Tech falls on profit taking but it was the transportation sector which led the market lower. Transportation stocks fell as much as 3.5% as rising oil prices take a toll on forward earnings outlook. Of course this happened after the SPX, NASDAQ and Dow Jones Industrial Average set new all time highs and amid a flurry of less than exceptional earnings reports from the tech sector.
Asian indices closed with marginal gains following yesterday's FOMC announcement. The policy statement did not materially affect forward outlook while reinforcing the idea of economic stability, sending a wave of relief through the market. The Heng Seng led with a gain near 0.70% followed by a 0.36% move in the Korean Kospi. European indices were not so buoyant. Markets there were positive in early trading but fell off later in the day as a setback for Astrazenaca weighed down health care stocks. The company says that two of its drugs failed to shrink target cancers during testing.
Futures trading was flat to positive all morning, no indication of sell off there. The futures trade held steady through the release of earnings and economic data, gaining a little strength going into the open. The SPX began the day with a gain of 0.25%, quickly moved higher and then just as quickly began to move back to test yesterday's close. An early bottom was hit just before 10AM and just above yesterday's close. This level held for the next few hours until profit taking in tech drove the indices lower. The indices fell quickly once the selling began, the SPX shedding more than 16 points or roughly -0.65%. Bottom was hit shortly after 1:30PM at which time the index made a small bounce but did not recover the days losses. This level, about -0.50%, was held until late in the day. A late day rally drove the index back up to close with a loss of less than -0.10%.
Initial claims for unemployment rose by 10,000 on top of an upward revision of 1,000 to hit 244,000. This is slightly above expectations but in line with labor market health. The four week moving average of claims was unchanged although the prior week was revised higher by 250. On a not adjusted basis claims fell by -14.7% versus an expectation of -18.4% and are down -5% over this time last year.
Continuing claims fell by -13,000 from last week's not revised figures to hit 1.964 million. The 4 week moving average of claims rose by nearly 5,000 to hit 1.963 million. The number of continuing claims persists in trending sideways near historic lows and consistent with labor market health.
At first glance the total number of Americans receiving unemployment benefits jumped alarmingly. At second glance the jump of 156,859 is a bit sharp but consistent with seasonal expectations, there have been similar spikes in the past. That being said the total number of claims is now 2.028 million and the highest level in 3 months. Based on historical and seasonal trends we can now expect to see this figure begin to fall off as fall seasonal hiring begins. If trends remain intact we should see a new long term and seasonal low late September or early October.
Durable Goods data was released alongside the jobless claims figures and came in above expectations. New orders for durable goods came in at a robust 6.5% versus an expected 5.3%. This increase reverses two months of decreases. Ex-transportation orders came in at 0.2% and ex-defense rose 6.7%. Transportation equipment led gains at +19%. Shipments were unchanged, unfilled orders rose 1.3%.
The Chicago Federal Reserve Activity Index is a gauge of 85 market indicators. The index rose to 0.13% from -0.30% as signs of manufacturing improve. All four for of the index's broad categories improved on a month to month basis, 3 of the 4 made positive contributions. The three month moving average is now positive and indicative of expanding economic growth.
The Dollar Index
The Dollar Index fell to a new 1 year low and is fast approaching the April, 2016 bottom at $92. Yesterday's FOMC statement pulled the rug out from under dollar bulls. The Fed has found a way to support positive economic outlook and weaken the dollar at the same time; They're bullish but they just aren't any hurry to raise rates. After the last round of Yellen testimony it may next spring or later befere the next hike comes. The CME Fedwatch tool shows a less than 50/50 chance of another one this year. The indicators are bearish and gaining strength, in support of lower prices, so I would expect to long term support targets near $92 reached.
The Gold Index
Gold prices are rising on a weaker dollar. The spot price surged to a 6 week high in today's action but profit takers capped gains. By settlement the metal was trading with a marginal loss and below $1,260. Today's candle does give evidence of some resistance to higher prices but with the dollar falling to long term lows higher prices for gold are likely on the way. The caveat is that eventually economic data will support further rate hikes, labor markets are tight wages are rising and inflation is beginning to pick up in the underlying economy is only slightly. The LMCI and Leading Indicators both point to expanding economic growth later this year. Upside target for resistance are $1,270, $1,285 and $1,300.
The Gold Miners ETF GDX opened with a small gain but sold off during the day to close with a loss near -1.20%. The ETF created a medium sized red bodied candle confirming resistance at the long term moving average. The indicators are bullish but weak and showing signs of peaking in the near term. The move higher may continue in the near term but range bound conditions are likely to persist in the short to long term. Next upside target is near $24. A break above that would be more firmly bullish but still be within the greater 6 month trading range.
