Introduction

The market made small gains but nothing substantial, FOMC outlook fails to move the market ahead of OPEX. Yesterday's Fed meeting minutes were a bit on the dovish side but with all their transparency it's hard to know what they really think. The committee spokesperson and chairman Janet Yellen says they aren't in a hurry but comments from other members seem to be at odds with this sentiment. Not to name names but there are Fed members who think a hike could next month, and others who say there won't be more than one in the next 2 years. In terms of the market, it seems as if it is tired of the overly transparent FOMC and is waiting for, as Toby Keith says, "A little less talk and a lot more action". Until then focus could turn to economic data and earnings.

Today's data was positive but in more of a forward looking sense than in a things are great right now kind of way. Retail earnings are rolling in and mixed, as expected. Where one company misses on estimates and lowers guidance, another has beaten and raised guidance. The big name on the roster today was Wal-Mart, falling into the latter category and providing most of, if not of all of, today's support for the Dow Jones Industrial Average.

The international markets were mixed following the FOMC meeting. Confusion abounds and is not helping already shaky markets. In Asia most indices were flattish although the Japanese Nikkei saw losses in the range of -1.5%. Dovish FOMC stance has sent the yen shooting higher versus the dollar, which in turn has taken its toll on local stocks. At the same time Japanese trade data was weaker than expected raising additional concern that Abenomics is not working as expected. European indices were mostly higher at the end of their trading day although gains were minimal and driven primarily by rising oil prices.

Market Statistics

Our markets were fairly quiet in the early pre-opening hours. Futures trading indicated flat to negative opens for most of the morning, with that turning to mostly flat following the 8:30AM release of economic data. The open was a bit weak with the indices opening just barely in negative territory. The first hour was choppy with trading hovering around break even level until about 10:30AM when a small rally was able to push the market up to an intraday high. That high held prices back the rest of the day. It was tested once about a half hour after it was set, and then again later in the day after several hours of market sidewinding near break even level. The last hour of trading saw more side-winding before the market made a final surge higher to leave the indices at or near the highs of the day. Regardless, today's trading ranges were very narrow and gains were small.

Economic Calendar

The Economy

Weekly jobless claims are top of the list today. Initial jobless claims fell -4,000 from a not-revised figure to hit 262,000. This is the 76th week of claims below 300,000, the longest run since 1970. The four week moving average of initial claims rose 2,500 to hit 265,000. On a not adjusted basis claims fell -5.2%, more than -3.7% predicted by the seasonal factors. On a year over year basis not adjusted claims are down -4.2%. The largest increases in claims were in Philadelphia and Puerto Rico, +2359 and +1621, while the largest decreases were in Michigan and Kentucky, -2186 and -536. All in all, initial claims continues to trend near the long term low, consistent with labor market health.


Continuing claims gained 15,000 on top of an upward revision of 5,000 to hit 2.175 million. This is the highest level of 2nd week claims in over 2 months but remains low relative to the recovery and trending near the long term low. The four wee moving average of continuing claims gained 10,750 to hit 2.155 million.

The total number of jobless claims rose slightly this week but appears to have crested the July peak predicted by seasonal/historical trends. The total number of claims rose by 3,876 to hit 2.148 million, down -4.7% from this same time last year. Even with the rise claims remain in down trend and constent with labor market health. If historical trends remain intact we can expect to see this number begin to decline in the next 2 to 3 weeks, as much as -20%, and possibly hit a new long term low near 1.72 million.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey rose to positive territory for the 3rd time this year and more than expected. However positive, the internals are not that great. The diffusion index gained 5 points to hit 2 while internally new orders, unfilled orders, delivery time, inventory and employment all fell. New orders fell -19 points to -7.2, unfilled orders fell to -15, inventories fell nearly 10 points to -4.3 and employment fell -18 to -20. The only current index to rise was shipments which gained 2.1 to hit 8.4. Looking forward things are more positive. The future 6 month outlook rose 12 points to 45.8, the highest level in over 18 months.


