I awoke this morning to a market relatively unchanged from Friday. Of course, futures trading was positive, very positive. The S&P futures were up near 14 points before 8 AM with little reason. There were no major market moving events, no shift in world economics or politics. I think it may just have been a little over exuberance on the part of early week traders. I am still looking at this week, and the next two, as important for the financial market. Not only are there numerous important economic data points for us here in the States but there are also at least as many on the international schedule as well. This week alone, even though it is shortened by the holiday, has over 100 international economic reports on the calendar.
Today was relatively light on data despite the enormous amount we are expecting throughout the week. In Asia and Europe PMI data was surprisingly good and helped to bolster support in China and Japan. European shares did not follow the lead of their Asian counterparts and finished the day in the red. Here at home ISM Manufacturing PMI was reported as 55.7, slightly ahead of last months 55.4 and the expected 51.6. Chinese PMI is now at a four month high and expanding. Eurozone PMI is now at the highest levels in over 2 years. All three readings are good but only a small piece of what to expect this week. Tonight, while we are all sleeping, the BOJ will be meeting and preparing a new statement on policy. That announcement will come out in the wee hours of Wednesday morning, just ahead of the ECB meeting. Thursday the ECB will reveal their thoughts on policy and the economy. Intermixed with these important central bank meetings will be all that data I mentioned. And I almost forgot about the G20 meeting, Syria and rising oil prices.
Looking a little further out the economic event that is really keeping the market in check right now is the FOMC and tapering. The next FOMC meeting which I have taken to call the taper meeting is two weeks away. September the 18th at 2PM we can all expect to find out what kind of tapering, or not, we get this month. Looking even further out than that there is yet another debt ceiling deadline approaching, a major election in Germany, impending tax changes in Japan, the sell off in emerging markets, rising interest rates and an upcoming change of leadership at the FOMC. Keeping things in focus though this week is going to be dominated by employment data. Because of the holiday some of the report days are skewed so Thursday will be data heavy with ADP, Challenger and unemployment claims. Friday is Non-Farm Payrolls and U.S. Unemployment Rate.
The Dollar Index
The dollar gained against the basket of world currencies today. The dollar index broke above its consolidation range to the upside with today's move up. Indicators are bullish and on the rise, next resistance is around the 83.00 level. I expect to see some volatility in this index during the week due to the BOJ and ECB meetings. Both have the ability to cause a ripple effect through the currency arena.
The USD/JPY began to break above the triangle pattern I have been following. This move would be in anticipation of the BOJ rate/policy decision and a little bit suspect because of it. Provided the pair remains on the up side of this break out after the release tomorrow I would be bullish on it with a target around 104 yen to the dollar. There may be resistance at the 100 level so waiting for move above that isn't a bad idea either. Momentum is still bearish on the weekly charts but declining, stochastic is bullish but not strong. On the daily charts both indicators are bullish and rising.
The EUR/USD pair fell in today's trading. The pair fell below the 1.3200 support/resistance line. This line has proven itself significant about a dozen times over the last 12 months. This pair has been trading in a wild sideways range during that time with several break throughs, rebounds and bounces from both directions of the 1.3200 level. So far, each time the pair moves across this line it has continued on for several days to two weeks. At the current time the pair is indicated down for the short term but the longer term charts show some support. Data may affect this pair tomorrow but the ECB meeting on Thursday will be the event to watch. It is possible that the ECB could begin their own brand of tapering or not. Either way the economic data plus the ECB decision are going to renew speculation in the euro's value versus the dollar in relation to expected tapering and the FOMC.
The Gold Index
The price of gold climbed by about a full percentage point today. One reason is rising support among republicans for the Presidents strike on Syria. Gold reached just over $1410, shy of the recent high. The Gold Index traded higher by nearly a percent as well. Despite the higher prices in gold the index did not retake the 78.6% Fibonacci level and remains tightly bound by Fibonacci resistance and short term moving average support. The MACD and stochastic indicators are currently bearish but show some support over the short to mid term. The longer term bear market in the Gold Index is over I think but I am not ready to get bullish on it just yet. It's still the early part of the week and there is a whole lot going on in the world that could really affect gold and Gold Index prices.
