The futures trade was decidedly positive this mornings ahead of today's economic reports. The anticipated and somewhat feared FOMC came and went without providing any speed bumps for the markets. Yesterday's close, which dipped mildly into the red, did give some cause for concern but today's action has laid those concerns to rest, at least for now. The economic data released today supports the growing recovery and points to a potential September start to tapering despite a lack of indication from the Fed. After the early morning data futures continued to climb with the S&P 500 topping out around +13, the Dow around +115 and the Nasdaq around +23.
There were similar events around the globe. In China, PMI data rose above 50 indicating expansionary activity in the Chinese manufacturing industry. Asian stocks rallied with the Japanese Nikkei leading the charge once again. The stimulus and yen devaluing programs enacted by Abe and Kuroda are still affecting volatility in Japanese stocks. In Europe, markets built on momentum begun in the U.S and carried into Asia. The monthly meeting of the ECB resulted in unchanged interest rates, earnings from some high profile European companies were better than expected and good economic data from Asia/U.S. All helped European stocks climb in today's trading.
Earnings are still rolling in here as well. Today at least 200 ( I think it is more like 250) companies reported earnings today. There were some notable earnings beats and misses, one being Exxon. The worlds largest oil company missed by a wide margin and lost more than 1.5% in early trading. Despite the drop in Exxon the S&P was able to maintain early gains and even build on them. Exxon's decline did have an impact on its ranking as the worlds largest company by market cap, it fell to 2nd, Apple regained its position as number one. Soon after the opening bell all the major indexes extended early gains with most of them reaching new all time highs.
Early in the day Challenger Job Cuts and Unemployment Claims were the highlight, mid-morning ISM and Construction Spending took the spotlight and then later U.S. Auto/Truck Sales stole the show. As for Challenger and Unemployment Claims, both better than expected and pointing to mild strengthening in labor markets. Challenger reported that planned lay-offs declined by 4.2% in July from June. This is the fourth month of declines in planned lay-offs. On a comparative basis planned layoffs are up 2.3% versus last July but down -7.2% for the seven months ended July 31st. Based on the current rate of decline layoffs for 2013 could fall to a multi-year low.
Unemployment data improved from last week. Initial claims for unemployment fell -19K from a mild upward revision to reach 326,000, the lowest level since January 2008. The four week moving average also fell from a mild upward revision to reach 341,250. Looking at the table it appears as if initial claims are edging down again but they are still very close to the 12 month average around 350,000. I am still looking for a sustained decline in this figure but that expectation may be affected by a changing participation rate. If more people are looking for jobs it could lead to more people filing initial claims.
Continuing claims and total claims both fell as well. Continuing claims fell -52K from a mild upward revision to hit 2.95 million. Total claims fell -154K to hit 4.695 million. Continuing claims is sitting just above the five year low while total claims are still at mildly elevated levels following the recent spike in claims I have been watching. If recent trends hold steady then total claims should fall back to near recent lows in the next week or two. In all, 23 states reported a drop in initial claims of greater than -1,000. Of those, 4 states reported declines larger than -5K with New York leading at -14,966. California is the only state that reported an increase greater than 1,000 with a gain of over 7,000 new claims.
Tomorrow's big reports will be the NFP and Unemployment Rate. Expectations are for NFP in the range of 180K-190K new jobs with unemployment falling back to 7.5%. Based on the ADP report and Challenger numbers it is possible for NFP to beat estimates. The unemployment rate is a more tricky figure to handicap at this time. Jobs are increasing and layoffs are decreasing which should lower the unemployment rate. The problem is with the participation rate. The last couple of months has seen a pick up in labor market participation which could adversely affect unemployment. I won't be too dissappointed if unemployment rises AND participation rises provided jobs keep increasing as well.
ISM and Construction Spending figures were released at 10AM. ISM was a pleasantly surprising 55.4 while construction spending fell unexpectedly. The ISM number is expansionary and well above the expected 51.4. Construction spending missed by about a full percentage point but only declined by -0.6%. The drop in spending is not what we are looking for but one month is not enough to start a panic, or even to suggest that one may be on the way. Month to month fluctuations are not as important as the long term trend of increasing construction spending. Anecdotal evidence: my brother who sells high end appliances and my buddy who sells a national brand of construction screw fasteners both tell me they are having their best year in more than 5.
Auto sales surged by double digits in July. All of the big three automakers posted double digit gains, if somewhat below market expectations. Ford posted sales gains of 11.4%, 4 tenths short of expectation. GM missed by a wider 3% margin. Expectations were for gains of more than 19%, actual results were around 16.3%.
Around The World
In international news Chinese PMI came in better than expected at 50.3, 2 tenths higher than expected. It is important to note that the HSBC flash PMI reading of 47.2 held steady in the follow up reading. Traders decided to focus on the official number and sent Chinese and other eastern markets higher. Adding to the bullish sentiment was a second injection of cash by the Chinese central bank. Other data from the Chinese sector includes a more than 7% jump in housing prices from last July. In Japan, Minister of the Economy Toshimutsu Motegi told CNBC that there is â€œno need to doubtâ€ Japanese commitment to reform plans. He went on to say that Abe-nomics is working.
