Today another round of luke warm economic data was released and the markets carried on. The rally, which seemingly has no end despite the utter lack of conviction, is nearing a three month high. Even at this level the S&P 500 is still trading well within the long term resistance range.

US economic data was basically weak today, although the news (CNBC) tried to put some positive spin on it. Initial jobless claims edged upward, inline with expectations to a seasonally adjusted 366,000. This is up just 2,000 from last weeks number, which was revised up by 2,000 as well. The 4 week moving average of initial claims dropped by 5,500 to 363,750. The last two weeks is a sign that lay-offs are stabilizing but levels are still above the years low and at historic high levels.

Continuing claims for unemployment fell by 31,000 to 3.305 million. The drop puts the number in line with the rest of the summer and reinforces the stable view taken from the initial claims data. The total number of people filing for unemployment also fell, bringing the number to the years low. Recent jobs data supports a continuation in the downtrend of total unemployment even though the unemployment rate has risen in the last few months to 8.3%.

The Philadelphia Federal Reserve survey of business conditions was also released today. The composite reading came in at -7-1%, up from the previous months -12.9%. The reading of -7.1% was well below forecasts for the number. This is the fourth month of negative reading for the indicator but the highest since May. New orders gained the most but still remain in negative territory. The Philly Fed's outlook for the future remains positive but has declined for the past two months. Other headlines from the Philly Fed include “Manufacturers continue to report weak business conditions”, “Lower/Middle Income Household Outlook Deteriorates” and “Forecasters survey sees weaker growth than 3 months ago”.

Housing starts made a surprise dip into negative territory following last months big gain. The number of new houses fell 1.1% in July to 746,000. Economists had been expecting a more robust 765,000. Weaker housing data does suggest the Fed may ease but is conflicting with other data. The biggest drop was in single family homes which fell by 6.5%. The drop was partially offset with a 12% gain in apartment construction. The boom in apartment building underscores the weakness of the housing market. Americans who can't afford to buy, or have no faith in the market, need somewhere to rent.

Bond yields are up. The ten year treasury climbed to 1.8503% and the 30 year rose to 2.969%.

30 Year US Treasury Yield, daily

Asian markets ended the day mixed with the Nikkei climbing higher by 1.88%. The Japanese exporters have been benefiting from a strengthening dollar, expectations of US stimulus and hopes of increased overseas profits. The Japanese automakers helped lead the rally; Toyota gained over 3%, followed by Honda and Mitsubishi.

Toyota Motors, daily

Chinese shares ended their day lower as the country warned that is trade outlook was worsening. Poor corporate earnings and a decline in foreign direct investment helped fuel the decline. The Shang Hai Composite lost -0.32% and the Hang Seng Index lost -0.45%.

European shares ended their day in generally positive territory. The FTSE 100, Xetra DAX and CAC 40 all gained less than 1% but the shining star was Spain's Ibex Index. The Ibex gained over 4% on hopes of bail-out funding. Expectations are high that the ECB will help the country, when and how is only a matter time. Whether or not bail-out efforts will stimulate growth is still debatable, currently economists are expecting that no growth will occur in the Euro Zone until 2013 at the earliest.

Demand for gold has already reached a 2 year low and future expectations are heavily dependent on central bank policy and the Asian economy, especially India and China. Global consumption is down 7% according to the World Gold Council. The decline is led by China and India, spanning industrial, jewelry and investment uses. The declines in India and China are so big that they outweighed a record quarter of central bank purchases of gold.

The Council is expecting demand to pick up in the second half of the year but is basing a lot of the growth on hopes of central bank policy, a rebound in the Asian economy and there was even mention of a Greek Euro exit. The Gold Index climbed over 2% today, trading near a one month high. The index is above a long term support line and the short term moving average but the long term charts are suggesting a bearish triangle pattern.

The Gold Index, daily

Crude oil gained over 1% in today's trading on hopes of stimulus, blah blah and middle east tensions. Crude gapped at the open and continued higher in intraday trading. The price of crude is at 3 month highs and faces significant resistance at the $100 level. The Oil Index made a corresponding move up today but is already trading at resistance. The index has been trading sideways for two weeks, just under the resistance level of 1250.

The Oil Index, daily

An unexpectedly low injection of natural gas helped to support prices today. Natural gas gained about 0.25% in today's trading.

Story stocks today include Apple and Facebook. Apple made fresh headlines concerning its rumored Apple TV project. New speculation has the company teaming up with cable companies to deliver its product to the masses. The stock responded as expected and gained about 0.75% in today's action. The stock is trading just under resistance at the all time high level of $650 per share, is overbought and has weak momentum.

Apple, daily

The lock out on Facebook insiders from selling shares ended today. The shares were down as much as 4.5% in pre market trading and fell below the $20 level soon after the open. The stock trade with heavy volume today and failed to hold above $20 into the close.

