Introduction

The market held steady in a day of light action and heavy data ahead of the monthly NFP release. Today's releases were generally bullish, expectations for tomorrow's NFP is about the same. So long as there are no surprises bull market conditions should persist. The real risk, if there is one, is that the number will be too hot and bring a third 2017 rate hike back into play.

International markets were mixed. Asian indices fell with losses led by Korea. Shares in that country fell more than-1% while others in the region shed closer to -0.25%. Chinese Services Sector PMI came in a tenth below expectations and may have dragged on sentiment. European indices were firmly in the green save for the German DAX. Markets were bolstered by the BoE's decision to keep rates unchanged and indications they would only raise rates 2 times in the next 3 years. The DAX fell -0.22%, others in the region gained between 0.46% and 1.02%.

Market Statistics

Futures trading was flat to positive throughout the early morning. The trade firmed after 8:30AM data releases but not significantly. The open was like yesterday, positive with sellers quickly stepping to trim profits, and not very strong. After an initial downturn price action moved sideways the remainder of the day and winding within a very narrow range. The Dow Jones Industrial Average was the star of today's show, moving up to close with a gain and setting a new all time high.

Economic Calendar

The Economy

Today's first release was the Challenger, Grey & Christmas report on planned layoffs. The report shows 28,307 layoffs planned in July. This is a 10 month low, -9.7% from the previous month and -37% lower than this same month last year. It is also only the third time layoffs have been sub-30K in the last 10 years. In terms of hiring the report shows 88,000 planned hires last month, the 3rd highest level this year and the highest July total in 23 years. The July figure brings the full year 2017 YTD total to +84% over last year.


Initial claims for unemployment fell -5,000 to 240,000, as expected. The last week's figure was revised higher by 1,000. The four week moving average of claims fell -2,500 to 241,750. On a not adjusted basis claims fell -10.2% versus an expected -8.2% and are down -9.6% over last year. These numbers remain low relative to long term trends, near the 43 year low and consistent with ongoing labor market health.


Continuing claims rose by 3,000 to 1.968 million. Last week's number was revised higher by 1,000. Te four week moving average of continuing claims rose by 750. Despite all this continuing claims remain low relative to trend, near the long term low and consistent with ongoing labor market health.

The total number of claims fell -22,735 to 2.006 million. The total number remains elevated after last week's surge but also within seasonal expectations and in line with long term trends. We can expect to see it begin to fall off again as soon as next week, and then to hit another seasonal and long term low in early October. I would expect to see the October low come in below 1.750 million.


ISM Services PMI came in at 53.9% in July. This is the 91st month of positive reading but down -3.5% from the previous. The number shows continued economic expansion but at a slower rate than previous. Within the report activity fell -4.9% to 55.9%, new orders fell -5.4% to 55.1% and employment fell -2.2% to 53.6%.


Factory Orders rose 3.0% versus an expected 3.6%. The gains are driven on an increase in unfilled orders and inventories, shipments fell -0.2%.


Markitt's Flash Services PMI came in at 54.7, up 0.5% from last month. The increase shows a solid increase in business activity according to Markitt economists. Data within the report shows new business growing at the fastest pace in 2 years and the workforce growing at the fastest pace so far this year.


The Dollar Index

The dollar weakened slightly on today's data. While positive today's releases were a bit weaker than expected and do nothing to firm forward rate hike expectations. The Dollar Index fell in early action, dropping below the $93 level, but losses were paired by the end of the day. The index remains in downtrend and may continue lower provided the NFP data does not strengthen FOMC outlook. Next downside target is $92, a break below this level would be more firmly bearish with targets at $90 and $88.


The Gold Index

Gold prices held stead in today's action. Spot prices hovered near $1,275 and once again confirmed near term support at this level. Momentum remains bullish with upside targets near $1,290 and $1,300. Tomorrow's NFP is the likely catalyst.

The Gold Miners ETF GDX continues to trend sideways within the near term congestion band at the midpoint of a greater 7 month trading range. The ETF is up on rising gold prices and poised to move higher provided gold moves higher first. The indicators have weakened a bit since yesterday but still consistent with consolidation within the near term up trend. Support appears to be at the short term moving average and near today's closing price, a drop below here would be bearish. A bounce would be bullish and in line with the near term trend with upside targets near the upper boundary of the short term range.


