Economic jitters helped to drive global markets lower in the overnight session. New data from India and other emerging markets suggests that they are weakening much more than expected. Asian markets continued their slide shedding about 2% from country to country. European markets did fare much better but at least did not suffer as big of a decline as their Asian counterparts. Fear of what the Fed may do helped to put pressure on international markets as well. U.S. futures trading were mildly positive despite all the negativity seen around the world.
All eyes are the FOMC minutes scheduled for release tomorrow. We have already heard what the official statement is on policy, now it is time to see what the individual members of the committee have to say about it (policy and the economy). Today there was not much data, none in fact, for the markets to wrestle with. Trading today was thin, driven by earnings and contained by Fed. Tomorrow we'll get the Mortgage Index at 7AM and Existing Home Sales at 9AM before the FOMC minutes at 2PM. Without any data to consider today's news was dominated by earnings reports. There were about 3 dozen reports in all today and like we have been seeing, some were good and some were bad. Quite a few retailers were on the list today and a few of them were able to pleasantly surprise the market.
Futures held their ground going into the open. The S&P was up about +1 at the open and after a brief dip down to break even the index moved right back up. By 10:15 the index was up about +4.5 and kept on going into the lunch hour. The move recaptured all of yesterday's decline and brought the index back above 1650 and the long term trend line. The indexes continued to move upward until after lunch when the S&P hit the intra-day high. Trading for the rest of the afternoon was very mellow. The S&P fluctuated in a range of only 2-3 points from 1PM until falling off some just before the close.
The Ten Year Treasury
Fed watch has the ten year bond yields spiking above 2.80%. Since first piercing the 2.75% line last week the yield has continued to fall, putting increased pressure on the outlook for equity prices. Today the yield came back up a little but are still above 2.830%. The minutes release could be a turning point for the treasury yield but I think the September meeting of the FOMC a more likely scenario. The minutes are not a change to policy, just the discussion leading up to the last rate decision. They will give us more insight into what the Fed is thinking but we have to wait until September for any truly new development. Until then the weekly and monthly data points could provide volatility.
The Ten Year Treasury Yield
Gold prices rose today as the dollar weakened ahead of the FOMC minutes. Fear of the Fed is driving this trade along with the major indexes and the dollar. Today gold rose about $10 after initially trading down to test the $1350 level. This makes the 8th out 10 days of gains in gold since bouncing off the $1280 level. Gold prices still face heavy resistance going into the $1400 range. The Gold Index also rose in today's session. Higher gold prices are driving speculation in the miners. The Gold Index broke above Fibonacci resistance last week and has now confirmed that break with a bounce of the now support level. Current targets for the Gold Index are $125 and $145 provided the index does remain above the Fibonacci support line.
The Gold Index
The Dollar Index
The dollar fell against the basket of major world currencies today. The fear of the taper reared its head here as well. The index has now retreated to what could be a support level, provided the FOMC minutes makes the market happy. The index is near the middle of the long term trading range and currently indicated down.
The Dollar Index
The dollar lost to the yen in today's session but the pair remains near the middle of its narrowing range. This pair has been winding up since breaking above Abe's original target of 95 yen per dollar. At this time the index is showing support and is indicated up. MACD is making a bullish crossover and stochastic is showing a strong signal as well. However, I would also like to see the pair move back above 98 and the 30 day moving average before getting too bullish on it. Longer term I see this pair moving higher. Tapering will come and that should strengthen the dollar; Abe and Kuroda may need to do more to stimulate Japan and that could weaken the yen.
JC Penny made waves today with its earnings reports. The company reported a much wider than expected loss on a 12% decline in sales. The report sent the stock higher by as much as 7% in intraday trading. Even with the loss and the decline in sales Penny's executive say that the back-to-school season has been promising and that company will end the year with over $1.5 billion in liquidity. The stock has been trading between $12.50 and $15 all month on heavy volume. Today's volume was the second highest for the past 12 months at least.
Best Buy surprised investors with a jump in profits and better than expected revenue. The retailer beat earnings estimates by roughly $0.20 and sent stock prices up by nearly 10%. Today's gain in share prices caused a gap to form and put prices at a two year high.
