Introduction

The market held steady ahead of Janet Yellens speech at the Jackson Hole Economic Policy Symposium. Today's action was light and without impetus as traders wait to hear what Ms. Yellen has to say. The speech is not expected to be a platform for policy announcement or change but will be closely watched for clues on what the Fed thinks about the economy, inflation and rate hikes. Kansas City Federal Reserve President Esther George said in statements today, from the symposium, that she was in favor of gradually increasing rates even with inflation below 2% because the long term view is consistent with economic growth and rising inflation.

Asian indices were mixed but none made significant gains or losses. Sentiment was oddly upbeat in the wake of Trump's shut-down-the-government comments. European indices were also mixed but more firmly bullish, most indices closed with gains if small gains, as they await tomorrow's Jackson Hole events. Retail stocks were in the spotlight after posting weaker than expected results.

Market Statistics

Futures trading was flat to mildly positive all morning. They gave little indication to the days action with little movement on economic data or earnings from the retail sector. The open was choppy, the indices opened with small gains, tried to move higher and then abruptly about-faced to move lower and into the red. Jerky price action continued into the early afternoon with the indices hitting a bottom near 10AM and then bouncing between intraday support and resistance several times before 2PM. This range held through the end of the day with the session ending near the lower end.

Economic Calendar

The Economy

Initial jobless claims rose by 2,000 from last weeks not revised total to hit 234,000. The four week moving average of claims fell -2,750 to hit 237,750. On a not adjusted basis claims fell -1.80% versus an expectation for -2.5% and are down -10.25% year over year. Claims are clearly trending near long term history lows and consistent with labor market health. The down trend in claims I've tracked over the past 6 years may have come to an end. That being said, so long as there is no major reversal in this figure labor markets should continue to tighten.


Continuing claims are unchanged from last week's revised number. The revision is +1,000 for a net gain of 1,000 this week. The four week moving average of continuing claims fell -2,750 to hit 1.957 million. This figure may have also ceased trending lower but remains near long term historic lows and consistent with overall labor market health.

Total claims fell -31,581 to hit 1.920 million. This drop is as expected, in line with seasonal and long term trends. We can expect for this decline to continue over the 6 to 8 weeks and bottoming out near 1.5 million. Looking back at last year and the year before we may also expect to see declines begin to accelerate in the next week or two.


Existing home sales fell by -1.3% versus expectations for gains. The annualized rate fell to 5.44 from a downwardly revised 5.51 million in June. On a YOY basis sales are still up by 2.1%. Data within the report reveals ongoing shortages of inventory. The average time for a home to go under contract has been under 30 days for 4 months due to high demand. Economists at the NAR say the first half of the year was lackluster due to the imbalance in supply and demand. The imbalance is leading to undue upward pressure on prices and further stifling sales.

The Dollar Index

The Dollar Index moved up slightly in today's action. The index is supported not so much by anticipation for what Yellen may say but a lack of commitment by traders before the speech. Price action over the past few weeks has formed a bearish flag within a short term down trend and does not appear to be gaining bullish strength. The indicators have confirmed the downtrend with strong bearish crossovers so I am leaning in that direction. Support is near $92.60 and the 15 month low, a break below there would be trend following and bearish. A bounce from this level would be bullish but only in the near term. Resistance is at $94 or just above there near the down trend line, about $94.50.


The Gold Index

Gold prices also held steady in today's trade, shedding only -0.24% in response to the dollar's mild rise. The metal is being supported by both a weakening dollar and weakening FOMC outlook but also by political risk, and none of that is really expected to change in the next 24 hours. Near term support is just above $1,290, a move higher may find resistance at $1,300 or $1,305 while a move lower may find support near $1,280 or $1,275 depending on the news. Longer term the metal looks set to rise on a falling dollar.

The Gold Miners ETF GDX rose nearly a half percent creating a small green candle above the down trending resistance line but is not looking overly bullish. The indicators are only weakly bullish and stochastic in particular suggests it is at resistance. The indicators is pointing up with a bullish crossover today but this is the 3rd crossover in the last two weeks and the three together are rolling over in confirmation of resistance. The ETF may continue higher, particularly if gold begins to move higher again, but there is resistance ahead. Next target is just below $24 and near the mid point of the long term trading range.


The Oil Index

Oil fell even as a Tropical Storm Harvey restrengthens into Hurricane Harvey. WTI fell about -1.75% to trade near $47.50 and the mid-point of recent trading ranges. Yesterday's draw down of US stockpiles suggests that the market is rebalancing, at least a little, but traders aren't buying it. Oil remains above the $45ish cutoff point shale drillers need to stay profitable so I don't expect to see supplies fall to far. Add to that rising OPEC output and there is little reason to be bullish on oil.

