This morning the futures trade was mildly positive ahead of today's economic events. Global markets were mixed, yesterday's late-day sell-off had lingering effects hard for some to shake off. Chinese indexes lost as much as 2% while the Nikkei, lifted by Abenomics, gained nearly 1.25%. In Europe the mood was a little more subdued. Early losses were recouped and these markets were able to enter positive territory before the close of their day. U.S second quarter GDP final revision was met with little fan fare but seemed to support global stock prices in the end. Adding to the positive tone was the announced drop in jobless claims that came with statements concerning the state of recent jobless claims reporting issues.
After the data was release at 8:30 AM index futures gained some ground and held it into the open. After the bell the U.S. indices continued to climb. The S&P put on +8 points off the get-go and regained the 1700 support level. The NASDAQ and Dow Jones Index also gained at the open, adding roughly 0.8% and 0.6% together. Talk of tapering is falling off, being replaced by the impending Debt Ceiling crisis. For now the Debt Ceiling seems to be a non-issue for the markets, I at least am assuming that something will be done, most likely at the last minute, just like the last time, and the time before that etc. Speaker Boehner made comments around 10:15 in response to the Presidents stance of â€œno negotiationâ€. The Speaker basically called him out saying that â€œit just doesn't work that wayâ€. I expect to hear more and more of the same from both parties over the next few days.
Early gains did not hold. By lunchtime the indices had fallen back to near break even. The S&P 500 hovered around 1696-97 until after noon when it tried to perk back up. After reaching an afternoon peak around +5 points the S&P traded side to side until the close. The index is trading above support but below the 1,700 level. At this time 1,700 appears to be more of a round number resistance area with lesser importance provided current support levels hold. Near term fears are dominating the market, specifically the Debt Ceiling hooplah. The markets may be expecting, as I am, a quick resolution. If we get one the rally could be back on, if not there may be some more downside in the near term.
First up, 2nd quarter GDP. The previous estimate held steady at 2.5% growth in the second quarter. This isn't a great market moving event but helps support the current outlook. The first half of the year wasn't awesome but it wasn't bad either, and in some respects better than expected. This could provide a spring board for the second half of the year which is expanding and expected to expand into the end of the year.
Initial jobless claims fell to 305,000 from the previous weeks revised 310,000. These numbers include revisions due to the California/Nevada backlogs so are a little more trustworthy than what we received the past two weeks. California and Nevada both say that the reporting issues have been resolved. The revision to last weeks data was only +1,000, a very small number in my opinion. This week no states reported a drop in claims while 8 states including California and Nevada reported increases in claims larger than 1,000. California tops the list with over 22,600 new claims, a jump that is likely explained by the delay in processing. The four week moving average also fell this week. The average is now 308,000, a new five year low. Assuming that issues are resolved the jobless claims data is starting to look pretty good. Claims levels are falling off as expected and are pointing to a potential drop in unemployment for the current month and quarter.
Continuing claims rose 35,000 from a mild upward revision to last weeks data. At this time this data point is also looking pretty good. Claims have made a substantial drop and also point to a possible drop in the overall unemployment rate. Assuming there are no major revisions to this weeks data I am starting to think that the jobs market has made a marked improvement. Total claims also climbed this week, and by a comparably small amount. Total claims are now at 3.921 million, below 4 million for the second week and at multi-year low levels. Total claims do not get revised.
Pending home sales were released after the bell. The annual rate of pending sales remained steady at +5.8% despite a drop in August sales. August sales fell by about 1.6% according to the National Association Of Realtors. Sales were impacted by rising interest rates and rising prices. This is the third month of decline in the index since it hit a 6 year high early this summer. Tomorrow be on the lookout for Personal Income and Spending as well as the Michigan Sentiment Index. Next week things get hot on the economic front again with the release of September data. Auto and truck sales will be followed by ADP Employment, Challenger lay off's, Initial Claims, NFP and U.S. Unemployment.
My attention was called to the VIX this morning by a comment made by Rick Santelli. The VIX is indeed at low levels but not extremely so. The index is currently trading around the 14 level, just under long term resistance. This is a low level in comparison to the long term chart but not extremely low when compared to last 6 months. Indicators are pointing to a possible rise in the VIX. A move above resistance, around 14.50, would be bearish for the market in the near term. The Debt Ceiling could provide the catalyst for such a spike in the VIX.
The Gold Index
Gold experienced some volatility this week. The metal has been bouncing off the $300 level, making a peak yesterday before falling back down today. Today gold shed about 1% on renewed fears of Fed Tapering. The jobless data is pointing to lower unemployment, one of the FOMC thresholds. Better jobs markets equals tapering which should equal a stronger dollar and weaker gold. Over the same time the Gold Index has retreated to the lower range of the triangle patterned previously identified. MACD is weakly bearish, stochastic weakly bullish, both indicate support at the current level. If gold prices remain semi-stable and over $1300 the triangle range may hold. However, I will also be watching closely for any signs of a break down below support. If such a break were to occur the index could complete the 1000% retracement of the 2008-2011 bull market.