The Oil Index
Oil prices drifted higher again today, crossing above the $49 level, and set another new 8 week high.. Yesterday's draw down of US stockpiles along with the Saudi's indication to cut exports, shale drillers indicating shut-downs due to low prices and the dollar hitting new lows have created a near-term perfect storm for prices. That being said prices are likely to remain range bound as higher prices will bring more supply online and to the market. Upside target for resistance are $50 and then $55.
The Oil Index gained nearly a full percent and created a medium sized green bodied candle. The index appears to be reversing although there is still some technical work for prices to do before we can say that for sure. The indicators are both bullish, on the rise and showing strength so I do expect to see it continue to move higher near term. First target for resistance is just above today's close near the long term moving average and the 1,150 level. A move above that could go as high as 1,170 in the near term. Longer term I remain bullish on the sector and ready to start nibbling.
In The News, Story Stocks and Earnings
Tech earnings dominated the news today and most of it wasn't great. Twitter reported before the open and for one beat on the top and bottom lines. The proble is it did so without posting any user growth. And revenue and earnings both fell on a year over year basis. They were able to increase monthly and daily usage figures but nonetheless the company continues to flounder. Along with all that they also issued guidance that was below expectations. Shares of the stock fell nearly -15% to a one month low.
Amazon reported after the bell and did not please investors. The international online retail behemoth grew revenue by 25% and beat top line expectations but earnings were light and forward guidance is weak. The company is growing but there is a problem, the company keeps spending money to get that growth and that is hurting earnings. Shares of the stock fell a little more than -3% on the news.
Starbucks also reported after the bell and also delivered mixed results. The company missed revenue expectations, met earnings expectations and delivered positive guidance. A little later in the conference call guidance was updated to positive but not as positive as it was a short time ago. Earnings, revenue and comp store sales are all expected to fall short of consensus. Shares of the stock had been trading higher on the initial release but turned negative during the call.
The indices looked like they were going to move higher and then they didn't, and then they looked like they were going to bounce back and they almost did. The techs were blamed for today's selling but the true carnage was in the transports. The Dow Jones Transportation Average closed with a loss of -3.10% and made the largest move by far of any index today. Today's action created a long red candle that qualifies as extremely large. It fell to the long term moving average and potentially strong support. Similar action has proven to be opportune buying times within the last year although the indicators support lower prices at this time. A break below the moving average could go as low as the long term up trend line near 9,000, a bounce would face resistance near 9,350 and the mid point of today's candle.
The NASDAQ lost only -0.63% and created a large red bodied candle with long lower shadow. This candle is indicative of both selling and buying although the sellers won the day. In terms of signal it is a Dark Cloud Cover indicative of impending bearishness. The indicators are both rolling over in confirmation of resistance so it is possible the index will move down to retest support at today's low. A break below there would be more firmly bearish in the near term but may find additional support just below that level at the short term moving average. That being said the index remains in up trend and likely showing a buying opportunity.
The S&P 500 closed with a loss of only -0.09% after moving as low as -0.60% intraday. Today's candle is small and red with long lower shadow reminiscent of a hanging man but unconfirmed. Price action fell from the long term moving average confirming resistance but the long lower shadow shows support at levels just above the short term moving average. The indicators are showing near term weakness within an up trend and set up for a trend following entry should prices recover. A bounce from support would be bullish, first target is today's low and then just below that at the short term moving average near 2,450. A break below there would be more firmly bearish in the near term with targets near 2,400.
The Dow Jones Industrial Average closed with a gain after moving lower to flirt with break even levels during the day. The blue chip index gained 0.39% and closed at the high of the day. The index created a small bodied green candle and broke above the long term moving average with the indicators in support. Both stochastic and MACD are bullish and on the rise in support of higher prices, the only caveat is that MACD is still pretty weak. Upside target is 22,000 in the near term.
The charts are mixed to say the least. The blue chips are breaking out to new highs while the other three are showing some form of bearishness. The silver lining is that they are all showing some for of buy signal as well. Considering that the market is in uptrend of a short and long term nature, that the uptrend is supported by economic and earnings growth, a break to new highs or a touch to support levels are both considered buying opportunities. Because I don't want to get left out of the next big move I am bullish in the near term and buying on the dip. Because I don't want to get caught with my pants down I am doing so cautiously. Long term I am still firmly bullish and am going to start looking to the transports for new opportunities.
Until then, remember the trend!