Introduction

The market fell more than 1% on growing concern the Trump agenda has been derailed. His response to the Charlottesville events led to an exodus of advisers, the implosion of his advisory councils, the possibility of fracture within the administration and put his pro-growth/tax-reform agenda at risk. The market is not happy with what it is hearing and seeing and so sold off hard in response. Today's action was broadly negative, all 11 S&P sectors moved lower.

International indices were a bit mixed but largely in the red. Asian indices were closer to flat than not with losses in the range of -0.25%. European indices were more firmly negative with losses in the range of -0.5% to -0.75%. The dovish tone to the FOMC minutes, compounded by today's release of ECB minutes, has put global traders on edge; maybe the economy really isn't doing as well as the aggregate of data says it is? A terror attack in Barcelona did not help matters, reports say 13 were killed and several dozens more were injured.

Market Statistics

Futures were negative this morning but nothing like what occurred during the open session. The futures trade indicated an open only a few points below yesterday's close but it did weaken a little after the data and going into the open. At the open the indices started off with small losses as indicated. A quick bounce to test for resistance was met by selling, slow steady selling, that lasted all day. The indices hit intraday support 5 times on the way down but each time failed. By the end of the day the broad market had shed more than -35 points and closed with a loss of -1.54%%.

Economic Calendar

The Economy

There was a fair amount of data today beginning with the weekly jobless claims. Initial claims fell by -12,000 to hit 232,000. This is just above the long term low, looking at recent trends it is possible a new low could be set in the next few weeks or so. The previous week's data was not revised. The four week moving average of claims also fell, by -500, to hit 240,500. On a not adjusted basis claims fell -6.6% versus expectations for a drop of only -1.7%. On a year over year basis not adjusted claims are down -9.8%. The down trend in initial claims may be over but it is clear that at least for now claims will trend at or near the long term low and consistent with labor market health.


Continuing claims fell by -3,000 to hit 1.953 million, last week's data was revised higher by 5,000 more than offsetting the decline. The four week moving average of claims fell by -6,000 to hit 1.960 million and has now rolled over and pointing lower. These figures have topped out over the past few weeks as initial claims began to move lower. If initial claims continues to fall this is likely to fall as well. Regardless, continuing claims is trending near historic lows and is consistent with labor market health.

The total number of Americans receiving unemployment benefits fell by -18,618 to hit 1.952 million. This is a four week low and consistent with seasonal and long term trends. The total number of claims should continue to fall over the next 2 months or so while the economy enters the fall hiring season. Downside target for the total claims is near 1.5 million and would be an all time low.


Philly Fed's Manufacturing Business Outlook Survey came in a bit below expectations but still strong at 18.9. This is a -0.6% drop from the previous month and the 13 month of positive reading. The 6 month forward outlook index gained 5.4% to hit 42.3%. Within the report new orders gained 2.1 to hit 20.4 while shipments rose from 17 to 29.4 and employment held steady. Within the employment segment hours worked and wages both increased.


Industrial Production rose at a rate of 0.2% in July after rising 0.4% in June. Output fell by -0.1%. Capacity utilization came in at a rate of 76.7% and is still running about -3% below the long running average.

The Index of Leading Indicators came in positive for the 12th month in a row. The index rose by 0.3% in July after rising 0.6% in June and 0.3% in May. The Coincident and Lagging Indices both rose as well, by 0.3% and 0.1%. Economists at the Conference Board say the index indicates a possible expansion of growth in the second half of the year, basically now.


The Dollar Index

The Dollar Index dipped a bit but losses were minimal. The index fell -0.10% on the FOMC's dovish tone but were supported in the end by an even more dovish tone from the ECB. Today's ECB minutes released dashed hopes the central bank would begin a taper soon, weakening the euro and offsetting weakness in the dollar. The index remains within its near term consolidation zone and appears to be setting up for another move lower. Resistance is just above the current level near $94, support is just above $93. A break below resistance would be bullish near term but face additional resistance at the short term down trend line. A break below support would be trend following and bearish with down side target near $92 in the near to short term.


The Gold Index

Spot gold moved up nearly a full percent on growing unease over antics in Washington. The metal moved up above $1290 but gains were capped at $1295. The move was also supported by dollar softness although that support was minimal. In the near term gold prices could continue to pressure resistance at $1295-$1300, a break above which would be bullish.