The Leading Economic Indicators was released at 10AM and came in as expected. The index shows a 0.4% gain in July following a 0.3% gain in June and indicates moderate growth into the end of the year. Conference Board spokesman said there is also a chance for increased growth later this year if current conditions remains unchanged. The Coincident Indicator rose 0.4%, the Lagging Indicator rose 0.1%.


The economic calendar is light over the next week. Tomorrow we'll get nothing, next week New and Existing Home Sales, Durable Goods and the first revision of 2nd quarter GDP along with the weekly jobless claims. While important, nothing here is likely to be big mover of the markets.

The Dollar Index

The Dollar Index fell to a new 7 week low today, despite the upbeat data. Yesterday's FOMC minutes helped soothe rate hike fears and support evaporated. There are few economic reports and no central bank meetings (although there are likely to be random comments from FOMC members) over the next week to ten days so this sentiment may linger. Today's action took the index down by nearly -0.5% to break my support target at $94.30 and the 7.6% retracement level. This level may hold but the indicators are in support of additional testing so I don't the move is quite done. A break below support would be bearish and could take it down below the $93.00 level to test support at or near the May lows.


The Oil Index

Oil prices continued to surge as talk of a possible production freeze ripples through the market. The talk, eerily akin to what we heard last winter, is that OPEC and other large global producers will be considering a possible output freeze next month. If this plays out like last time, and it likely will, the talk will support oil prices up to and until the deal falls apart, and the fundamentals will take over. Even if the deal doesn't fall apart the supply/demand picture will remain unchanged as there is no talk of production cuts, merely halting any additional increases, so upside is limited. Basically, this sounds like a classic buy the news and sell the reality situation. WTI gained more than 3% today to trade above $48 and looks set to test resistance at $50 and possibly the recent high near $52.50.

While traders in the underlying commodity are buying into the rumors, investors in the oil/energy sectors are a little hesitant. The Oil Index made some gains today, a little more than 1%, and has made gains over the past 2 weeks, but nothing like what WTI has made in that time. Today's action in the index was light, created a small candle and leaves it range bound. The indicators support a move to the upper boundary, near 1,175, as indicated by rising oil prices but are not strong and do not suggest prices will break above resistance at this time.


The Gold Index

Gold prices are holding firm near $1350. Today spot prices move up by more than a half percent to trade above $1355. The FOMC minutes, their dovish stance and weakened dollar are supporting prices and are likely to rise in the near term. Upside target is about $30 above today's settlement, near $1,385, with a possible move up to $1,400 in the absence of rate hike or dollar supporting news.

The gold miners tread water today, moving higher on stable gold prices but without much strength. The Gold Miners ETF GDX gained only about 0.5% in a move that created a very small spinning top doji. This candle is representative of an indecisive market, not surprising given the uncertainty of just exactly what the FOMC is going to do over the next few months. The indicators are bearish and consistent with a test of support, near term support is at the short term moving average. A break below support is potentially bearish and could the ETF down to $27.50. Resistance is just above today's close, near the $31. A break above this level would face next resistance at the current 3 year high.


In The News, Story Stocks and Earnings

Wal-Mart was the big name in early news, reporting earnings before the opening bell. The seller of just about everything reported yoy growth in earnings and revenue that came in above consensus estimates and led to improved forward guidance. Sales were strong in both US and international markets. Comps rose 1.6% in the US and are up for the 8th consecutive quarter, net sales internationally up 2.2%. EPS was impacted about $0.03 by currency conversion, or 2.8%. Shares of the stock rose more than 3.5% in pre-opening trading, gapped up at the open and then sold off throughout the day. Despite selling off from the high the stock was able to close with a gain near 1.7% and at a 15 month closing high.


