The FOMC left rates unchanged, they lowered their forecast, blamed it on global weaknesses and remain dependent on data.

Introduction

The FOMC meeting was a little bit of a let down. They did not raise interest rates. They also lowered their forecasts for inflation and the pace of interest rate hikes going out to 2018, not because of a weak US economy but because of global weaknesses and growth expectations. Regardless of their stated reasons, they remain data dependent and waiting on clearer signs of inflation.

According to the statement our own economy is expanding at a modest pace with improvements in labor, housing, household spending and business investment. The risk is that recent global economic and financial developments will put downward pressure on inflation and economic activity in the US. Lacker was the only dissenter, calling for 1/4 point hike.

Yellen tried once again to reassure the market. She stated, again, that policy would be accomodative long after the first rate hike. She also reiterated the point that the market should be more concerned with the pace of rate hikes, and not so much with when lift-off would occur.

Market Statistics

Trading was actually pretty calm all day. Asian indices were mixed, poor data from Japan sent Chinese indices down with fear of economic slowing and Japanese indices up on hopes of stimulus. EU indices were equally mixed but traded in a much narrower range. Futures trading for US indices indicated a flat open although this mornings economic data sent them briefly lower.

After the opening bell trading remained flat. The indices hugged break-even levels for most of the morning with a slight bias to the up-side. By early afternoon they were firmly in positive territory, about +0.25%, and held those levels going into the FOMC announcement at 2PM. The news caused a brief stir in the market, a quick drop followed by a short pop, but basically held steady near the highs of the day.

By 3PM the news had digested and Janet Yellen's press conference was well underway. At this time the bulls were able to push the indices up to new 3 week highs, near 1% higher for the day, although resistance was met. Resistance turned out to be strong and once touched, unleashed enough selling pressure to send the indices back to break even. By end of the day the indices were mixed with some negative and some positive but all little changed from yesterday.

Economic Calendar

The Economy

There was a lot of economic data this morning, more than usual, and all leading to a rate hike at some point in the future. First up is Housing Starts and Building Permits. Housing Starts came in a bit light at a 1.126 annualized rate. This is down -3% from July levels but up 16.6% on a year-over-year basis. Permits were strong at 1.17 million, up 3.5% from July and +12.5% from last year at this time. Completions fell -6.1% from the previous month but are up 3.3% from last year. The housing data show a steady year-over-year increase in activity and one that appears to be gaining momentum.

Initial Claims for unemployment fell -11,000 to 264,000 and an 8 week low. The four week moving average of claims also fell, shedding -3,250 to hit 272,000. Last week's data was unrevised. On a not adjusted basis claims fell -14.6% versus an expected -10.9% as predicted by the seasonal factors. Not adjusted claims are now at a new long term low and -18% below last years levels. Washington and Texas led with increases of 1,256 and 1,120 while New York and Oregon led with declines of -4,012 and -633.


Continuing Claims fell -26,000 from an upward revision of 3,000 to hit 2.237 million. The four week moving average also fell, -4,750, hitting 2.256 million. Together the two are trending just above the long term low, where they have been the last 6 months, and consistent with healthy labor markets.

Total claims also fell, shedding -46,723 to hit 2.106 and a 12 week low. Total claims levels are also trending just above the long term low and have been receding in recent weeks. This, along with receding levels of initial claims and continuing claims over the past three weeks, suggests that job markets may have strengthened going into September.


Philly Fed Survey data was released at 10AM and was a negative surprise, with a bit of a silver lining. The headline general activity index fell -6 versus an expected reading closer to +6. This is down from 8.3 in August and the lowest reading in over 2 years. The silver lining is in the individual component indices, the negative headline number attributed to recent market instability. The employment component came in at 10.2, double last month's reading, new orders rose to 9.4 from 5.8 and shipments, which fell, is still reading above 14. All together these show demand growth and support future economic expansion. The future looking gauge of the economy gained 1 point hitting 44 and the highest level since January.


The Oil Index

Oil trading was choppy today but held near $47. Yesterday's unexpected draw in US stock piles is helping to support prices but global demand outlook and over supply issues remain. The draw in Cushing supplies could be an indication that production levels and demand are coming back into line but it is only week of data, not a trend. Regardless, global supply remains high with weak demand growth.

The Oil Index tried to move higher in today's session but was met by resistance. The index gained more than 0.5% on an intraday basis but resistance at the short term moving average capped the gains. Once it fell back below the 61.8% retracement level it found increased resistance and was not able to regain the level. The indicators are bullish and on the rise so a retest of resistance looks probably but the move lacks strength. A break above the short term moving average, near 1,130, would find additional resistance near 1,180. Failure to break resistance could see the index retest recent lows.


