things to consider when looking at the year to date job loss numbers. One, many of last months proposed lay-offs are in government/military and are scheduled over the next 2-3 years. Another is that a sizable portion of this years cuts are also due to major lay-offs in the tech sector, namely by Hewlett Packard and Microsoft, and have been largely anticipated and/or telegraphed by the respective companies.


Initial claims for unemployment made a surprise gain of +12,000 to reach 282,000. Last week's figure was revised lower by -1,000. The 4 week moving average gained 3,250 to reach 275,500. This is the highest level for the average in four weeks but it and the headline number remain near the long term low and consistent with ongoing labor market health. On a not adjusted basis claims rose by 1.7% versus the drop of -2.4% predicted by the seasonal factors. Pennsylvania and New York led with increases of 1,875 and 832 while Kansas and California posted the largest declines in claims, -1,473 and -1,302.


Continuing claims shed -9,000 from a downward revision of -3,000 to hit 2.257 million. This is the 8th week of continuing claims coming in around 2.3 million and just off the long term low. It looks like continuing claims have leveled off, at least for now, and have not shown an impact from the past month's rise in initial claims.

The total number of Americans receiving unemployment benefits is 2.210 million, a rise of 3,050 from last week's report. This number continues to trend near long term lows and, along with the rest of this week's labor data, suggests that the NFP will be steady at least. ADP was a little below expectations and could indicate the same for the NFP. Expectation is in the range of 215,000.


The NFP will be an important number not only as a sign of economic recovery but also as an indication of what to expect at the FOMC meeting. Also of importance will be the unemployment rate, and hourly earnings. The labor data so far suggest that a rate hike is due, if not overdue, while inflation data remains tame. The caveat is that there are growing signs of wage inflation, mentioned in several earnings reports this past go round, that could show up in this month's report. Consensus for hourly earnings is +0.2%, steady from last month.

The services sector ISM numbers were releases at 10AM. The August reading of 59% is firmly expansionary but reflects a mild slow down from the previous month's reading of 60.3%. Within the report all segments remained positive and expansionary if somewhat slowed from last month. Business activity came in at 63.9%, New Orders came in at 63.4% and Employment is at 56%. These readings are the 73rd consecutive month that Business Activity has been expansionary, and the 18th consecutive month of positive gains for employment. Prices paid are also expansionary but have declined to 50.8%.

The Oil Index

Oil prices tried to stage a rebound today but were not able to hold their gains. Positive US data and hopes for renewed EU QE may have been the cause for the early rally but supply/demand fundamentals remain unchanged. Yesterday's build in US crude stockpiles underscores that position and the impending nuclear agreement with Iran will only increase global supply. WTI end the day near break even with Brent falling by a half percent.

The Oil Index tried to post a rally today as well, and like the underlying commodity was not able to hold the gains. Today's action was centered around the 61.8% retracement line and created a relatively small bodied candle with long upper shadow indicating some resistance above the retracement line. The indicators, however, are bullish and suggest that further testing of resistance is likely with a possible move up to the short term moving average and/or my resistance line near 1,170. However, looking at the MACD over the longer term, the most recent bear peak is significantly large, convergent with the recent low and a retest of that low. If oil prices fall, and/or the index is not able to move above current resistance at the retracement level (near 1,115), then a move down to the recent low near 1,020 is likely.


The Gold Index

Gold prices fell in today's action as data and ECB outlook has strengthened the dollar. Despite the gain in dollar value gold prices remain above $1,120. Gold prices continue to be influenced by data and FOMC speculation and will likely experience more volatility over the coming weeks. Near term support targets are near $1110 with long term targets near $1080. Resistance target is $1130 and then above that near $1150. Without inflation present it looks like gold has nowhere to go but down. Economic data is strengthening the dollar, the FOMC is expected to strengthen it more (if not this meeting then at a meeting real soon) and today's news from the ECB may only increase the effect. Not to mention ongoing QE from the BOJ as well as any currency moves put forth by the PBOC.

The gold miners tried to stage a rally in the early portion of the day but fell back in afternoon trading. The miners ETF GDX ended the day with a loss near -1.75% but is basically flat for the past week. The indicators have rolled into what looks like a potentially strong bearish signal, in line with the ongoing down trend in gold stocks, that could take the ETF down to recent lows near $13 or lower.


In The News, Story Stocks and Earnings

Joy Global, maker and servicer of surface mining equipment, reported earnings before the bell. The company reported a miss, -26% below estimated, driven by "one of the most challenging (business environment) seen in decades". Along with the miss on earnings Joy reported a -31% decline in bookings, a -16% decline in services bookings and a -10% decline in net sales over the same period a year ago. Along with the drop in commodity pricing the shift away from coal is having an impact on business. Execs lowered guidance as well, to a range around $1.80, far below consensus estimates in the range of $2.50. Shares of the stock lost more than -15% and set a new 6 year low.


