Introduction

The data driven Fed should be in hog heaven, we got a load of it today. From labor to spending, real estate and manufacturing all the bases were touched. The underlying theme remains the same; labor markets are tight and continue to tighten, wages and spending continue to rise, inflation continues to trend well below the FOMC target 2% rate. This combination is Goldilocks for the market, supporting growth with little to no interest rate hike expectation, and the indices responded with small gains.

Asian markets were mixed. The news of the day was Chinese PMI. The official manufacturing PMI came in positive and above expectations at 51.7 while the services index fell more than expected to 53.4. The news is at once positive but positive with the dark cloud of slowing in the services sector. Chinese markets fell marginally, led by the small cap Shang Hai index, while Japan rose more than 0.75%. European indices were firmly higher following the release Eurozone inflation data. The release shows inflation rising more than expected at 1.5% and the highest level in four months.

Market Statistics

Futures were positive all morning, starting with small gains and gradually rising to indicate an open near to 0.35% following the release of today's data. The open was a little intense but not too bad, the SPX gapped up by about 5 points and extended that to about +12 points by 10:30AM. This turned out to be an early top and the intraday high until late in the afternoon. Between 10:30AM and late afternoon the indices trend sideways within a narrow range just below the early high. Late afternoon the indices moved up to test the early high and broke through to close with a gain greater than 0.5% (SPX).

Economic Calendar

The Economy

It's been a while since we had a Thursday so full of data. Starting with the Challenger report on planned lay offs none are too exiting but all support long term trends and improvements within the economy. Challenger says plans for job cuts rose 19.4% from last month to 33825. This is 5% above the August 2016 level but leaves the YTD total down -26.1%. Retail led the charge in slashing employees from the roles. Looking to the hiring portion of the report plans for hiring rose 69% on a year over year basis and are up 435% on a year to date basis putting 2017 on pace to be the strongest hiring year since the recession. Looking ahead, based on trends, we can expect to see job gains grow to near 500K next month.


Initial jobless claims gained 1,000 on top of a revision of +1,000 for a net gain of 2,000. The four week moving average of claims fell by -1250 to hit 236,750. On a not adjusted basis claims rose by 0.5% versus an expectation of falling -0.2%. Not adjusted claims are down -9.1% year over year despite this week's gains. While it seems that the down trend in initial claims may have ended the figure continues to trend near the historic low, consistent with labor market health.


The continuing claims figure fell by -12,000 from last week's not revised figure to hit 1.942. The four week moving average of claims fell -6,250 to hit 1.951 million. The two figures are edging lower while trending near the long term historic low, consistent with labor market health.

The total number of claims fell -4,225 to hit 1.916 million. This is as expected, consistent with seasonal trends and in line with long term trends. On a year over year basis the total claims figure is down -8.75% and consistent with ongoing improvement in labor and employment. Based on this, the Challenger and the ADP reports I would be very surprised if the NFP was a miss and a little surprised if it is not a positive surprise.


Personal Income and Spending were both above expectations with the silver lining of cooling inflation. Personal income rose by 0.4%, spending by 0.3%. Within the report the all important PCE prices and PCE core prices both remain below the FOMC's target rate of 2%, and have declined from the previous month. Both PCE prices and PCE Core prices came in at 1.4%, down a tenth from the previous month.


Chicago PMI came in at 58.9 in August, unchanged from the previous month. This is the 18th month of positive readings, all components of the index except employment are up on a YOY and YTD basis indicative of strong and steady growth in the manufacturing sector. Gains in production and demand were offset by declines in employment and backlogs resulting in this months unchanged figure. Adding to the negative spin on employment is the fact it fell below 50 and into contractionary territory. Regardless, with production and demand on the rise we can expect to see employment levels hold steady and possibly rebound in the coming months.


Pending home sales rounds out today's data deluge, and on a bit of a sour note. The pending home sales figure fell -0.8% and has been negative 4 of the past 5 months. The index fell from a downwardly revised 110 to 109.8 and is down -1.3% YOY. The only bright spot in this report is that the declines are due to low inventory and a lack of response from the home builders. Economist at the NAR say that inventory is being gobbled up at an alarming rate compared to the number of new homes coming onto the market. Personally, the ridiculous prices homes are going for in my neighborhood make me want to sell, but then what would I buy?

The Dollar Index

The Dollar Index firmed on the day's data but gains were capped. While the data helps firm forward economic and FOMC outlook the same was happening in Europe with the Euro, undermining and offsetting gains in the dollar. The index closed with a loss near -0.25% after pushing up to test resistance at $93.00. The index remains in down trend but a continuation of that trend is in question. Tomorrow's NFP could answer that question, if the data is strong enough it could bring the bid back to the dollar. A break below support, just below today's close near $92.00, would be bearish. A move above $93 would be bullish but still face additional resistance near $93.70 and $94.