The Oil Index

Oil prices fell more than -1.30% on signs of rising OPEC output. Yes, the cartel who is even now actively working to support prices with a production cap is seeing production rise among its members. The gains are led by Libya and Nigeria as their oil field come back on line. The two are expected to participate with future caps but at this time are not constrained. WTI shed $0.65 to trade below $49 but remains at the top end of the expected trading range. If nothing emerges to support prices a move down to the bottom of the range could be coming.

The Oil Index fell more than -1% in response to oil's decline. The index fell from resistance at the long term moving average and retreat to support just above the short term moving average. This move is alarming but at the same time a positive for the market, bringing prices back down to current realities. The indicators are rolling over in confirmation of resistance but do not yet indicate a sell. Stochastic is weakest but viewed in light of bullish momentum and positive convergence with recent highs suggests a buying opportunity may be developing. Support is likely to be found near the short term moving average in the range of 1,120 to 1,130, a break below there would be bearish. Longer term outlook remains positive so I am still bullish on the sector.


In The News, Story Stocks and Earnings

Another big day for earnings as the season begins to wind down. This morning Kellogg reported before the bell. The maker of delicious corn based cereals reported a -2.4% drop in revenue but still beat expectations. Revenue of $3.19 billion beat by $30 million, EPS of $0.97 beat by a nickel. The company CEO says they are on track to meet 2017 goals even amid challenging conditions for the industry. Full year guidance was reaffirmed and helped drive the stock up by 1% in the premarket. Bullishness persisted throughout the day adding another 4% to prices by the close of trading.


After hours action was busy as well. GoPro reported a top and bottom line beat that helped to send its stock moving higher. The camera company lost less money than was expected on better than expected revenue. Revenue was driven by above forecast shipments of cameras that led management to issue positive guidance. Shares of the stock jumped more than 15% on the news.


Shake Shack beat on the top and bottom lines as well but was not able to please investors. The burger joint was not able to improve comp store sales despite beating revenue and earnings estimates raising the question of valuation and forward growth prospects. Shares of the stock fell more than -3% on the news


The Indices

The indices continue to move out of sync. One moves higher to set a new all time high, another is bouncing from long term support and yet others are moving sideways within near term trading ranges. The Dow Jones Industrial Average, although it did not post the largest gain in today's session, moved higher to set another new all time closing and intraday high. The blue chips created another small doji like candle while doing so and appears set to creep higher into the near term. Both indicators are bullish and gaining strength in support of this move. Upside target is near 22,500 should upward movement continue.


The Dow Jones Transportation Average made the largest gain as it bounces from support at the long term moving average. Today's action gained 0.29% and created a small green bodied candle sitting on the moving average, the second such candle in a row. The indicators are consistent with a touch to and possible bounce from support although convergence with the recent low suggest it could be tested again. Upside target is near 9,300 in the near term, a break above that would be trend following and confirm the bounce from long term support with a potential target at the recently set all time high.


The NASDAQ Composite posted the largest decline as profit taking continues to ripple through the tech sector. The tech heavy index fell -0.35% creating a small red bodied candle. Today's action brings the index down to retest near term support above the short term moving average. The indicators remain bearish suggesting support will be tested again, they are also only weakly bearish which leaves them consistent with bullish entry within an up trend. A fall below the moving average would be bearish in the near term with downside target near the long term up trend line at 6,200. A bounce from this level would be trend following with upside target at the current and recently set all time high.


The S&P 500 posted the smallest decline, -0.21%, and created a small red bodied candle. This is the 12th day the index has traded sideways within the congestion band. Price action appears to be a consolidation within an uptrend with bullish outlook. The indicators are contrary to this outlook having pulled back to produced bearish crossovers. The caveat is that within an uptrend, and while the index is able to hold at/near high levels, such crossovers lead to bullish entry signals more often than not. If the index were to move lower support is likely at the short term moving average, just below current levels.. A move up would be bullish and trend following with upside targets near 2,550.


The indices remain mixed and in rotation. The good news is that forward economic and earnings outlook remains positive so this rotation is likely to lead to buying opportunities. Tomorrow's NFP report could be the catalyst to move the market but I am not expecting too much out of it. A shocking surprise may induce fear of economic slowdown (downside miss) or fear of FOMC rate hikes (upside surprise) but anything less will give the green light for business as usual. At this time that means trimming profits where you can, cutting losers where you need and getting ready for the fall trading season. We're only a month away from Labor Day and the start of the traditionally busy "trading" season. I remain bullish for the long term, cautiously bullish for the near.

Until then, remember the trend!

Thomas Hughes