The Oil Index gained 0.35% in a move creating a small green candle. This is the 3rd such candle since price hit my support target at 1,080. This move may turn into more but at this time bullish bets are off. Oil prices are edging lower with bearish outlook and will likely drag the sector down with them. The indicators are consistent with a touch and bounce from support but do not support a strong move higher. Upside resistance is near the long term moving average at 1115. A break below the 1,080 line would be bearish but may find support near 1,050.


In The News, Story Stocks and Earnings

Retail was in the news once again with a flurry of releases before and after the bell. A number of chain stores ranging from the low end Dollar Tree through names like Perry Ellis, Fossil, Sally Beauty and Land's End. Highlights of the reports are improvements in inventory positioning, surprise gains in comp store sales and positive forward guidance. Stocks in the group surged 3% to 15% carrying the entire sector with them. The XRT gained more than 2% in early premarket trading, opened with a gap to the upside but fell in intraday trading.


Amazon made big news today announcing that its deal to buy Wholefood's Market has been approved by the FTC and will close next Monday. The press release went on to detail some of the plans they have for the company once the deal is in place including lowering prices on some staple items throughout the chain as well as integrating with Alexa and the overall Amazon delivery infrastructure. Shares of Amazon fell a little more than -1% to test support near the long term moving average and appear to be confirming support and the possibility of a bottom. Divergences in both indicators concur.


Grocery stores, restaurants and food delivery services fell on the Amazon news. The deal to take over Wholefoods and integrate not only the shopping but the cafeteria services into the delivery space will increase competition for anyone selling food. Kroger was among the leaders with a drop greater than -8%. PS, does anyone else thing Jeff Bezos could be a James Bond villain? He's bald, is a little scary looking and taking over the world.


The Indices

The indices made small moves today with one exception, the Dow Jones Transportation Average. The transports fell a little more than -0.70% where the other indices shed closer to -0.20%. Today's action created a small red candle falling from resistance at the long term moving average and through support at the long term up trend line. This move is bearish but not confirmed, it may lead to further downside or be the first tests of support. The indicators are pointing lower suggesting support will be tested again, they are diverging from this new low in a way suggestive support is present and likely to hold. At current levels the index has corrected -7.5% from the new all time high, another -2.5% would bring it to a full -10% and the index to my support line near 8,750.


The S&P 500 made the next largest decline, -0.20%. The index created a small bodied red candle hanging below the short term moving average and wedged into the long term up trend line. Price action looks like consolidation within an uptrend and above trend with the caveat of being below a point of possible resistance. The indicators are bearish but consistent with support at this level. The caveat is that neither is truly rolling over yet which leads me to think that consolidation or retreat is still possible. A move above the moving average would be bullish with resistance near the current all time high. Support is the long term up trend line, a break below which would be bearish with next target near the long term up trend line.


The Dow Jones Industrial Average posted the next largest decline, -0.13%. The index created a small red bodied candle sitting on the short term moving average and the long term up trend line and looks like it could fall through. Stochastic is showing a bullish crossover, in line with the prevailing trend, but MACD remains bearish and %D is still pointing lower so the signal is very weak. A fall through support could take the index down to my support target near 21,200 for a correction of -5%. A move up would confirm trend but face resistance at the all time high.


The NASDAQ Composite fell the least, only -0.11%, as rotation within the tech sector begins to cool of. The index created a small red candle hanging from the short term moving average and appears set to move lower. The indicators are consistent with support at this level but show signs that it may be tested again. A fall from the moving average may find support at 6,200 or just below along the long term up trend line. A break above the moving average would be bullish and trend following but face resistance at the current all time high.


I will start by saying I am still firmly a long term bull. The trends, the economics, the earnings and the outlook all scream bull market to me. That being said the near term is very iffy and leading me to be cautiously bearish. The charts are setting up for a correction that is growing more and more apparent every day. This correction may be sparked by Trump antics, or by Janet Yellen's speech tomorrow but those will be excuses. The correction will be caused by good old fashioned market mechanics and ultimately a great thing for the health of the long term bull market. We're in between earnings cycles, outlook is a little cloudy if positive and there is plenty of political nonsense to keep the market on its toes. I may be wrong, a correction may not come but it's better to be safe than sorry. If it does come I'll be ready to jump back in.

Until then, remember the trend!

Thomas Hughes