Facebook, daily

The earnings front was dominated by the retailers today though there were some notable releases from other sectors. Wal Mart Stores reported in line with the upper end of its guidance, raised guidance on full year earnings, delivered the fourth quarter of comp store increases and still failed to meet investor expectations. Earnings gained over 8% from last year and comparable store sales gained over 2%. The guidance was barely raised, changing from a range of $4.72-$4.92 to a range of $4.82-$4.93. consensus estimates are calling for $4.92 per share which means Wal Mart will have to beat its own estimates in order to produce any form of positive surprise. The stock gapped down below its 30 day moving average on high volume. It also has weakening momentum, convergent with lower prices. The next support zone is at $70, followed by one in the $65-$67 range.

Wal Mart, Daily

Sears is moving the opposite direction, trading up from the 200 day moving average and making a nice white candle. Sears is range bound and likely to remain that way; today's earnings release is sending it up toward the top of the range but it faces resistance at $60, $65 and $70. The company reported a net loss, again, but managed to improve it substantially over last year. Continuing efforts to shift the companies operations are expected to produce further positive impacts to the income statement.

Sears Holding, Daily

Ross Stores reported strong earnings for the second quarter of 2012, on top of strong earnings for the same period last year. Earnings increased by 27% and 20% in the same quarter last year. The company was able to improve sales and margins in the quarter and for the year to date. The stock, which has been trending up and recently formed a potential bull triangle traded up from its 30 day moving average on high volume.

Ross Stores, daily

Cato,which traded down today after its earnings release, is still above support with an upward bias. The company reported net sales dropped by 4% and earnings by 3%. An improvement in margins helped to offset the decline in store traffic. The companies CEO said it was being hurt by negative consumer sentiment and uncertainty over the economy. The company affirmed its full year guidance of $2.18-$2.27 per share, slightly above the consensus $2.21.

Cato, daily

Gap Stores reported after the close but recent price action suggests that expectations were high. Gap gapped up a few weeks ago and is now trading near a ten year high. The store reported a 29% in jump in earnings and lifted its outlook to be more in line with Wall Street expectations. The stock was volatile in after hours trading.

Gap, daily

The Retail Spyder (XRT) moved up today, helping to lift to the general market. The ETF has been range bound since hitting highs in the spring and looks like it is going to retest those highs.

Retail Spyder, daily

Gamestop reported an 11% drop in global sales for the recently ended quarter. The decline was based on an expected slump sales coincident with a lack of new game releases. New business did account for 10% of sales and is expected to be stable. The board of directors approved the dividend and affirmed the previously released guidance. The stock is making a nice bounce from the 30 day moving average and looks strong in the near term.

Gamestop, daily

Lenovo Group, the worlds second largest maker of PC's and traded on the Hong Kong exchange, reported a 30% rise in earnings. In America, the Semiconductor Index responded by gaining over 1.7%, moving up from support at $400 toward resistance at $425.

The Semiconductor Index, daily

I have been reading a lot of articles and interviews lately where estimates for growth are based on expectations of future central bank stimulus and a rebound in global growth. Recent data has raised speculation that the FOMC will not be increasing its efforts at the next meeting while at the same time forecasts for second half growth continue to be muddled. Signs from China point to more slowing and the possibility of more stimulus; Europe is in the middle of stimulus, ready to go with whatever it takes according to Mario Draghi. And through all this the FOMC remains on hold, waiting to see what happens.

Signs of weakness, which is bad for the economy I think, can or will lead to stimulus which is what the market wants. But is that what the market needs? The price of oil is down at manageable levels, the price of gold is down from all time highs, corporate margins are increasing and credit remains at record lows. The building blocks for a recovery are there, we just need a catalyst to spark the growth. Bond purchases won't spark growth, what the markets need is some stability. Fed bond purchasing or other types of quantitative easing will only help to drive the prices of commodities and stocks up on speculation, possibly damaging the economy. We're already facing food inflation due to the drought and the looming possibility of higher taxes come January, higher fuel and other commodities will only hurt the already struggling global marketplace.

S&P 500, daily

The index continues to move up on very light volume, weak momentum and overbought conditions. A look at SPY, the S&P 500 index tracking stock we can see that the ETF is already trading at the spring highs with declining volume and divergent momentum.

SPY, daily

The general market is still drifting upward from Junes bounce but momentum and interest is nearly run out. The reality of corporate earnings in the third and fourth quarter will soon surface and that will ultimately determine the fate of market direction.

S&P, weekly

The VIX is even lower than it was last week on Thursday. The volatility index is below the 5 year range I would expect to see a sharp spike from. This extreme lack of fear seems rather callous in the face of all that is happening in the world. There is a lot to be worried about and future growth seems to built on a house of cards. With the VIX at such an extreme and the S&P so extended I remain on high alert for a pullback in the markets.

The VIX, daily

Be watchful of the Fed but even more watchful of the economic data. In the coming week we will be getting FOMC minutes, homes sales and more jobless data. On the earnings front the week is full but without many significant names.

Until next week, Good trading

Thomas Hughes