Introduction

The Dow Jones hit a new all time intra day high above 22,000 but was not able to hold the gain into the close. The index was lifted by Apple which reported earnings after the bell last night. Other indices were not so buoyant as traders keep a close eye on this week's economic data and earnings reports. Today's data was in the Goldilocks zone, not too hot and not too cold with the tailwind of positive upward revisions.

Asian indices closed flat and mixed. Japan, Hong Kong and Korea closed with gains in the range of 0.20% to 0.50%, mainland China and Australia both posted small losses. The tech sector helped to support the region in the wake of Apple's release, those participating directly in Apple's supply chain posting the largest gains. European indices were mostly lower in the wake of earnings releases. The tech sector saw some favor but some high profile misses in basic materials and financials dragged the broader markets lower.

Market Statistics

Futures trading was mostly positive this morning although the broader market flirted with break even. Economic data was positive and helped to support prices which moved slightly higher going into the opening bell. The open was calm, the Dow set a new all time high, but selling quickly set in. The industrials and transports moved mostly sideways while the SPX and Comp both moved modestly lower. By early afternoon the selling was mostly over. The Indices stabilized at intraday support and move sideways into the late afternoon. The last hour of trading saw the indices move back to reclaim most if not all of the days losses and hold that level into the close.

Economic Calendar

The Economy

The ADP report on labor estimates the creation of 178,000 new jobs in July. This is in line with expectations and in the sweet spot. If job creation runs too hot rate hike expectation may come back to a simmer, if they are too cold then economic growth comes into question. When in the sweet spot economic growth can continue as expected with little to no expectation of interest rate increases for the near to short term. The CME Fed Watch Tool indicates chances of another rate hike at less than 50/50 until January 2018 and only just above 50/50 until late spring next year. NFP expectations have not been altered by the news and stand pat near 180,000.


The Dollar Index

The Dollar Index moved marginally higher in today's action but remains low relative to recent trends. The index is moving lower on a rebalancing of central bank expectations and in danger of moving lower. The $93 level is potential support, the $92 level looks like a probably target as well. Today's ADP did little to alter outlook, if Friday's NFP is the same I would not expect to see the index move higher. A break below $93 has a target at $92 in the near to short term, a move below $92 would be bearish and set a 2.5 year low.


The Gold Index

Gold prices moved lower on dollar firmness but the dip was bought. Spot price ended the session near break even after opening with a small loss and falling more than -1% intraday. Today's candle a medium sized green bodied candle with long lower shadow making new highs within an uptrend. It is bullish, indicative of near term support and positive upward momentum. Support appears to be at $1275 with next upside targets near $1290 and $1300.

The Gold Miners ETF GDX moved within a very tight range and exactly sideways from yesterday. The ETF appears to be forming a near term consolidation within an uptrend that could take it up to test resistance near $24 and the middle of the 7 month trading range. The indicators are bullish, stochastic more firmly so, and consistent with upward movement within the range. Support is at the short term moving average near $23.85, a break below which would negate my near term bullish outlook.


The Oil Index

Oil prices fell hard in early trading on expectations of a draw down in US stockpiles. We did indeed get a draw down but nearly as much as was expected. Spot price for WTI rebound from the early low to recover all the losses and close with a gain near 0.5%. Despite the rebound price remains below the $50 resistance level reached in the last few days. A break above $50 would be bullish with potential upside target of $55. While near term trends are bullish a break above $50 may need an additional catalyst.

The Oil Index opened with a loss but moved higher throughout the day to recover it and more. The index finished the day with gains near 0.25% and created a medium sized candle. Today's action tested support at the short term moving average and support was confirmed. The indicators are bullish and convergent with the near term up trend so further upside can be expected. Upside target is near 1,170 in the near term. The 1,170 level is the top of last years trading range and a target of potentially strong resistance, a break above here would be bullish longer term. Until then it looks like the index may be reversing, or at least re-establishing its previous trading range.


In The News, Story Stocks and Earnings

Autonation reported earnings this morning before the bell and results were not good. The company is suffering from sluggish auto sales that are not expected to recover this year. Revenue is down nealry -3% over last year and missed expectations by more than -5%. Earnings of $.86 missed by more than -11%. Other data within the report was equally depressing. Comp store sales are down -3%, vehicle revenues are down more than -4.5% and sales units declines nearly -3%. Shares of the stock were down more than -6% in the pre market and held those losses into the close.


Molson Coors reported before the bell and gave mixed results. The brewer of banquet beer reported a slight miss for earnings on revenue in line with expectations. Shares drifted higher despite the weak results on signs of improving business fundamentals. Brand volume increased globally by 2.7% while revenue per hectoliter increased 1.7% on a successful pricing increase. Shares jumped more than 5% pre-market and opened with a nice gap higher. Shares sold off intraday but were still able to close with gains near 5%.


Earnings action after the bell was active. Square, the card reader for small business, reported top and bottom line beats on higher transaction volume. Shares moved higher on the news.

Fitbit, the Internet of Things connected fitness device, reported top and bottom line beats that drove shares up by more than 10% in after hours action.

Tesla reported better than expected revenue and earnings, smaller than expected loss, that drove shares higher in after hours action. Shares of the stock gained more than 4% on the news.

AIG reported revenue and earnings well above expectations. EPS of $1.53 blew past estimates of $1.20 as global business grows. Shares of the stock moved up by more than 1.5%.


The Indices

The indices tried to make gains today but action was hesitant; early gains were given up, later in the day losses were recovered leaving the indices hovering near break even. In terms of percent the Dow Jones Transportation Average made the largest gain today, 0.31%. The transports created a small green bodied candle sitting on the long term moving average but support is dubious. The indicators are consistent with a touch to support but are not indicative of reversal. The recent bearish peak in MACD is in fact convergent with the latest low which suggests it will be retested or bested in the near future. Upside target for resistance is near 9,320, downside target should support fail is near the long term up trend line at 8,900.


The Dow Jones Industrial Average was the day's leader with a gain near 0.20%. The blue chips created a very small doji spinning top and set a new all time high above 22,000. The indicators are both pointing higher in confirmation of the move although price action looks weak. The move may continue higher but caution is due.


The SPX closed with a gain of 0.05% and created a small hammer doji. Today's action is the 11th day of sideways consolidation at current all time highs and beginning to take on some near term bearishness. The indicators are both rolling over into bearish crossovers that could result in near term correction. A break below 2,460 may find support at the short term moving average, a break below there could go as low as 2,420. Short and long term trends remain bullish so any dip that may occurs is a likely buying opportunity.


The NASDAQ Composite brings up the rear with no gain and no loss. The tech heavy index created a small red bodied candle with visible lower shadow testing support at the short term moving average. The indicators have turned bearish in confirmation of this test and suggest that it may continue into the near term. A break below 6,300 would be bearish and could take the index as low as 6,200 in the near term. Short and long term trends remain bullish so this dip would be a buying opportunity if it were to develop. A bounce from here would be bullish and trend following with first upside target at the current all time high.


The indices remain mixed. Where one is making new all time highs another is sitting on long term support while two more are moving sideways within near term ranges. At face value it looks like earnings driven rotation and until something changes that is the stance I am taking. Earnings have come in well above expectations, forward earnings growth outlook remains strong and economic conditions are accommodating so I see no reason to get overly bearish. There may be more rotation and it may result in near term correction, if it does I will be ready to buy on the dip.

Until then, remember the trend!

Thomas Hughes