The Gold Index

Gold gave the market the old head fake, first dipping on today's data and then shooting higher when the dollar hit resistance and reversed the days gains. Spot gold closed the session up $13.00 and 1% from yesterday and is now above the $1,320 resistance target. This move is driven by expectations for a weaker dollar and supported by global political tensions, although those have eased a bit since earlier in the week. The risk is that tomorrow's NFP will positively surprise the market and send the dollar moving back higher.

The Gold Miners ETF GDX got a bid on the move in gold, gaining about 0.5% on the move to test resistance at $24.70 and the 38.2% retracement level. Today's candle is a medium sized green one that could be a continuation signal if only it had closed at a new high and above resistance. The indicators are bullish and pointing higher suggesting resistance will be tested and maybe broken with a couple of caveats. The ETF is still within a trading range and stochastic is indicating overbought at current prices, below a resistance level, while MACD momentum remain weak. A move up could come, possibly sparked by tomorrow's NFP, but caution is due until then. Even with a break above $24.70 the ETF is still within a trading range with target near $26.00.


The Oil Index

Oil prices caught a bid as OPEC worries fade and traders focus on Hurricane Harvey, the effects on energy infrastructure and a new storm brewing off the leeward islands and aiming for Puerto Rico. So far there have been several major shut-downs, today's news includes the largest refinery and a portion of Colonial Pipeline servicing about 40% of the Southeast. WTI gained nearly 2.5% to trade above $47.00. RBOB gasoline rose more than 13%.

The Oil Index gained a little more than 0.5% to trade just below the long term moving average. The index is moving up from long term support levels but still below major resistance with indications that resistance will be tested. The silver lining to the storm could be a drawdown of US supplies. A drawdown of US supplies of gas, diesel and oil would held tilt the supply/demand imbalance back in favor of demand and in turn help support prices. If so, this could be the turning point in the energy sector I was trying to target earlier in the summer but it's a wee bit early to tell. Regardless, energy stocks are trading near 18 month lows with a semi-stable outlook for oil and positive earnings expections and so of interest to me.


In The News, Story Stocks and Earnings

Wells Fargo made big headlines today. The company revealed that the fake account scam resulted in nearly 2X the number of false sign-ups as previously thought. The reaction on the street and from Capitol Hill was not good, both calling for the board to be removed with possible legal actions to boot. Bottom line, the news reveals a culture of fraud that spanned the company and so hard to believe those in charge had no idea it was going on. Shares of the stock fell a half percent to set a 9 month closing low.


Campbell Soup reported a -1.8% decline in earnings, missing expectations for revenue and earnings. Company CEO says that the packaged foods business is challenging as disruptors invade the market and consumer tastes shift toward the fresh category. The results led management to lower forward full year guidance to a range below the current range, sparking a decline in food stocks across the segment. Shares of Campbell's fell more than -8% and look like they are heading lower.


Lululemon reported after the bell and beat on all measures. The company reported revenues and earnings above estimates driven by 2% same store sales comps and a 30% rise in online sales. The results caused management to raise guidance above current consensus and sent the stock up more than 7.5% in after hours trading.


The Indices

The indices moved up today, driven by positive economic outlook. Leading the move was the tech heavy NASDAQ Composite with a gain of 0.94%. The index created a medium sized green candle moving up from the short term moving average, approaching the current all time high and supported by the indicators. Both indicators are moving higher following trend following bullish crossovers and indicative of higher prices. Resistance is at the all time high, a break above that would be bullish.


The S&P 500 closed with a gain of 0.56% coming in second for the day. The broad market index created a small to medium sized green bodied candle moving up from the short term moving average and supported by the indicators. The indicators are both pointing higher following bullish trend following crossovers and suggest higher prices are on the way. The current all time high is next resistance target, a break above that would be bullish.


The Dow Jones Industrial Average closed with a gain of 0.25%. The blue chips created a small green bodied candle, just above the short term moving average and the long term up trend lines. The indicators are in line with a trend following signal but it has not confirmed. Stochastic has fired a strong signal, MACD has yet to make its zero line crossover in support of the move. A move up from this level would be bullish and trend following with the caveat of resistance at the all time high. A break above there would be more bullish.


The Dow Jones Transportation Average brings up the rear with a gain of only 0.09%. The transports created a small shooting star doji at a resistance level but indicated higher nonetheless. Today's move did meet resistance but is and extension of a trend following bounce, and supported by the indicators. Both MACD and stochastic are pointing higher following bullish trend following crossovers and suggestive of higher prices. A move higher would face resistance near 9,400, a move lower would find potential support at the short and long term moving averages and the long term up trend line.


At the risk of sounding fickle my suspicions of correction are dissipating. The indices are finding or have found support at long term trend lines, are bouncing higher from moving averages and supported by trend following signals. I've been bullish for the long term, waiting for the next good signal. This may not turn out to be a good signal but it bears all the hallmarks. I am bullish near term, a bit cautious with resistance levels still in play, but looking to see those levels broken. The risk is of course tomorrow's data which we will get before the market opens.

Until then, remember the trend!

Thomas Hughes