The markets were relatively quiet today ahead of the somewhat eagerly awaited speech from Big Ben Bernanke. We all know that traders and investors alike have been expecting QE or at least signs of QE for some time. Tomorrows speech is not expected to reveal much in that respect, however, it will be a preamble to the slew of important economic data due out next week.

Economic Calendar

The FOMC has signaled repeatedly in official statements and during Q&A sessions that is ready to act but is still waiting on more data before it proceeds. The data is still sluggish but appears to be showing a stable, if weak, US economy. Stabilized data will surely prevent the FOMC from renewing any QE at this time. The current data could stave off any decision for another month or more.

Even with the weak and diminished forecasts for next year and possibility of another US recession should we fall over the “Fiscal Cliff” the US economy was expected to show some improvement in the third and fourth quarters of this year. The economy is expected to retreat again over the winter and spring while the rest of the world continues to struggle with its financial issues. This set-up is leading me to speculate on a “self fulfilled prophecy” scenario. Here it is: The pick up expected in the third and fourth quarter will undoubtedly show itself in the data. The FOMC could see the data as a sign of economic strengthening and hold off on any QE measures they are contemplating. The economy will then begin to decline due to the lack of stimulus coupled with global economic struggles and a still-high unemployment rate. It sounds pretty gloomy but I think the Fed has enough foresight to see into this.

Data is still sluggish and does not indicate significant growth or improvements. There are some bright spots in the economy but they are overshadowed but where the economy actually is. Yesterday the 2nd quarter GDP was revised up to 1.7%, slightly higher than the previous estimates. What we have to remember is that 1.7% is slower than the economy was expected to grow at the beginning of this year. Today's data fits the same bill. It's not bad in terms of where we are but where we are is not so great.

This morning on CNBC Atlanta Fed president Lockhart told us that it was “clear the economy is growing at 2%” and that easing was a “close call” but that it “could have a positive affect”. He went on to discuss interest rates and mentioned that merely having low rates was not an incentive to borrow.

The unemployment data remained elevated this week, a sign that businesses are still actively shedding employees. Initial claims in the previous week were revised up by 2,000 to 374,000 and held steady this week at the same level. Analysts had been expecting the number to drop to 370,000. The four week moving average of initial claims crept up again and reached a six month high. The average, which is less volatile and smooths out the seasonal changes, gained 1,500 to hit 370,250. Unemployment has been choppy this year and the current levels are well above this years lows.

Continuing claims for unemployment dropped by 5,000 to hit 3.32 million, very close to last weeks figures. Continuing claims are near the years and fairly stable considering the volatility we have seen in the initial claims data. This suggests that people are finding work fairly quickly after losing the first job. Total claims also fell this week, by 62,000 to 5.53 million. This is a new low for the year and coincident with a general expectation for a down tick in the unemployment rate. Fewer people on unemployment and a lower unemployment rate will be good for the economy but bad for QE.

Consumer spending was up in August rising by 0.4% This is the biggest gain in 5 months. The gain matched expectations and was driven by a surge in back-to-school shopping. Retail sales were also reported this morning to the surprise of analysts. The data was expected but the actual results. The industry was expected to gain about 2% overall but about 90% of the reporting companies exceeded expectations, some by a fair margin.

. The surge in spending was not matched by income. Personal incomes only advanced by 0.3%, the third straight month of 0.3% gains. Due to this the savings rate fell to 4.2%. Digging deeper into the data shows that there is little inflationary pressure at this time. The PCE core inflationary gauge only rose 0.1% in July.

News and data from overseas was quiet and mixed with one show of support between trade partners. In Japan retail sales fell by 0.8%, the first decline in eight months following a stimulus driven surge in consumption. Consumerism is reported to drive about 60% of the Japanese economy. In Australia business spending increased, due in part to the mining industry and its growth. China's ICBC, the worlds largest lender, reported that its profit growth slowed dramatically to a mere 11%, a number many world banks are envious of. In a sign of support and good faith the Chinese government pledged it support to the European Union, it's largest trading partner. Chinese Premier Wen Jiabao said that China was still willing to buy European sovereign debt should the risk warrant the purchase. Asian markets ended the day the Nikkei, Heng Seng and Australian ASX all closed down by roughly -1%.

European markets also ended the day down despite the show of support from China. The Eurozone and ECB are still dragging their feet on recovery efforts, giving a lot of credit to whoever associated the phrase “kicking the can down the road” with the EU crisis. The FTSE 100 traded near flat line today, closing down by -0.14%. The DAX shed -0.76%, surprising since the German economy has the most to gain from renewed Chinese support. The Spanish Ibex led today's retreat with a -0.96% decline.

Gold traded to the downside today, the third day this week. The Jackson Hole Conference, impending data and hopes for easing have the market on edge and awaiting any signs from Ben Bernanke and the FOMC. The Gold Index has followed in step with the price of gold, moving down to the short term moving average, still within the triangle formation. On the long term charts momentum is bullish an indicative of a potential base forming. This triangle could easily turn into a double bottom formation.