Earnings in the retail have been decent in terms of year over year growth. Just about every one that has reported so far has reported both earnings and revenue growth. The problem in many cases is that forward outlook isn't that great and there have been a few cases of lowered guidance. Of course, there are also stars like Wal-Mart who've been able to exceed expectations and raise guidance. The mix of earnings has resulted in a bit of churn in the sector, Lowe's for one has seen share prices fall more than 6% post earnings release. The XRT Retail SPDR, looking eager on Monday, has since pulled back to a near term support. Today's action continues a bounce from that support but did not reclaim the Monday high. That high marks potential resistance that is confirmed by the indicators. The ETF may move up to test resistance but without further positive catalyst a break through to new highs does not look likely.


Gap Inc reported after the bell and bear EPS estimates by a penny. Despite what was a good 2nd quarter showing for the jeans and apparel retailer full year guidance was lowered on sluggish recovery efforts. Comp sales fell for both the Gap and Banana Republic brands, Old Navy was flat. Shares of the stock fell -3% in after hours trading.


The Indices

Market action was rather light today, not too surprising in light of the season but still, less than I might have expected. I say surprising because the market did not seem to care that oil prices are approaching $50 again, or that nothing seems to have change at the FOMC. I think what it boils down to is a market that has heard this tune before. Today's action was bullish, but it was cautious on the expectation oil prices won't run too high and that the FOMC's "transparency" remains a wild card.

The Dow Jones Transportation Average led today's market with a gain near 0.4%. The index created a small white bodied candle that closed near the high of the day and appears to be drifting higher. The indicators are firing a bullish crossover so this move may have legs, the caveat is that it does not look very strong and potential resistance is about 1% above today's closing price. Resistance is in the range of 8,000 to 8,100, consistent with the top of a 6 month trading range, and has been tested several times before.


The NASDAQ Composite made the 2nd largest move in today's session, about 0.20%. The tech heavy index created a very small white candle moving up from yesterdays close and confirming near term support at the 5,225 level. This may be the precursor to further upside but the indicators suggest otherwise. Both are divergent from the latest high, a new all time high, and both are now confirming with bearish crossovers. A drop below support, 5,225, is like to lead to correction that could take the index to the short term moving average, near 5,115, or lower. If support is confirmed the index is likely to move higher in the short term with upside target near 5,500.


The S&P 500 is third in today's line up with a gain near 0.15%. The broad market created a very small white candle that closed near the high of the day but did not set a new high. Price action has tamed down quite a bit since the index hit new all time highs but appears as if those new highs will be tested. Momentum has been bearish for over a week and now stochastic is rolling over with a bearish crossover confirming weakness in the index so caution is due, reversal is possible. Resistance is just above today's close, at the current all time high. Near term support is near 5,165 and just below that at the short term moving average. A break below these levels would be bearish and could result in a move down to 2,130.


The Dow Jones Industrial Average brings up the rear with a gain of 0.12%. The blue chips made a small white candle that closed at the high of the day, just below the current all time high. Price action was weak today, mostly side-winding if biased to the upside and in continuation of yesterday's support bounce. The index may continue to rise tomorrow but will need to break the all time in order to get bullish. The indicators are divergent from the high, momentum has been bearish for more than a week, and stochastic is rolling over now so additional highs will probably need a new catalyst.


The indices are bouncing from near term support and approaching recently set highs, all time highs in most cases. The move is weak and lethargic, driven by a slightly schizophrenic FOMC, spotty economic data and weak earnings with little in the way of really positive information to support it. Despite my misgivings it does look as if the market will continue to drift higher too, and likely set new all time highs.

The question is, how long can it last? At current levels the S&P 500 is 2.5% above the previous all time high, 5% above the 150 day EMA, 9.5% above the June Swoon low, 11% above a long term up trend line and 20% above the February/Dimon Bottom; attractive levels for profit taking that not I think coincidentally the market has reached as we near the end of the summer season. So, I'm cautiously bullish in the near term, more bullish for the long, but still wary of possibly market correction in the short.

Until then, remember the trend!

Thomas Hughes