The Gold Miners ETF GDX tried to move higher along with the underlying metal but could not do it. The ETF opened with a small gain but right at resistance and then sold off from there to close with a small loss. It looks like the sector is still trapped within the near term range with little sign of breaking out. The indicators are pointing higher so resistance may be tested but they are still not showing any kind of strenghth. A break above resistance would be bullish but near term only, next resistance is near $24. A failure to break may result in a return to support at $22.50 or $22.00 in the near term.


The Oil Index

Oil prices gained about 0.35% following yesterday's report of falling US stockpiles. The move was capped however by other signs of increasing US and global production, and ongoing supply/demand imbalances. WTI gained about $0.15 to trade near $47 but still looks like it may trend lower over the near term.

The Oil Index continues to fall on declining forward earnings outlook driven by sluggish economic growth, dovish central bank minutes and falling oil prices. The index shed more than -1.6% today bringing the week's fall to near -5%. It has just crossed below my support target at 1,080 and looks like it could go lower. The indicators are both pointing lower suggesting a move down to next support is possible. I am still bullish for the long term due to positive forward earnings growth outlook, nearer term I remain cautious while waiting for signs of a bottom I still think is coming. That being said prices are starting to look pretty good.


In The News, Story Stocks and Earnings

Walmart reported before the bell beating on the top and bottom lines. Revenue grew 2.1% over last year, driven by a 60% increase in on line sales, but was not enough to satisfy investors. Forward guidance was also weak despite another quarter of increasing US comps and drove shares down by more than -2% in the premarket. The stock opened with a gap lower but buyers stepped in to drive prices up from there and create a green bodied candle.


Ross reported after the bell and delivered a nicer report. The company also beat on the top and bottom line with the difference of issuing strong forward guidance. The company says gains were driven by a 4% increase in comp store sales, double the expectations, and an unexpected increase in operating margins. Forward guidance is now in a range matching consensus, shares jumped 10% on the news.


Applied Materials also reported after the bell and also beat on the top and bottom lines. The company says semiconductor sales have risen 46% versus the year ago period. Total sales growth is up 33% which, with the addition of an increase in margin, to an 86% increase in EPS. Forward guidance has been raised above consensus and shares jumped close to 3%.


The Indices

The indices began the day with only marginal losses indicated but momentum began to build quickly and it lasted throughout the day. The fact that tomorrow is OPEX certainly added to today's volatility as traders fought hard to unwind positions. Today's move was led by the Dow Jones Transportation Average which lost -2.40%. The index created a log red candle moving down from the short term moving average and crossing below the long term moving average. The indicators are mixed and do not indicate a sharp move lower at this time. MACD is showing a small bullish peak with momentum on the wane and near zero, stochastic is still pointing firmly up with only a hint of %K rolling over. The index may continue to move lower but I would expect it to find strong support a little below today's close near the long term up trend line.


The NASDAQ Composite made the second largest gain today, about -2.0%. The tech heavy index created a long red bodied candle moving down from the short term moving average but closing above last week's low and well above the long term moving average and up trend lines. The indicators are mixed but rolling over into a bearish signal that could lead to further downside. MACD is most firmly bearish and indicates momentum is on the rise. A break below today's low would be bearish near term with downside target near 6,100.


The S&P 500 made the third largest decline today, just over -1.54%. The broad market index created a long red candle moving down from the short term moving average and closing below last week's low. The indicators are a bit mixed but generally bearish and consistent with an additional move lower. Downside target is less than a half percent below today's close near the long term uptrend line near 2,420. A break below this may find support at the long term up trend line.


The Dow Jones Industrial Average made the smallest decline, a wee -1.24%. The blue chips created a medium sized red candle moving down to cross below the short term moving average and halt at the long term up trend line. The indicators are more firmly bearish here than in the other indices and suggest that support at the trend line will be tested if not broken. A break below the trend line will be bearish for the short term with downside target near 21,200.


The indices moved lower and once again it didn't seem like panic selling, or that the bull market was falling apart. Today's move was deep but not so deep as to indicate major shift in sentiment, just enough for the market to let us know that maybe now is a good time to take profits on positions in the money and wait for the latest round of political hooplah to blow over. Forward outlook for earnings is still positive, forward outlook for economic growth is still positive, when those things change I will too. Until then I remain bullish for the long term and waiting for my next good entry signal.

Until then, remember the trend!

Thomas Hughes