The Gold Index

Gold got the expected boost from a no-rate-hike scenario and gained more than 1%. Spot gold gained more than $12 to trade above $1130 and looks like it could go as high $1150 before hitting major resistance. The move is sparked by weakening in the dollar due to lowered rate hike expectations and remains tied to that outlook.

The gold miners got a boost from rising gold prices and are moving up off of recently set lows. The gold miners ETF GDX gained nearly 3% in a move extending a bounce from recent support levels. The move created the second of two large white candles, broke the short term moving average and is accompanied by bullish crossovers in both indicators. Upside target is near $16 but dependent on gold prices. Support is near $13. These levels could present range limits for gold over the next 6-12 weeks, as we approach the final two FOMC meetings of 2015.


In The News, Story Stocks and Earnings

GM made headlines in early hours. The company settled criminal charges with government about its cover up of the ignition switch failures for $900 million and stipulations including third party oversight. The company also announced that is has so far spent $575 million settling civil cases related to the same. Shares of the stock gained more than 0.5% in today's session and reached a new 30 day high. The indicators are strong and on the rise with possible resistance at $32.50.


Rite Aid released earnings today and missed expectations. EPS missed consensus guidance for the full year was revised lower. The company now expects full year EPS in the range of $0.12 to $0.19, consensus is near $0.21. Shares of the stock sold off on the news in pre-market trading and gapped lower at the open. Selling pressure carried it lower throughout the day closing with a loss greater than 10%.


Adobe Systems reported after the bell. The software company reported record revenue and 21% revenue growth over last year. EPS of $0.54 was a little shy of expectations but forward outlook is positive. Company execs say they have a strong foundation for long term growth with momentum from the 3rd quarter expected to carry into the 4th , the bad news is that guidance is a little short of consensus. Shares of the stock initially rose 1.8% in after-hours trading but fell back to break even shortly after.


The Indices

The indices seemed to be unaffected by today's FOMC meeting but I am not convinced. The news did not spark any wild rallies or sell-off's but it did cause a little volatility. By end of day the market was little changed from yesterday with sign of resistance at current levels. Today's biggest gainer was the Dow Jones Transportation Average at 0.39%. The transports remain with an increasingly narrowing range and have now hit resistance. Today's candle tested resistance at 8,250 and was rejected. The move was not overly strong so resistance may be overcome. The indicators are bullish, strong and rising so a further test is likely. A break above 8,250 could take it up to 8,500. The short term moving average is first target for support should a pull back occur.


The Dow Jones Industrial Average matched the transports with a 0.39% move, but it was to the down side. The blue chips faded in late day trading as was not able to hold gains made earlier in the day. Today's candle has a small body but long upper shadow crossing the short term moving average, a sign of resistance. Indicators are bullish and rising so further testing of resistance is likely. A break above the short term moving average, near 16,740, could take it up to 17,200 before hitting next resistance. Support may be found at 16,500 but is more likely near 16,000.


The S&P 500 also fell in today's session, losing -0.26%. The broad market index created a candle similar to the industrials, likewise halted by resistance and closing below the short term moving average. The indicators are bullish and rising so further testing of resistance is likely but the move lacks strength at this time. Resistance is currently at 2,020 with potential support just below today's closing price.


The NASDAQ Composite closed with a gain although it too created a candle with an extremely long upper shadow. This shadow is a sign of resistance to higher prices and can precede a pull-back or sell-off. The index has been rising over the past few weeks and appears to be gaining strength. The indicators are both bullish and on the rise with strong MACD and stochastic %D crossing the upper signal line. This index is above its short term moving average with no immediate resistance although there is potential resistance in the 5,000 – 5,050 range.


The Fed had their meeting and made their announcement and nothing has changed. The economy is still on the path to full recovery, the rate hike is still imminent and global risks are still present. The only thing different is that forward outlook is diminished, it's still positive but less positive than before.

Something else that hasn't change, we still have the specter of economic data/Fed-Speak induced market volatility hanging over us. The market is going to be hanging on every data point and word spoken by a Fed member looking for signs of rate hike. There is only one data release tomorrow, the Leading Indicators, but it is options expiration day so there could be some wild action associated with that as options positions are unwound.

Now that the Fed meeting has passed the market can focus on earnings, at least for a little while. The coming quarter is largely expected to be poor, but also should begin to give us glimmers of the growth projected for the 4th quarter and next year. So long as this expectation is met I think the bottom is in for this correction. At least one positive comes from a lack of rate hike, lower dollar value. Lower dollar value is good for earnings among companies with international business.

Today's market action is little hard to read. On the one hand there are the indicators; they are on the rise and pointing to higher prices or at least a retest of resistance levels already tested. On the other are the candles; they show resistance to higher prices and could very well turn out to be pin-bar/shooting star doji's preceding another sell-off. I am still looking for some kind of test of support, maybe as far down as the recently set lows, based on convergences I've discussed before, but am bullish long term.

Until then, remember the trend!

Thomas Hughes