This morning started off rather quietly. World markets were holding their breath awaiting the results of BOJ and ECB policy meetings. Both the BOJ and the ECB held rates steady, in line with expectations. Asian markets ended the day mixed, European markets finished in the green after getting a lift from U.S. economic data. U.S. indices moved higher today, supported by stronger than expected economic data.
Pre-market action included a plethora of economic releases, many of which were much better than expected. The jobs picture is still not robust but based on today's releases it is at least firmly stable. Along with the ten economic releases scheduled for today there were also retail comp store sales figures. These numbers revealed what we already know about this sector; sales are strong in some places but weak in others. Teen retail remains one of the weakest spots in this sector. The data deluge continued into the open of today's trading. Productivity, Labor costs, ISM Services PMI and Factory Orders all came out after the bell.
Trading turned positive just after the opening and reached an early intra-day peak around 9:45. The S&P traded about 5 points to the upside and held a tight range until falling back near the flat line around mid morning. The rest of the day was dominated by mild trading as the indices hovered just over break even. The S&P moved up and down within the range during the after noon but late day weakness brought it down near the afternoon lows. All eyes are on the NFP report scheduled for release tomorrow morning.
Central Bankers, The Dollar and Gold
The dollar strengthened on the release of ECB and BOJ policy decisions. Both central banks, and the Bank Of England, held rates steady at 0.5%. Signs of stabilization and growth were seen in all three economic centers but that growth remained weak. The Dollar Index climbed 1.69% today, moving up from the short term moving average and the recently broken resistance level. Momentum is on the rise and stochastic is indicating higher prices at this time.
The BOJ decision was as expected. The important news here is Kuroda's stance on the economy and the upcoming tax hikes. Japan is planning on doubling the sales tax over the next 12 months and there is a lot of speculation over whether or not the Japanese economy can handle it. Kuroda reaffirmed the plan and made comments to the effect that not going through with the hikes would be worse for Japan. He also stated that the BOJ would â€œdo what is necessaryâ€ to reach targets set earlier this year. Some economists are predicting that the BOJ will have to ease policy further, maybe after the first of the year, in order to reach its goal of 2% inflation. The BOJ current plans include doubling the yen cash base early 2015. The USD/JPY moved higher on the news, crossing above the 100 level and confirming the bullish break out. This pair is indicated higher with my next target at 102.50 and 105.
The dollar gained against the euro as well. Comments from Mario Draghi and the ECB have led traders to believe that the current loose policy will remain in effect. This pair is moving down below the 1.3200 level with bearish technicals and indicated lower. I marked on my 12 month chart every time the pair has touched, crossed or been repelled by this level and came up with 15. Each comes with a significant candle that either confirms support/resistance or is a break above/below 1.3200. Based on this analysis my target for the EUR/USD is at the bottom of the 12 month range near 1.2750.
Gold prices fell heavily today. The economic data is supportive of a strengthening economy and tapering, bullish for the dollar and bearish for gold. Adding to the pressure are the comments from he ECB which were also bullish for the dollar. Gold fell below $1400 early in the week and is now accelerating the decline. Today the price of gold fell by more than $20 to reach a two week low. The Gold Index has been fighting with a Fibonacci level and appears to be loosing. The index has now been below this level for 6 days and is indicated lower at this time. Today's move also brought the index beneath the 30 day EMA. There is a chance that the index could pick up support at this level but I don't see this as a more likely event unless gold prices pick back up.
The Oil Index
Oil prices ticked up today to trade near the recent high. Better than expected economic data and the growing support for U.S. action in Syria are two possible causes. The Oil Index traded higher today as well, continuing a bounce from the 30 day moving average that was confirmed yesterday. The index is indicated higher with rising bullish momentum and rising stochastic but still faces resistance. Closest resistance is the 1400 level on the technical side and Syria on the news front. 1400 is a long term resistance area that the index may be breaking through.
Today's data was compounded by the Monday holiday. Challenger and ADP which normally comes out on Wednesday was released today. Challenger reported that planned lay offs increased in August by over 33% from July reaching a 6 month high. This was a mild surprise but off-set by ADP and unemployment claims data. ADP Employment reported an estimated 176,000 new private sector jobs were added in August. This is in line with analysts expectations and down 22K from last months mildly revised 198,000. This data shows that job growth is somewhat stable, 11 out of the past 12 months have seen ADP payrolls increase by over 150,000. Within the report the data shows that job creation is broad based across multiple industries and geographic regions. Small business, which accounts for roughly 50% of GDP and 75% of employment added 71,000 new jobs.
Jobless claims fell across the board. Initial claims dropped by 9,000 from last weeks 1,000 claim upward revision to hit 323,000. This figure matches the recent 5 year low and adds to the recent downward bias to claims. The four week moving average dropped 3,000 to come in at 328,000 in this weeks release. California leads the nation with the largest drop in new claims. New York had the largest gain in claims. Only these three states had a gain or loss larger than 1,000.