The Oil Index
The price of oil was boosted today by rising speculation over the Syria crisis. Early this morning news sources reported objects being fired over the Mediterranean. Later we learned that it was only a joint missile test by us and the Israeli's. Regardless of the cause it seems kinda coincidental that we are test firing missiles while the President is trying to get a strike OK'd by Congress. Support for the strike is growing but as of this writing there is no timetable. Getting back to oil, prices climbed by roughly $.075 from Friday prices to reach the $108.50 area. The Oil Index also traded higher but made a bearish candle by the day's end. The index is currently indicated up on the daily charts with rising MACD and stochastic. The index is also bouncing from the short term 30 day EMA in a confirmation of the previous bounce from long term support at 1350. Although indicated higher this index is still facing resistance and also has the added bonus of being affected by the events in Syria. Longer term the index is still running in its bull trend and appears to be bouncing from the 150 day EMA. There is still resistance here as well. Momentum is currently bearish but very weak and weakening, stochastic is bullish and pointing to higher prices.
The story of today, aside from the economic hurricane approaching us, was M&A. More specifically the A. Three big acquisitions were announced today that had their respective stocks moving. The first was the Verizon purchase of Vodaphone's stake in Verizon Wireless. This one began over the weekend but was still big in the news today. Verizon took on a load of debt to finance the deal that includes cash and stock. The news sent shares of Verizon sharply lower in the early market hours but there were some buyers hungry for the stock at today's low prices. The merger is seen as a good move for Verizon and one that could pay off big before too long.
Vodaphone shares traded lower as well and also found support. This stock tested recently broken resistance with a fairly extreme move today. This stock is indicated higher and has the strength of significantly increased volume to back it up.
Yankee Candle was also snatched up today. The candle company was purchased by Jarden Corporation in a deal worth $1.75 billion. The deal is seen as a way for Jarden to increase it's offering and expand its reach. Shares of Jarden climbed more than 10% in today's trading.
Microsoft announced it's intended purchase of Nokia's handset operation. The deal is estimated at over $7 billion dollars and sent shares of Microsoft down in today's session. Of all the Dow stocks Microsoft was the worst performer. The stock fell more than 4.5% and came close to the four month low.
Shares of Nokia on the other hand gained on news of the sale. Shares of Nokia jumped more than 20% in the early market and remained at the elevated levels through to the close.
The S&P 500
The index appears to be bouncing, still, from the long term trend line. MACD is still bearish on the daily charts but the wave is decreasing at the same time the index is finding support along the trend line. Stochastic is still in extreme oversold condition but also forming a bullish buy signal. The chart also shows that there is still technical resistance ahead that must be addressed. This week is going to be an important one for the markets even if the S&P stays trapped between the trend line and its resistance.
On the longer term chart of weekly prices the index is still in its up trend. Bearish momentum is not very strong and been contained at the trend line for now. Stochastic is trending up and could cross over the upper signal line any time. The only resistance is a zone created by the current and previous all-time high. A break below the long term trend could take the index down to the 1600-1575 region. A break above resistance could take it as high as 1800.
At this time it looks like the index want to move higher it just can't. The problem is the enormous amount of data, central bank action, potential tapering, debt ceiling, Syria, rising oil and rising interest rates. Each of these things is reason to give a trader or investor pause, altogether it is a good reason to sit out on the sidelines. In the end I think it will be the FOMC meeting on September 18th that finally provides the answer we are looking for now. The data will either support tapering or it won't, the FOMC will decide to taper or it won't. Once we get past this hurdle we can return to the business of business for a while.
Until then, remember the trend!