Introduction

A massive data dump ahead of OPEX and next week's heavily anticipated FOMC meeting send the market higher. Despite today's move the near term outlook remains weak with volatility on the menu. The bottom line, economic growth remains spotty with positive outlook and tame inflation, no reason to think the FOMC will forced into raising rates next week. According to the CME's Fed Watch Tool the chance of a rate hike next have fallen again and now hovering around 12%.

Asian markets were mostly mixed in the absence of major market moving news. The stand out was the Japanese Nikkei which fell more than -1.5% on a strengthening yen. FOMC and BOJ uncertainty, both meet next week, have lent a bit of volatility to the yen which may strengthen further over the next week should the BOJ be less dovish than anticipated, and the FOMC less hawkish. European indices were mixed as well but able to rise in late day trading on the back of the rally here at home.

Market Statistics

Futures trading was pointing to a rebound all morning if not a strong one. The massive round of economic data released at 8:30AM did little to alter the trade immediately following the announcements. However, by the time the opening bell rolled around trading had turned slightly negative. The first half hour of trading was bit hectic, the indices opened with a small loss but wavered around break even levels in choppy action. By 10AM the rally was established and began pushing the indices up to hit the early shortly after 11:30AM. The hour of trading, perhaps due to Donald Trumps speech before the New York Economic Club, saw the indices move sideways and even retreat a little before upside momentum prevailed. By 2PM new intraday highs were hit again and held until the end of the day.

Economic Calendar

The Economy

Lots and lots of economic data today. Lots. First up is the weekly jobless claims figures. The initial claims number rose by 1,000 from last week's not revised figure to hit 260,000. This is the 80th week of claims below 300,000. The four week moving average of claims fell by -500 to 260,750. On a not adjusted basis claims came in -11.2% below last week's level, slightly below the -11.8% predicted by the seasonal factors. Year over year not adjusted claims are down -2.75%. This week's figures remain consistent with ongoing labor market health.


Continuing claims rose by 1,000 on top of a -2,000 revision to last week's data to hit 2.143 million. The four week moving average of continuing claims fell by -8,000 to hit 2.146. Both numbers are within analysts expectations and consistent with ongoing labor market health, trending just above the long term lows.

The total number of jobless claims fell by -48,265 to hit 2.012. This is the lowest level in four months and consistent with long term and seasonal labor market trends. The total number of unemployed should continue to decline for the next 6 to 7 weeks and eventually reach a level below 1.85 million. Based on this and continuing claims data I expect to see unemployment begin to tick down again, if not expanding job growth.


Total US Retail Sales declined by -0.3% July to August but remains up by 1.9% year over year. On a year to date basis sales are up 2.4% versus the same period last year. The July figure was revised up by 0.1%. Ex-autos retail sales fell by -0.1% but remain up 2.1% on a year over year basis. These figures show a continued, moderate, improvement in the consumer minus the impact of weak and weaker than expected auto sales. The auto boom may have peaked but sales growth remains steady in other parts of the sector.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey jumped 11 points to hit 12.8. This is the second month of gains and the time we've had two back to back months of positive readings in a year. Within the report New Order turned positive, rising to 1.4 from -7.2, although Inventory and Employment remain negative. Inventory fell to -26.7, Employment managed to rise to -5.3 from -20. The 6 month outlook remains positive at 37.5 but has declined from last month's reading. This report is basically positive with some hope for the future. Falling inventory is a good thing, if it leads to increased production in the not too distant future. That of course will come down to demand.


The Empire State Manufacturing Survey was not as positive, coming in at -2. Within this report New Orders improved by 0.5 to reach -7.5, still negative, while shipments gained 8.6 to reach -9.4, also negative and contractionary. The Employment Index is also of concern here, falling -13 to hit -14.3. Looking forward outlook remains positive. The 6 month outlook gained 11 points to hit 34.5.


The Producer Price Index was unchanged month to month and year over year on the headline number. Core PPI rose by 0.1% and ex-auto rose by 0.3%. Year over year ex-auto is up 1.2% and reveals only a moderate amount of long term producer level inflation. Based on this alone I would not expect to see the FOMC raise rates, add in tomorrow's CPI data and things may look different.
%imb18%

Industrial Production fell by -0.4% month to month in August and is down -1.1% year over year. Output is also down by -0.4%. Capacity Utilization also fell by -0.4% and is now only 75.5% of full capacity, below the long running average.

The last bit of data released today was Business Inventories, delivered at 10AM. Business Inventories fell -0.1% month to month but are up 0.5% year over year. Sales fell -0.2% month to month and -0.5% year over year.

Tomorrow there are two data releases, CPI and Michigan Sentiment. CPI is expected to rise by a modest 0.1%, Michigan Sentiment is expected to rise slightly to just over 91. Next holds a few important released to watch for but the main event will be the FOMC meeting and policy announcement scheduled for Wednesday afternoon.

The Dollar Index

The dollar tried to move today but the mix of data ended up leaving it just as confused as ever. The Dollar Index created a small spinning top candle with visible upper and lower shadows just below $95.60 and near the mid-point of the recent trading range. The index is wound up on data and FOMC expectations with a hint of BOJ worry and could go either way, depending on the outcome of next week's central bank meetings. Don't forget, the BOJ is slated to release their latest policy statement early Wednesday morning. Resistance is at $95.60, support near $95. A break out of this range could take the index to test the upper or lower limits of the range near $97.50 to the upside and $93 to the downside.