Dicks Sporting Goods increased earnings and revenues by more than 50% over last year but still failed to satisfy expectations. The sporting goods giant missed estimates by pennies and sent share prices down by over 6%. The stock is now trading near the bottom of the 12 month range and under a potential resistance level with bearish techinicals.
Dicks Sporting Good
Home Depot was the star of today's earnings line up. The home improvement store posted strong gains in big ticket items like appliances and kitchen improvements. Home Depot beat EPS estimates of $1.20 by $0.04 on $1.8 billion in profits. The results were so good that company executive raised full year guidance. Share prices gapped up at the open, close the gap down formed last week before falling under selling pressure to reach the $75 level. This level could be support for the stock but indicators are bearish at this time. Lowe's is scheduled to release results tomorrow so I would look there for a similar surprise.
Barnes & Noble suffered from a double dose of negative news. First, the company released earnings results that missed expectations. The first quarter loss widened by more than 100% to -$1.56 per share from -$0.76 per share last year. Second, the chairman of the board announced that he was no longer seeking to buy the companies retail business. Shares of the stock fell more than 12% to a 6 month low.
Barnes And Noble
The Retail Spyder traded higher today, moving back above the $80 support level. The ETF has retreated nearly 3% since hitting its high at the beginning of the month and is in danger of reversal. Since hitting the high on August 2nd the ETF has made two consecutive short term lower lows with increasing momentum that could carry it a little lower. The earnings reports scheduled for tomorrow will be a factor in this trade along with the FOMC minutes. There are at least 4 major retailers scheduled to report along with others who make consumer products but are not necessarily a retailer. On the list is Lowe's, American Eagle, PetSmart, Staples and Target. Also reporting tomorrow are Nintendo, Hewlett Packard, Smucker's and Toll Brothers.
The Retail Spyder
The VIX popped at the open but quickly faded during the day. The fear index is currently between my long term support/resistance line and the closely watched 15 level. The 15 line marks the lower boundary of the post 2009 market. This line held many times before the VIX finally fell below it at the start of this year. Since then the fear gauge has spiked three times and may be getting ready to spike again. The rise of the index to 15 from 12.50 is coincident with the near-term rise in fear over FOMC tapering. There are so many arguments for and against tapering it is easy to argue myself into a circle so I won't go there. However, the VIX is currently at a point in which it could be expected to spike up to 17.50 or higher should the market get spooked. It is also at a place where fear could begin to subside if the minutes soothe pent up fear. Even the indicators are mixed. The index is currently indicated up but momentum may be peaking and it is overbought relative to the past 12 months.
The S&P 500
The index traded to the upside today with light volume and closing just at the long term trend line. On the daily chart, although it has been moving down and already broken 2 shorter term support lines, the index is sitting on a support level. The indicators are bearish at this time but momentum may be peaking. Relative to the 2013 bull market from 1400 to 1700 the index is oversold in the near to short term. On the weekly chart momentum is bearish and rising but stochastic shows the market is still rising longer term and oversold as well. If we weren't faced with the FOMC minutes I would say it looks like this pull back is peaking and maybe subsiding. However, the FOMC is sitting in the drivers seat and may add downside momentum if they shift the wrong gear.
The light volume today and this month could be caused by uncertainty in the markets. There is a lot of reason to question where stocks are headed. Earnings are only so-so. Some companies are doing well, others are not. Some are able to increase guidance and others are not. The economic data is the same. It seems of late that for every data point that is good there is one that is disappointing. Nothing says that things are bad or getting worse but at the same time nothing really says that things are getting better either. On top of all this the FOMC has got the market thinking that QE tapering is going to start in September. In the end I think all of this is clouding the longer term view for the economy. We are still expected to grow in the second half, even stronger than the first half. There are signs of this and there are signs of the same event happening in Europe as well. Not great signs but signs none the less. Tomorrow's FOMC minutes are important and will likely move the market in some way but I do not think that they will alter the long term trend. The minutes are just words, ideas the Fed Chiefs discussed amongst each other. Yes they will point to where the final decisions are heading but by themselves do not represent change in fundamentals. I am still in the buy the dip crowd until there is some other sign. Tomorrow could be it but I don't know.
Until then, remember the trend!