Introduction

The stock market continues to churn, the ECB and Mario Draghi fails to inspire buyers and potential catalysts are running thin this week. Today's policy announcement and press conference with the ECB were the news of the day. The central bank held rates steady, as expected, but did not extend the duration of QE programs as expected. Also unexpected, a decrease in GDP forecast lowering 2017 and 2018 outlook to 1.8% each. The one ray of light was a mild upward revision to this years GDP outlook.

Mario Draghi says that "our program is effective and we should focus on implementation". He also says that interest rates will remain at present levels for some time. Asian market were not affected by this news, having closed long before the release. Markets in that region were mostly flat, mixed, on a day largely devoid of news. Trading in Europe was much different. Early action saw most indices hang around break even levels up to and until the policy statement. At that time the indices began a slide that shaved more than -1% off of yesterday's close. Some, but not all, of the loss was regained before the end of the trading day leaving the DAX down by about -0.6%.

Market Statistics

Futures trading was flat all morning, up to and until the ECB policy statement. At that time the trade slipped a few points indicating a mildly negative open for the US indices. This week's labor data did little to support prices although they show ongoing health in the sector. The indices opened with small losses, as much as -0.25% in some cases, and extended them into the first 45 minutes of trading. An early bottom was hit around 10:15AM at which time the bulls were able to stage a come back. The indices rose for the next hour but were not, in most cases, able to recover all of the day's loss. Resistance set in shortly after and held the market in check the remainder of the day. Today's range was once again very tight, volume was low and trading was without direction.

Economic Calendar

The Economy

Only one economic release today, jobless claims. Initial claims fell -4,000 from last week's not revised figured to hit 259,000. The four week moving average of claims fell -1,750 to hit 261,250. This is the 79th week of claims below 300K, the longest streak since 1970. On a not adjusted basis claims rose 1.5% versus an expected 2.8% to hit 218,000, -6% from this same time last year. New York and California led with increases in claims of 4,913 and 1,628. Michigan and Texas led with decreases in claims of -1,101 and -942. This week's data remains consistent with ongoing labor market health.


Continuing claims fell -7,000 on top of a downward revision of -8,000 to hit 2.144 million. The four week moving average shed -4,000 and is now slightly above 2.153 million. These figures continue to trend near long term lows and show no signs of changing. At these levels continuing claims remains consistent with ongoing labor market health.

Total claims fell -45,845 to hit 2.054 million, consistent with expectations, seasonal and historic trends. This number is now at a 9 week low and should continue to move lower over the next 6-7 weeks. At these levels total claims are just above the long term low of 1.881 million and consistent with ongoing labor market health.


There is only one release scheduled for tomorrow, Wholesale Inventories, and not much on the calendar until next Thursday. Next Thursday the calendar heats up with 10 distinct releases including Retail Sales, PPI, Philly Fed, Empire Manufacturing and Business Inventories.

The Dollar Index

The Dollar Index fell to, and bounced from, support on the heels of the ECB policy release. Draghi's comments at first strengthened the Euro but that strength faded during the press conference. The Dollar Index fell a half percent to test support levels just above $94.30, support was there and sent the index back up to regain of all the early loss and more. By end of day the index was up as much as 0.15% although the indicators suggest the test of support is not over. With so little on the economic calendar over the next week I expect to see the index continue to trend between $94.30 and $95.60, perhaps even up to the FOMC meeting scheduled for 9/21. Current probability of a rate hike as predicted by the CME Fed Watch Tool is about 24%.


The Oil Index

Oil prices surged today following inventory reports showing multi-million barrel draw on US stockpiles. Yesterday the API report forecast a 12 million barrel draw, today the EIA confirmed that and upped the number to over 14 million barrels. The caveat is that the decline is due primarily to shut downs of services related to last week's hurricane, we could easily see a build as big or bigger next week as gulf production resumes. WTI jumped more than 4% on the news to trade above $47. Momentum has turned to the upside and could take WTI back to retest recent resistance but beware, oversupply still plagues the market.

The Oil Index rose along with the underlying commodity, gaining just over 1.5% in today's session. Today's move brings the index up to the upper boundary of a 5+ month trading range and likely resistance. The indicators are showing a weak buy signal but otherwise remain consistent with range bound trading. Resistance is near 1,170 with a possible move to 1,200. A move above 1,170 may be bullish but just as likely a whipsaw provided oil prices do not make new highs. A move above 1,200 would be bullish.