Continuing claims fell by 43,000 to 2.951 million. Last weeks figure was revised up by 0.001 million. This is just off of the long term low. This figure has been trending below 3 million for about 18 weeks not counting the spike in July. Total claims for unemployment fell by over 72,000 to reach a new five year low. Together the jobless claims data is starting to look better. Initial and total claims are both trending down to new lows and continuing claims is holding steady below 3 million. At the same time jobs creation, according to ADP, is moderate and holding steady as well. This could lead to a positive surprise in U.S. unemployment numbers tomorrow. The expectation is for a slight rise from last months 7.4% to 7.5% this month.
Productivity and labor cost data was released at the same time as the claims data. ISM Services PMI and Factory Orders were released after the bell. 2nd quarter productivity was revised up to +2.3%, much higher than the expected 1.8% and the previous estimate of 0.9%. Labor costs remained unchanged. This is another positive sign for the economy, workers are working harder and it isn't costing business any more.
Factory orders were negative in August, declining by -2.4%. This was good news in the end though because the expectation was for a decline of 4%. Order in the previous month gained 1.5%. The ISM Services PMI held to the trend in PMI surprises begun last week. The expected 54.5 was blown away by the actual 58.6. Services was one of the best performing sectors in the ADP report.
Comp Store Sales
Comp store sales figures were released today by the 12 retailers still reporting. The general expectation was for a roughly 3% increase in comp sales over the previous month. Most stores were able to come in line or beat the expectation. There is still weakness in some areas of the retail sector including teen and electronics. The back to school season was strong but the deep discounts used to attract shoppers are a cause for concern. Back to school is the second most important shopping season after the holiday's. There is fear that discounting will continue into the fall and have a negative impact on margins. Walgreens and Costco were both able to beat. Walgreens posted 4.8% comp store growth, Costco 4%. The Retail Spyder moved up on the news, bouncing from support but contained by the short term moving average. Bearish momentum is subsiding, about the cross the center line, and stochastic is oversold with a bullish crossover. The index looks like it is moving higher in the near term but faces resistance. A move above the moving average has a target near $83.
One story of interest today is Green Mountain Coffee Roasters. They announced a new partnership with Campbell's. They are now going to be offering Campbell's Soup K-Cups. This idea is great I think and a natural evolution to the K-cup line. The new cups are meant to be a snack and are used with the Keurig brew system. Each pack makes a cup of soup based on Campbell's popular flavors. This is a way for GMCR to expand their product offering, build on their brand, increase sales while utilizing their current technology and not relying of coffee. Traders of GMCR were not as excited as I am about soup K-cups. The stock traded up just after the open but fell back during the day. Indicators are bullish though and point to higher prices for this stock long term. GMCR may be at peak or consolidation zone in the near term.
Shares of Campbell's broke through support and extended recent losses. The stock is oversold but remain so due to excessive bearish momentum. Today's announcement is just one day after Campbell reported full year earnings that were in line with the company's guidance.
The S&P 500
The S&P traded in a tight range today, less than 6 points. The better than expected data was not enough to move the market with so much riding on the NFP tomorrow and the FOMC in two weeks. At this point it looks like the data is still showing a growing and expanding economy and that tapering is likely to start in September. It also looks to me like tapering is factored in. We have known about it for months, been scared by it on numerous occasions, it is time for it to happen now so we can move on from it.
Today's trading kept the index contained between the long term trend line and the short term moving average. Short term traders are still fearful even though longer term traders are still supporting the market. Bearish momentum is still subsiding and about to cross over into bullishness. Stochastic is bullish and still at very low levels. Based on my current analysis I see the S&P 500 moving higher into the resistance zone between 1665 and 1685. I do not think it wise to take too strong a stance bullish or bearish though until after the taper meeting in two weeks.
The Dow is similarly positioned. The blue chip index is trading at the low end of the four month range, just above long term support. The indicators are lining up for an potential move up toward the top end of the range near 15,500. Economic data will likely lead the markets tomorrow and next week but the longer term direction may not be revealed until after the Fed meeting.
The Transports are also positioned for a possible move upward as well. This index has regained the long term trend line after a brief dip below it. MACD and stochastic are both indicative of support at the current level. Positive economic data may lead this index higher in a retest of the recent high but it will also likely be kept in check until after the Fed Meeting.
The data is good and point to continued recovery. The bad news is that this also means that Fed Tapering is on tap and that could be bad for the markets (not to mention the rising interest rates, debt ceiling). Currently the indicators and charts look good for a rally across the broad market but this rally faces tough headwinds if it does unfold. The market has put a lot of expectations on the NFP tomorrow. A disappointment here could send the market lower. Aside from the fact that the FOMC is meeting in only two weeks and that tapering may begin there is also technical resistance to consider as well. The long term trend is still up, for now. Data I think will lift the markets but the Fed may be a brick wall they can't break through. We'll find that out real soon.
Until then, remember the trend!