Economic data and Mario Draghi's statements moved the markets today. Economic data at home remained tepid, neither pointing one way or the other. ECB president Mario Draghi announced a new round of bond purchasing to help support lower interest rates in Spain and Italy. Some market participants took it as a good sign for stocks and rallied throughout the morning. By days end the broad US markets were taken to new multi-year highs.

Economic Calendar

Futures were up this morning ahead of the ECB presidents remarks and interest rate decision. During the speech US unemployment data was released, providing more evidence of a tepid economy, and had no effect on futures prices. Trading opened with the S&P's largest move in over a month; the index quickly gained more than 15 points following this mornings opening bell and quickly moved to new intra-day highs. The jump broke the upper end of the resistance range (1480-1420) that I have been following for the second time since entering the range early last month and closed above it for the first time in nearly five years. The market moved broadly higher with today's rally, all nine of the Spyder sectors were in the green, led by materials and financials.

Backing up for a minute, the trading day started off in Asia where markets finished in the green ahead of the ECB statements and bond buying announcement. This comes in the face of other news that highlights the weakness of the Asian economy. Investment banking giant Nomura announced that it would be making cuts to its brokerage and investment banking business, especially in Europe. The bank is expecting to make over $1 billion in cuts to lower its costs. At the same time South Korea has downgraded its third quarter estimates for GDP to 0.3%, reflecting a slowdown in world demand. Australia, an important part of the Asian and global economy, announced a drop in employment and a sluggish jobs market.

Next we move on to Europe and Mario Draghi, keeping in mind that China and the Eurozone are major trade partners and can affect each others economies on the macro-level. Mario Draghi and the ECB decided to keep its benchmark interest rate unchanged and start a new round of bond buying. The new purchases are going to be in 1-3 year notes with no limits set. This marks an end to the previous round of bond buying the ECB undertook, this new round has been dubbed “Monetary Outright Policy” or MOT. The bond purchases are meant to support the Euro but won't begin until the ECB makes a “full assessment” of the situation. During the remarks Mr. Draghi lowered expectations for 2012 Eurozone GDP growth to -0.6%-0.3% from an earlier -0.2%-+0.5% range. This new estimate puts the Eurozone fully in recessionary territory.

If the ECB still needs to make a full assessment of the situation what have they been doing all this time and how did they come up with the new GDP estimate? I thought we were waiting for them to make an assessment/decision but once again they have put it off while seemingly to have accomplished something. The ECB has also seemingly washed their hands of the Spanish debt issue saying that help is available but that Spain must first ask for help. The broad European markets were bullish ahead of Mr. Draghi's statements and continued to rally following them. The bullish activity here at home helped to further inflate the European markets. The FTSE 100 finished the day up by 1.94%, led by the German DAX 2.81% gain and the Spanish IBEX 4.96% increase.

Important jobs and jobless data was released today. Initial claims for unemployment fell from an upwardly revised 377,000 to a seasonally adjusted 365,000 claims. This was well below forecast and a new 6 week low following the summer volatility we saw in July. The four week average crept up a little but is poised to move down sharply should this weeks lower number hold steady into next week. Regardless of the drop the data is still way above the levels we need to see.

Continuing claims remained steady around 3.3 million. The continuing claims number has been fairly steady for about 14 weeks, ever since hitting this years low number early in the summer. This suggest that people are having trouble finding new work right away but the total claims number, which is still in decline, suggests they are finding work eventually. Continuing claims made another new low of 5.467 million claims, down more than 23% from last year at this time. US GDP hit a low in that quarter as well. The question at hand is whether the economy is at a bottom or still slowing down. Economists have been estimating a slight pick up for the third and fourth quarter but have lower expectations moving into next year.

Other jobs data is pointing to a possible upturn in the labor markets. Challenger reported the third straight month of declines in planned lay-offs. They reported an estimated 32,000 planned labor cuts for the month of September, down 12.5% from last month. ADP also announced is estimations for non-farm payroll expansion. Analysts had been expecting a decline but were surprised by a substantial gain in employment. The August ADP figures show that the US economy added 201,000 jobs. Within the data the services sector led with a gain of 185,000 jobs. Manufacturing and construction also added jobs in the month, led by small businesses. The ADP and Challenger data has lead to some speculation that the unemployment rate, announced tomorrow, may have come down or at least held steady.

The ISM gauge of non-manufacturing purchasing climbed to 53.7, above estimates and bullish for the economy. This data, plus stable unemployment and a possibly improving jobs market is a good sign for the US economy but does not support further Fed action. Last week I mentioned a possible “self fulfilling prophecy” scenario in which short term data prevent Fed action which leads to 2013 recession. This is still a long shot but also still a viable possibility. The rest of the world is looking at the FOMC and the FOMC is watching US data. We're OK right now but if the rest of the world can't get is act together US growth and corporate profits will remain weak.