I'm not sure if it was the dollar that got a boost, the yen that took a hit or a combination of both but the USD/JPY climbed in today's trading. Strong U.S. data and the â€œcommitmentâ€ of the Japanese government to its long term reform plans no doubt both had something to do with it. Regardless, the USD/JPY climbed more than 1.3 yen per dollar. The move brings the pair back above the short term moving average and approaching the 100 resistance level. The pair did not break through resistance during the week as I thought but I am still bullish on the pair and expecting a retest of high levels near 104. The next BOJ meeting is scheduled for next Wednesday and Thursday at which time we may hear of new developments in policy. Until then this pair may remain capped by resistance. Near term support is around 97.50-98, resistance is 100.
In Europe both the ECB and the Bank of England left rates and policy unchanged. The EUR/USD fell from the 1.3300 resistance level on the news. This pair is in a clear trading range with current resistance at the 1.3300 level. Short term indicators at this time indicate are overbought and declining. Longer term the pair is indicated higher but faces resistance. Without any change to FOMC or ECB policy I don't see any reason for this pair break above 1.3300 at this time. However, that does not mean it can't happen. My current outlook for this pair is sideways to down with possible support at 1.3200 and 1.3100.
The Gold Index
Gold appears to be falling back from resistance around the $1320-$1330 level. The stronger U.S data, FOMC meeting, ECB meeting and statements by Mario Draghi have helped to lift the dollar and put pressure on gold. After trading to the upside initially the metal fell to end today's session in the red. Gold is still above $1300-$1310 which is emerging as near term support. A break below would be bearish while gold would need to clear $1400 for me to get overly bullish at this time. The Gold Index continues to wrestle with resistance. The index has fallen back from Fibonacci resistance to dip below the short term moving average and pause just above $100. The index is in a down trend with declining momentum and bearish stochastic. This leads me to think that the Gold Index will stay down and may continue to move lower.
Barrick Gold was one of today's earnings reports. Previous reporting from GoldCorp revealed major headwinds for gold miners. The company was expected to report earnings of $0.56 per share versus the previous quarters $0.92. During the day the stock traded in tandem with the gold market and gold index, moving lower and peeking below the short term moving average. The company reported a loss of over $8 billion dollars for the quarter, much worse than the expected. The loss is mainly due to an impairment charge but low gold prices have led company executive to lower the dividend and to close some of the more expensive mines.
The Oil Index
Oil regained losses experienced early in the week. The stronger U.S. and Chinese economic data helped to boost oil demand growth expectations. Oil surged another +2% today reaching well above the $107 mark. The oil index on the other hand did not fare as well. Some big misses on earnings from the sector weighed heavily on index prices. However, this may not last long as new high prices bode well for improved profits in the current quarter. The index traded in a tight range today, forming a small candle just under resistance.
Exxon reported a big miss on earnings today, sparking a sharp sell-off which left the company down about $8-9 billion in market cap. At this time Exxon is a long term trading range and indicated down. Next support is at $90 and $89.
The Major Indexes
Well, I'm sure by now you are aware that the SPX and other major indexes made new highs today. The broad market reached a new all-time high along with the blue chips. The Nasdaq reached a new 13 high that goes back to November of 2000. Taking a look at the super long term chart of monthly candlesticks the index is indeed bullish. Momentum is ticking up and stochastic is also making a bullish crossover. Negative indications I see include divergent MACD and highly overbought conditions. The fact the index is so far extended from the long term trend only adds to the bearish side of the argument. In the end there are no signs of resistance or impending reversal on yet. The index is moving higher with rising momentum and rising stochastic.
Moving down to the weekly chart, keeping in mind that tomorrow is very important and that this candle is not completed, the index is in a similar condition. One difference is that stochastic is flat and below the upper signal line following the recent test of support at the previous all-time high. With rising momentum and neutral stochastic conditions this chart also looks like it is on the rise. The candles themselves are also telling the same tale, provide prices remain high going into the close of tomorrow's trading. The long-ish white candle formed so far this week is bullish as it crosses and moves up from the previously set new all-time high. Of course tomorrow this could change, the NFP report could introduce near term volatility but I don't think will be enough to alter the current outlook. I want to note here that the second half of the year is supposed to better than the first, so far the second quarter has been better than expected and new data shows the first part of the third quarter is better than expected. If this continues the second half of the year could be better than expected.
Today's candle is completed and it is bullish. The long white candle is moving strongly up from the previous resistance of the previous all-time high. Not only did the index make a new all-time high it also crossed the round number of 1700. The candle also comes after 14 consecutive spinning tops which form a consolidation band around said resistance level. Indicators are just barely bearish. MACD is one tick into the red, stochastic is pointing down. The %k line has just ticked up however indicating an early trend following signal.
The NASDAQ is leading the S&P 500. This index, full of tech stocks (remember the â€œsector rotation into tech this spring?) appears to be on the run. Momentum has turned bullish synchronously with the new high and stochastic is making the bullish crossover. Now that the economic and earnings situation is a little more clear this market may feel free to rally.
When I switched my chart to the transports all could say to my self was wow! I was truly surprised by the strength move. This chart looks bullish to me. Momentum has turned bullish and stochastic is crossing over while the index breaks out to a new high.
Dow Transports Daily
It appears as if the markets are ready to rally. This week was pretty good for the markets and I can't think of anything to be really scared of right now. The economic data is good. The FOMC meeting was mild. Earnings this week and season were mostly good. International conditions seem to be improving. Tapering is factored in so far as I can tell. The sequester and budget debate is barely spoken of and there is no FOMC meeting until September. It is important as always to keep an eye on conditions and the data. If tomorrow's NFP or unemployment rate are too shocking it could cast a shadow on the outlook but I don't think that is too likely.
Until then, remember the trend!