Gold Index, weekly

Oil prices retreated as Hurricane Isaac weakens and moves on. Fears of supply and refining disruptions left the market and deflated prices. Crude oil fell by over 1% in intra-day trading bringing the price of crude to a two week low. The Oil Index has been trading down for last three weeks and is and has moved down to the 150 day moving average. The index has been trading in a range for over three years and appears to be upward toward the down sloping upper-end of that range.

The Oil Index, weekly

Earnings have taken a back seat as the season has progressed. Only a handful of companies have been reporting over the last few days. In other revenue based news retail sales were reported today. As I mentioned before the expectations were positive but about 90% of reporting companies beat analysts expectations. Several companies beat by a significant amount, 3-5% and in some cases more. Costco gained 6% in comparable store sales over last year at the same time. Total sales increased by 8% to $7.4 billion. Costco opened marginally higher and then was taken to new highs on a technical breakout. Today's move did not come with much volume, a retest and confirmation of $97.50 is needed.

Costco, daily

Limited Brands made an impressive 8% gain in comp-store sales, nearly double the expected 4.2% gain. Sales were led by Victoria Secret and its clothing stores. Limited has been performing well over the last quarters, beating expectations for sales and profits. The stock is traded flat today, sitting on support and the short term moving average. The stock could be gathering strength for a push up towards resistance.

Limited, daily

Target also posted a gain beating expectations. The discount retailer increased same store sales by 4.2% and net sales by 4.7%. The increase was at the high end of the companies projected range and driven by strong back-to-school sales. The stock also traded flat today, wedged tightly between resistance and the short term moving average. The stock just completed a move that closed the gap opened earlier this month and is another potential candidate for a break out. The long term chart shows an extended stock trading at resistance with divergent technical indicators.

Target, daily

Target, weekly

Wet Seal was one bad spot on an otherwise shiny retail report. The teen fashion retailer's comp store sales dropped by 18% as shoppers sought bargains elsewhere. Their press release was difficult to decipher, understandable since it basically said they were doing everything wrong. The fast-fashion retailer has been struggling with sales, inventory and profits for several quarters. The stock is trading near the bottom of its long term range. It actually gained five percent today and reclaimed a level just above the short term moving average.

Wet Seal, daily

The Retail Spyder responded to today's surprises by quietly trading near short and long term resistance. The ETF momentum is fairly neutral, neither over or under-bought. The index is awaiting Ben's speech, economic data and FOMC policy just like everybody else. Much of today's reported gains are based on back-to-school shopping, a highly seasonal thing. The school year is new and shopping will be elevated somewhat throughout the year because of it but it won't be that significant. I think shoppers loaded up on supplies, capturing super low prices. I know we did. My girlfriend is a teacher and we bought extra everything and then got some more later when we saw some other good deals.

Retail Spyder (XRT), daily

Amazon announced today that it had sold out of its Kindle Fire model of tablet. A new version is due out in the near future and shipments are expected to start immediately. To date sales of Kindle tablets make up about 22% of tablet sales. The stock also traded very flat and in a tight range, just under long term resistance with divergent indicators in the intermediate and long term.

Amazon, daily

Pandora hit it big in mobile sales and revenue. The online radio provider reported earnings yesterday, surprising the markets. Mobile revenue was up over 80% driving the stock strongly upward to a long term resistance level.

Pandora, daily

Futures were down this morning going into the release of unemployment numbers. The data did help and futures remained near this mornings lows indicating an open around 7 points lower for the S&P 500. The index slipped in early trading, hitting the negative double digits. The index is still in the middle of the long term resistance range of 1420 and 1380, which it has been in now for over three week. The move down today to 1400 is bring the index back down into the middle of the range while we all wait for what ever is going to happen.

S&P 500, one day

On the one day charts the index is trending sideways in a very tight range. There has not been a significant move either way and momentum is very weak. The bulls and the bears are on the field, preparing to fight it out and the battle line is being drawn. Since the S&P 500 has entered the 1400-1420 range it has presented four significant candles that clearly show resistance at 1420 and support at 1400. Now the short term moving average has caught up with price, beginning to squeeze the index up against resistance. Eventually the index will have to go up, down or sideways, either breaking support or resistance.

S&P 500, daily

On the long term charts the S&P is displaying what could be a text book double top.

S&P 500, weekly

The VIX is still moving upwards to the top of its “calm” range. Momentum is increasing in the near term and the long term.

VIX, daily

VIX, weekly

I've said it before and I'll say it again now; the markets are set up for something to happen. Technicals and expectations seem to be coming to a head, focused on economic data and the FOMC. Either the market will get what it wants and the Fed will ease, which really means things are worse than they appear, or it wont and the Fed will not ease, which means we have to keep muddling along. Both ways are potentially bearish for stocks and business since they will either have the added burden of an even weaker economy or they will have to make do with the one we have.

Data will drive the market and Ben Bernanke is riding shotgun. His speech tomorrow will be well watched and heavily analyzed. I don't expect any market moving information here but the roster of reports for next week is full of important data.

Stay alert and keep trading!

Thomas Hughes