The Oil Index

Oil prices were choppy again today but managed to settle with a gain. WTI traded in the $43.50 to $44.00 range for most of the day, closing near $43.75 for a gain of 0.4%. Yesterday's surprise draw of crude supplies is helping to support prices but production and supply imbalances remain. Two of three Libyan ports are supposed to reopen soon with additional capacity coming back online from Nigeria as well. Until there is concrete sign of market rebalancing I expect to see oil prices under pressure.

The Oil Index was able to move higher today, supported by oil prices. The index closed with a gain near 1.4% after moving higher by as much as 2% earlier in the day. The move was capped at near term resistance along the mid point of the 6 month trading range. The index remains range bound and appears to be moving toward the bottom of the range near 1,075. The indicators are weak and pointing lower, suggesting that lower prices are to come. The upcoming earnings season will be telling, the energy sector is expected to post deep year over year earnings declines once again.


The Gold Index

Gold prices fell today despite declining expectations for a September rate hike. Spot gold fell a little more than -0.5% in choppy trading to close near $1,317. This move is driven by FOMC uncertainty, despite the fact that expectations of a rate hike are low the chance for one remains as does the chance for an increased hawkish tone to the statement. Gold prices are still above support until then. Critical support is the $1,300 psychological level, a breach of which could take gold much lower.

The Gold Miners ETF Continues to show signs of support in the $25 to $26 region. Today's action created a spinning top candle below near term resistance at $26.65. The indicators are consistent with support and a potential support bounce from this level but there is a chance, based on MACD peak analysis, that the ETF will touch back to $25 one more time before it decides to move higher. Depending of course on the FOMC, what they do to the dollar and how that affects gold prices. If the Fed does raise rates it means that they see inflation at hand and that will bring gold back into the picture as a hedge against inflation.


In The News, Story Stocks and Earnings

Apple shares led the market all day. The global tech gadget behemoth once again sold out of the latest iPhone model showing not only the demand for their products but the company's ability to manage that demand. Shares jumped another 3.25% to break above potential resistance at the $115 level for the first time since last December. The stock is now up more than 12% for the week and indicated to go higher. Now that the range is broken this one could go as high as $125.


Oracle reported earnings after the bell and delivered good, but not good enough, results. The company reported adjusted earnings of $0.55, a little better than expected, on light than expected revenue. Despite the miss total revenue is up 2% in US dollars led by cloud SaaS and PaaS. SaaS profit alone was up 77% and is expected to generate $2 billion in recurring revenue annually. Shares had been up strongly in the open session but gave up all the gains after the release of earnings.


The Indices

The indices started the day off on shaky footing and then slowly recovered throughout the day. Today's gains have put them into positive territory for the week but volatility is likely not gone. Today's move is driven as much by tomorrow's options expiration as much as anything else so there is a chance we could see another 1+% move in either direction. The NASDAQ Composite led today's action with a gain of 1.47% and appears the most bullish of all the indices. The index created a long white candle that extended a bounce begun yesterday and broke above the short term moving average. The indicators are not yet confirming the move higher but they are rolling over into potential bullish signals. We could see this one continue higher tomorrow but there is significant resistance just above today's close at the current all time high. A break above the all time would be bullish and could lead to further upside.


The S&P500 is runner up in today's action with a gain of 1.01%. The broad market created a long white candle moving up from support but was capped at near term resistance at 2,150. This bounce could continue higher and if so would meet next resistance at the short term moving average, near 2,162. The indicators however are weak and do not support a move higher at this time, MACD is bearish and stochastic is sliding lower. Even with today's surge higher bias is to the downside with a test or open at support a good possibility. Support for the index is 2,120, a break below this would be bearish.


The Dow Jones Industrial Average made the third largest gain today, 0.99%. The blue chips created a long white candle moving up from support but was capped by resistance. The index is trading withing a range, swinging back and forth from support to resistance, and may continue to do so tomorrow. The indicators are weak and suggest range bound trading will persist. A drop below 18,000 would be bearish with downside target near 17,750. A move above 18,250 could be bullish but would find additional resistance just above, near the current all time high.


The Dow Jones Transportation Average made the smallest move today, only 0.58%. The market leading transports created a small candle, feebly moving up from support levels, with weak indicators. The indicators are mixed with a downside bias, stochastic is moving lower while MACD may have peaked, so another test of support may be coming. Support is the bottom of a 2.5 month trading range near 7,750, a break below this would be bearish and could take it down to 7,500. If the index swings higher tomorrow there may be resistance just above today's close near the short term moving average.


The market moved higher today but I don't think any kind of significant bounce has started, at least not yet. The indices are trapped in a tight, volatile range ahead of OPEX and one of the most heavily speculated FOMC meeting in a string of meetings that has included the start of taper and the first rate hike since the financial crisis. The scary thing is, there is no telling what the FOMC will do and the uncertainty is much greater than before. The inflation data doesn't really suggest they have to raise rates right now but they could anyway, labor trends certainly support it and a preemptive move is not out of the question. I remain very cautious, prepared for the worst, waiting for the Fed.

Until then, remember the trend!

Thomas Hughes