Verizon announced an increase to its dividend this morning before the market opened. The company raised the quarterly dividend by 2.7% to $0.565, or $2.26 per share annually. This is the 9th year that Verizon has raised its dividend in some way and, based on earnings expectations for the next quarter, may not be the last. The telecommunications, according to data from FactSet, is expected to lead earnings growth in the 3rd quarter and the full year with increases of over +18% and +16.9%. Shares of the stock gained more than 2% on an intra-day basis but gains were capped at the short term moving average.


Campbell's Soup Company reported an earnings beat on revenue slightly below expectations. The company reported adjusted earnings of $0.43 versus the expectation for $0.42. Fourth quarter sales came in -9% lower than the fourth quarter of last year but were negatively impacted by a calendar shift which decreased the number of weeks in the quarter by 1 compared to last year's fiscal fourth quarter. Along with the report execs reaffirmed guidance in a range of $2.53-$2.58, a nickel above consensus. Shares of the stock dropped in the pre-market session, gapped lower, moved lower to test support but rallied off the low to close with a gain greater than 1.5%.


Medtronic, a global leader in medical devices, released earnings before the bell and beat on the top and bottom line. Despite the beat company execs reaffirmed guidance in a tight range around current consensus. Shares of the stock were able to open strong but fell back during the day. Shares were down -2.25% with strong bearish momentum by close of the day.


The Indices

The market tried to rally and extend yesterday's bounce from support but was not able to hold the gains. Most indices tested previous support/resistance lines in today's session, lines that capped gains and sent them back to near term support. Today's action was led by the Dow Jones Industrial Average which gained 0.14%. The blue chips created a doji candle with long upper shadow that may become a shooting star/pin bar type candle if confirmed. This candle often precedes a decline and could result in a full retest of recent lows. The indicators remain bearish and consistent with such a test, in particular MACD which is convergent with the recent low. Support target is just below yesterday's open near 16,000 with resistance just above today's candle near 16,575.


The S&P 500 made the 2nd biggest gain, 0.12%, and also created a possible pin bar doji. Today's action crossed above my resistance line at 1,960 and the recently broken long term trend line, where bullish action was capped and reversed. This confirms resistance at the trend line and is accompanied by bearish indications. Bearish MACD momentum is in declining but it remains convergent with the recently set low and suggestive of a retest of the low. Stochastic is moving lower in both the near and short term, also suggestive of lower prices. Resistance is the bottom of the trend line, near 1,960, with support targets near 1,900 and just below that near 1,875.


The Dow Jones Transportation Average made the smallest gain, 0.07%, and also created a pin bar like doji. The difference here is that is a small doji, including the upper shadow, and may in fact be just a spinning top. Also, where the first two are testing resistance levels, this index has not yet reached resistance, next target will be the short term moving average. The indicators are consistent with a possible retest of support, MACD is convergent with the recent low and stochastic is still moving lower, but yesterday's candle appears to be confirming support at/near the 7,750 level.


The NASDAQ Composite is the only index of the four majors that did not close in the green. The tech heavy index flirted with lower prices for most of the day, after an initial push higher, and closed with a loss of -0.35%. Today's candle is small bodied but confirms the presence of resistance, at least on a technical basis, at the November 2014 all time high near 4,800. The indicators are mixed, bearish MACD has declined to near zero and stochastic has begun to move higher, but are consistent with a possible move lower to retest support with a target near 4,500.


It looks like the indices have hit a bottom and begun to bounce higher, but is also looks like the lows, or at least support, will be tested again before/if the bull market will resume. I remain bullish into the long term, on earnings and the economy, but with 3rd quarters earnings expectations weakening like they are it is very possible we have not seen the low of this correction.

There are lots of worries weighing the market down and most, if not all, will still be here next week so there is significant risk of continued downside. Of them all only the FOMC rate hike time-line has any hope of being resolved in the near future and its effect on the market is highly questionable. In between now and then there will be plenty of headlines to move the market up or down, whichever way the wind is blowing.

Tomorrow could be a big day, the NFP is coming out and could easily move the market. A strong number is good for economic expansion and ordinarily bullish, but at this time would also help cement the idea of a September rate hike and possibly bearish in the near term. Longer term I stand by my opinion that a rate hike is overdue and would be a sign of US economic health.

The market will be closed on Monday because of the Labor Day holiday so tomorrow's trading will have an extra twist to it as market participants position for the long weekend.

Until then, remember the trend!

Thomas Hughes