The S&P opened lower this morning after another round of mixed economic data. The market extended the loss into the morning trade until the release of New Home Sales data, which helped to cut some of the early losses. The new data was overshadowed by diminished hopes of Fed intervention and the markets continued to decline.

Futures were only moderately lower after the release of this mornings jobless data. This is the fourth straight day of negative bias going into the start of trading. The economic data as a whole remains mixed with no real signs of strength. At best the data could be called choppy and somewhat stable. Gains in one area are offset by declines in another. Overall the picture is still fairly bleak. Asia is still slowing and Europe is predicted to be in recession right now, two conditions that will ultimately impact US corporate earnings.

The Fed minutes were a bit surprising. They see data as “stronger” but revealed their the view that the economy was in clear need of help. The current state of the economy, plus the impending “fiscal cliff” the US is facing, is now expected to send the economy into recession. The Congressional Budgeting Office lowered its estimates for 2013 GDP growth to -0.5% between the fourth quarter of 2012 and the fourth quarter of 2013. The expectations for FOMC intervention and renewed bond purchasing are now higher than ever but even the FOMC cautioned that the decision was still up in the air and largely data driven. The question that needs to be answered is whether or not the signs of strength they are seeing is the beginning of a new uptrend or merely a short term peak in an otherwise listless economy.

The number of initial claims for unemployment climbed by 4,000 to a new short term high of 372,000. The previous weeks report was also revised upward by 2,000, making this week a gain of 6,000 compared to last weeks release. This is a little higher than the expected 369,000 but not by a shocking amount. The four week moving average of initial claims also climbed 3,750, just above recent lows. The initial claims data and the four week moving average appear to be stabilizing around the 365,000 level following the seasonal volatility we saw in the data last month. The level is high and not a sign of an improving job market.

The number of continuing claims gained 4,000 as well, climbing to 3.32 million. Continuing claims have been stable over the last few months but seem to be edging upward now. Total claims for unemployment fell in this weeks report but the data lags initial claims by two weeks. Total claims dropped by over 100,000 to to 5.59 million, the years lowest level. This is seemingly counter to the last reported unemployment numbers which showed a 0.1% increase. If continuing claims does continue to trend lower it could signal a drop in the unemployment rate, however any impact will likely be minimal unless it coincides with a pick up in hiring.

The US flash PMI number showed a surprising increase. The number, which represents about 85% of responders, climbed to 51.9 from last months final 51.4. This marks the first increase in manufacturing in several months. Declines in hiring and weak overseas demand were the most notable negative impacts on the data. The decline in hiring seen here could be an insight to the answers to the questions I was asking before.

Housing data this week was also surprisingly good. Existing home sales increased by 2.3% in July and are up 10% year over year but prices are still down. Tight lending and weak jobs are keeping home prices under pressure as new buyers struggle to enter the market. Most of the existing sales are attributed to private equity investments. New home sales were reported today and were also surprisingly positive. Sales of new homes are up 3.6%, above consensus estimates. Prices are up by 0.7% for the month and 1.8% year over year. Analysts had been expecting a more robust increase in monthly and yearly new home sales. Some buyers are able to enter the market and this has been seen repeatedly in the small regional banks who have been reporting steady loan growth for the last several quarters. Toll Brothers has been in the news all week, beating expectations for revenue and profits. Since the announcement the stock has gapped up to a five year high, encountering heavy resistance. Toll Brothers has not traded at this level since after the housing bubble burst.

Toll Brothers, daily

Asian shares recovered late in their trading day to finish in positive territory. After an up morning Chinese shares took a dive when the flash PMI reading sank to a 9 month low of 47.8. The decline was unexpected and renews, again, fears that China is slowing more than expected. There is no sign yet of China stabilizing, expectations are high for economic easing to come soon. After the initial knee jerk reaction Chinese and other Asian markets rebounded from intra-day lows to finish in the green. The hard landing scenario is more likely than ever unless the economy stabilizes soon. The Chinese Peoples Bank released 278 billion Yuan into the banking system to help support liquidity but the nation is still facing many headwinds.

The Hang Seng gained 1.23%, followed by the Nikkei with a 0.54% rise and the Australian ASX-200 with a 0.17% gain.

European shares ended their day mixed. The FTSE 100 gained 0.4%, the DAX dropped -0.97% and the Spanish Ibex lost -0.79%. Greece, Spain and Italy are still in the news as bail out and recession worries mount. Greece is so strapped and in need of cash it is now considering selling some of its smaller and lesser used islands. The European flash PMI points to recession, a condition the region is already expected to be in. In the report suggestions are made that Europe could be in a “prolonged state of negative growth”. This sounds like similar statements made by Chines economist early this year who said that China was entering a phase of prolonged economic slowdown. The lack of economic growth needed to support a reduction of European debt issues have increased expectations of near term stimulus and bond buying by the ECB. The Euro has benefited from all the speculation, climbing above 1.25 and heading upward.