The Gold Index

Gold prices held near $1350 for most of the morning but eventually succumbed to the dollar's rebound from support. By late day spot gold prices had fallen by -0.6% to trade closer to $1,340 but remains range bound nonetheless. Today's action confirms resistance at the $1,350, if not it's strength, but did not break below the mid-point of Tuesday's long white candle. The near term trend is up but upside potential is limited without some form of catalyst to push it above, or confirm, resistance. Resistance is in near $1,375-$1,385 and may be contingent on the upcoming FOMC meeting, funny how that always seems to work out. If the FOMC confirms the more hawkish line the dollar will likely strengthen and gold prices will fall, if they appear less sure of hiking rates the dollar could fall and gold could move up to and above resistance targets. Until then expect day to day action to be driven by headlines.

The gold miners fell in today's action, the Gold Miners ETF GDX shedding -2.5%. Today's move appears to confirm resistance at the short term moving average and could lead to a retest of recent support. The ETF is in a corrective phase, possibly now within a new trading range, and indicated to retest support by MACD. The last MACD peak is a bearish extreme, convergent with a low, which suggests that the low will be tested or exceeded. Resistance is near $28.50, the mid point of the potential range. Downside targets are $26.70 and $25, the bottom of the range.


In The News, Story Stocks and Earnings

Shares of Twitter fell nearly -6% as the board holds its annual meeting to decide the company's fate. Speculation is running wild, will the company sell itself? If they do who would want them? How much is it really worth and just how relevant to today's internet is it? Shares are falling from the top of a range in which they have been trading since February.


Bank Of America's CEO Brian Moynihan had some interesting things to say this morning during a televised interview. Without giving details he said that August was a very strong month for consumer banking and that the consumer is in good shape. He went on to talk about the company's health and cost cutting measures, citing a $20 billion in savings already realized and ongoing efforts to do more. Mobile services have helped to achieve that goal as it allows the bank to reduce the number of branches and employees. These savings will continue to accrue as more and more customers make the shift. Shares of Bank Of America were among today's top gainers, adding more than 1.2% to yesterday's close.


Barnes & Noble reported earnings before the bell and did not meet expectations. The company reported a narrower loss than last year but declining revenue did not match estimates. Revenue fell -6.6% year over year, comp stores sales fell -6% and Nook sales fell -24%. In the report softer than expected results are due to a "challenging" retail environment. It could be that buying new books is just really expensive compared to other alternatives. Shares of the stock fell more than -5% to test support near $11.50 and were able to bounce from that level to close with a lose of only -4%.


The Indices

The indices did nothing but churn today, moving within a very tight range and without true direction. One index did of course buck that trend, the Dow Jones Transportation Average. The transports gained 0.25% on day when all others posted losses, extending yesterday's gains and moving up toward a potentially strong level of resistance. Resistance is near 8,150, a 5 month high, and likely to hold without catalyst. The indicators support a move up to test resistance but are not strong, consistent with range bound trading. A break above 8,150 is potentially bearish but would face additional resistance just above near 8,250.


The day's biggest loser is the NASDAQ Composite which posted a decline of -0.46%. The tech heavy index created a small black candle moving down from the newly set high. Today's move lower was supported at 5,250, this level may hold but divergences persist and grow stronger suggesting an growing weakness within the market. First target for stronger support is near the short term moving average, near 5,200, and then near 5,000 should first target be broken.


The second largest decline in today's session was posted by the Dow Jones Industrial Average. The blue chips index fell -0.25% creating a very small black candle, yet another doji like spinning top. Today's action came to rest directly on the short term moving average but may fall through in favor of stronger support near 18,275. The indicators are mixed and directionless, consistent with range bound trading, so I would expect support to hold unless the bears come out in force. A break below support could take the index down to 18,000 or lower. Until then look for this index to continue trending sideways.


The S&P 500 made the smallest move in today's session, only -0.22%. The broad market created yet another tiny spinning top doji, within the recent consolidation/congestion band, and does not appear ready to move outside its trading range. The indicators are mixed in the near term and consistent with range bound trading, looking further out divergences persist suggesting underlying weakness in the market. Support is currently near 2,160, a break below this level would be bearish in the near term and could take the index down to 2,130 or lower.


The market continues its listless drift sideways while signs of underlying weakness persist. In order to move higher it will need a catalyst, and there is nothing in sight strong enough to spark a rally, not until the FOMC meeting in two weeks. And that is assuming they do or say something other than the same thing they've been saying. Until then I expect to see the market continue side-winding on whatever scraps of news or data it can get its hands on. After that it will only be about 2 more weeks until the next earnings cycle begins, about 4 weeks from now, and that I think will be what really drives longer term direction. I remain cautious, optimistically bullish, but very very cautious.

Until then, remember the trend!

Thomas Hughes