The price of oil gained over 1.5% on increased expectations fueled by ECB bond buying pledges. The move took oil to near a five month high before the bears stepped in and drove prices lower for the day. The Oil Index made an similar move upward, stopping just short of long term resistance, and stayed there. I'm watching for a break above or failure to break above the 1250 level in this index.

The Oil Index, daily

Gold also moved up today after the ECB statements. QE of any kind is good for gold as well as other metals which are needed for industrial production. The gold index responded by moving up from the short term moving average and crossing above the down trend line and upper boundary of the potential bear triangle I have been following. Momentum is weak and fairly neutral right now, the gold market, like most of the other markets, is not quite sure which way it is heading.

The Gold Index, daily

Interest rates on long term US debt rose today in step with the global markets. The flight to safety may have reversed, a look at the daily charts shows a bottom has formed around the 2.5% level. Lows in June and August are supported by a divergence in momentum. This is followed by a rally and an possible extreme peak in bullish momentum that carried through the firs half of August. The subsequent fall from resistance near the 3% level found support near the short term moving average and has now bounced back up. The current short term trend in the bond rate is to the upside and could retest the 3.0% level again. Of course, this will be heavily influenced by economic data and everything the Fed or Ben Bernanke says. These rates may prove to be volatile in the coming weeks.

Thirty Year Bond Rates, daily

Amazon made the news today, unveiling two new devices. They did not release a telephone which was a widespread rumor. They did release a larger version of the Fire and a new mobile device which is thinner and lighter than the touch and has a battery life of up to 8 weeks. The stock responded favorably to the news and continued its rally. The stock hit a new high today but the rally's strength is suspect due to low volume and weak momentum.

Amazon, daily

Abbott Laboratories is making a breakout today. The stock has been heavily favored over the past year due to the companies good performance and the large number of new drugs in late stage trials. Several options reporting sites noted increased activity in the stock yesterday and today. Abbot has been consolidating above $65 for a few weeks and made a nice move up from the short term moving average today. Momentum is convergent with new highs in the stock and shows a healthy market with some room to move up. Abbott is expected to report earnings early next month.

Abbot Labs, daily

Verifone, leader in the international payments industry, reported earnings and profits below expectations today. Despite the record revenue, profits and margins the numbers just were not enough to please analysts and investors. The CEO says the company is doing “fantastic” and that he has “nothing to apologize for”. Regardless, the stock has been trending down for months and today gapped down to near the year lowest levels.

Verifone, daily

Men's Warehouse posted earnings that beat the streets view. The company reported strong sales and tuxedo rentals. This quarters performance led the companies executives to guide full year eps higher. The new guidance is only an improvement of a few cents and overlaps the previous range of $2.74-$2.78 per share. The stock made an impressive move today, gapping up and finishing near the days high of $38.50.

Men's Warehouse, daily

Today's rally was broad, all 30 Dow stocks and all ten S&P Spyder sectors were in the green. The leading sectors were materials and financials. The Materials Spyder (XLB) has been trending sideways for the last twelve months and is near the upper end of the range. The XLB is making a move up from support and the short term moving average with weak indicators. Global conditions could be a big drag on this sector going forward. With things as-is, growth is weak and slowing. With stimulus and QE growth is still weak but there is more money and credit in the system.

Materials Spyder, daily

The chart of the Financial Sector Spyder looks a little better than the materials. It is still range bound but at least has a more positive bias. The XLF looks like it is making a run for its long term resistance level of $16. The banking sector has made vast improvements and is ready for growth but with the economy still in question even the regional banks will have a hard time making significant gains. The long term charts show declining volume and declining indicators as the XLF approaches resistance.

Financial Spyder, daily

Financial Spyder, weekly

The Volatility Index fell today as the US market climbed. The VIX fell below the short term moving average and back down toward the low end of the “calm” range between 15 and 20. Fear has left the market so to speak but I think a look at the long term volume of the markets that maybe fear is actually in the market and it is the investors who have left. Weekly volume on the SPY is near one year lows and we saw the same thing earlier in the XLF. When I scroll through the list of other major indexes and their ETF's the same thing is apparent; volume is declining, market participation is low.

Volatility Index (VIX), daily

SPY S&P 500 ETF, daily

The S&P 500 moved upward throughout the day and made a new nearly five year closing high. Even so, advancing stocks only outnumbered decliners by about 4 : 1. The index is moving toward the all time highs set pre-financial crisis and a 100% retracement of the 2008 bear market. There is still significant resistance for the index between 1430 and the all-time highs near 1570.

S&P 500, daily

I think traders and investors are on the sidelines with all eyes are on the Fed and the election. Tonight the DNC will capture the attention of the nation and perhaps the world. Obama's speech could foreshadow tomorrows economic data releases and shed some light on the state of the economy. He could electrify the nation again and possibly spark a new rally.

Tomorrow we get new jobs and unemployment rate data, information that will sway the chances of QE one way or the other. I'm not expecting too much out of the non-farm payrolls number, it is rarely in-line with ADP and could easily surprise us all with a sharp decline.

Stay vigilant and keep trading!

Thomas Hughes