Oil trading was volatile today, up one minute and down the next as one round of data negated the last. Hopes of increased oil demand, and prices, had oil up in early trading when stimulus seemed inevitable. Then later, as expectations for FOMC stimulus returned to a mere simmer the price returned to flat line by midday. In afternoon trading the price of oil dipped sharply into negative territory.

The Oil Index was less volatile, simply trading downward throughout the day. The index is trading near three month highs but is making an unusual pattern that may be a short term rounding top. Momentum is weak and the index is overbought.

Oil Index, daily

Gold and other precious metals made big gains today on the reinforced hopes of global stimulus. Gold put on an additional +$30 to yesterday's closing price but was overshadowed by a 3.62% gain in silver. Should the FOMC follow in the expected footsteps of the ECB and the Chinese Central Banking systems the price of gold could trade up to match or exceed 12 month highs. The Gold Index has traded up to the top of the bearish triangle I outlined last week, where it has encountered light resistance. This index is especially vulnerable to economic developments and knee jerk reactions, a decisive break is needed before choosing a long term direction from here. A break to the upside would turn my bear triangle scenario into a lopsided double bottom reversal with upside targets of $225 and $250.

The Gold Index, daily

Bond prices were up across the board today as prices climbed. The ten year treasury lost the most today in terms of yield, ending the day at 1.695%. The thirty year bond declined to a yield of 2.7886%.

30 Year US Bonds, daily

Stocks in the news today include Hewlett Packard, Intel, Big Lots and Toro. Hewlett Packard reported a huge quarterly short fall. The company was hit by write-offs and charges that took the company to a $4.49 per share loss. On an adjusted basis the company earned $1 per share, a penny ahead of estimates. HPQ also revised its guidance to the lower end of the previous range. The company is in the middle of an ongoing effort tom restructure and return to profitability. CEO Meg Whitman has asked that investors be patient as the process will take several years to complete. The stock gapped down to near an 8 year low set this summer and possible support.

Hewlett Packard, daily

Intel led the semiconductor sector in sharp declines today as global growth concerns weighed on the sector. Intel dropped over 2.5% to fall to a long term support line. The semiconductor index fell by about 0.75%.

Intel, daily

Semiconductor Index, daily

Big Lots dropped sharply and was the S&P's biggest decliner in intra day trading. The discount retailer reported a 38% decline in earnings from last year on top of increase costs. In the release Big Lots also lowered its full year guidance by roughly $0.45 to a range of $2.80-$2.95. The stock made a huge gap down, the second one in the last 12 months, losing about 25% of market value in the process. The move brings the stock down to near a three year low and long term support.

Big Lots, daily

Toro is not very bullish despite its name. The lawn and garden company reported weak results, citing the drought as a big impact on earnings. Despite the drag on revenue Toro was able to post record results for the quarter. Further in the statement the company lowered its full year guidance. The stock gapped down at the open only to find immediate support which helped to drive share prices back up near break even.

Toro, daily

Hormel also reported record results in the recently ended quarter. The company increased sales by 5% and diluted earnings per share by 14%. The company was able to reaffirm its guidance despite the increase in grain prices. The stock jumped on the news but was halted at resistance.

Hormel, daily

The VIX gained 0.80 today, or about 5.25%. The volatility index is still near the low end of the “rally range” but has regained the upper sided of 15 after falling to long term lows over the last week. I expect to see some fluctuation in the index over the next week or so as the S&P 500 remains inside the resistance zone. Based on past performance the VIX is likely to test the 20 level once or twice before any move to the upside. FOMC actions will drive stock prices and volatility in the near term.

The VIX, daily

The S&P 500 was put under pressure throughout the afternoon. The broad index closed at the days lows with 8 of the 9 sectors in the red. Healthcare was the only sector trading near flatline. Declining stocks outnumbered advancing stocks by about 2:1 in today's move, confirming resistance at 1415-1420 level. The nature and intensity of the resistance is yet to be determined and will be retested in the coming days and weeks.

The index crossed the upper end of resistance for the first time this week and was repelled without any real enthusiasm. Looking at the chart of the SPY we can see that volume is only average at best. In the SPX chart we can see that the index is highly overbought and momentum is divergent and continues to trend downward. The one year charts are set up for a textbook pullback.

S&P 500, daily

SPY, daily

A look at the Dow Jones Average reveals the same information. The index is extended on average volume and weak, divergent momentum. On the daily charts the Dow has moved down to its short term moving average and momentum has turned negative. Short term traders may try to capitalize on momentum and send the index lower over the next few days. The index is also just above the psychologically critical 13,000 level, this could be the battle line drawn between the bulls and the bears. News events, particularly economic/central bank related, could increase volatility.

Dow, daily

News events on the horizon include Durable Goods Orders tomorrow and more housing data next week. Also on the horizon is the Fed's beige book and the 2nd estimate on 2nd quarter GDP on Wednesday.

Thomas Hughes