The Gold Index
The Oil Index
The price of oil has fallen quite a bit this week. Today oil prices gained mildly but remained near 5 weeks lows. Diminishing geo-political fears as well as renewed production in some previously shut down oil fields have helped to alleviate some of the upward pressure on oil prices. The Oil Index has retreated somewhat as well but remains near a multi-year high and a major resistance line. Even with this weeks decline in prices oil prices have been high this quarter which should equate into higher revenues and potential profits for oil companies. The index may be in a consolidation at this time, overbought conditions have been relieved while the index has maintained high prices. MACD is still bullish but close to the zero line and stochastic is currently pointing down. Support currently exists at 1400 and resistance at 1430. A break above would be bullish longer term, a break below could find additional support at the 1375 level coincident with the long term trend line and the 150 day moving average.
The Oil Index
The Dollar And The Yen
The dollar gained versus the yen in today's trading. The pair is still bouncing between the top of the previously broken triangle pattern and the resistance of 100. Looking more closely it appears as support is actually at the 23.6% Fibonacci retracement level. The pair has been able to maintain this level for about 4 weeks now and has made two significant bounces from it. Indicators are bearish at this time. Momentum is very weak and also shows support at the current level. The pair may continue to bob along at this level until the next round of BOJ meetings or even the next FOMC meeting. Support exists at the Fibonacci retracement, resistance at the 100 level. Strong U.S. data should help strengthen the dollar and to support this trade.
I want to start first by following up with RedHat which reported earnings earlier this week. I began two weeks ago by introducing the new earnings season with my early bell weathers, Oracle, Adobe and RedHat. Adobe was the first to report, surprised negatively on the bottom line and yet inspired investors with news and future guidance. Adobe is switching to a subscription based model that is expected to increase revenues and profitability. Adobe shares are up 5% since the earnings news hit the wire. Next up was Oracle who also reported weak revenues and earnings. This company also lowered full year guidance. Since the report the stock has traded sideways, just under resistance, and is possibly topping out for the near to short term.
This week Redhat followed up it's two rivals. The company reported better than expected revenue and earnings but still failed to excite investors. The company reported billings that were significantly lower than analysts expectations. The lower billings have been blamed by several analysts for recent downgrades to the stock. Share prices fell by more than 10% to come close to the 12 month low. Current consensus for the stock is market perform/equal weight with a price target around $57, well above the 12 month high. Revenue and earnings increased by more than 17% in the current quarter and are expected to continue increasing into the next by company management. The drop in prices and apparent improvements in revenue and earnings don't really add up in my mind, this could be a great buying opportunity for shorter term speculators and longer term investors. If share prices perform in a similar fashion to Oracle following its last two down gaps we could expect a 5-10% upside from the current low levels.
The U.S. Treasury announced this morning that it was selling more of its stake in GM. This is the third sale of GM shares by the Treasury and possibly the last. At the time of the announcement the Treasury still owned over 100 million shares. It was not announced if they were planning to sell all of the shares or if all they were selling were going to be sold at this time. Since today's volume in GM was less than 20 million I will assume the Treasury did not sell out of it's position. GM trade to the downside today but held it's ground near it's recent (post restructuring) all time high.
Jamie Daimon was reported visiting the Department of Justice this morning. This is in response to pending penalties stemming from the sub-prime mortgage crisis. The visit raised a lot of speculation over what was afoot with most agreeing that Jamie would be seeking a deal with the DOJ. The nature of the deal is not known at this time but could bring the cost of settlement to near $11 billion dollars. One potential outcome of the deal would be for JP Morgan to be immune from further lawsuits once the a deal was settled upon. Shares of JP Morgan moved higher on the news only to fall back later in the day. The stock is sitting just above the $50 level, a level indicated as strong support.
Although I primarily am interested in the S&P 500 I like to check up on the other indices from time to time to gain perspective. Each index is made of different types of companies and attract different kinds of investors. Today I will start with the Russell 2000. This index is broadest and most representative of the U.S. market. This index is trading near all time highs with bullish technicals. The MACD is bullish but in declining, stochastic is above the upper boundary line but oversold in the near term. The long term trend is still up with short term support at 1060, 1050 and 1035.
The Nasdaq Composite is up next. This is another very broad, yet technology heavy, index. This one has been a leader over the past few months and is also trading at 13 year highs. This index even touched the 13 year intra-day high in today's trading. Indicators here are also bullish and also in decline. The candles from the last two weeks suggest a possible near to short term top may be in place. Looking back over the last few peaks in price there are significant divergences from MACD. These point to declining long term momentum and possible correction/consolidation. A break above 3780 would be bullish. Support exists around 3600 and 3500.
Next up is the Dow Jones Industrial Average. This is the smallest index but important for the sheer size of the businesses involved. This index has been trending sideways over the last 5 months while the broader RUT and COMP have been making new highs. This index has also made new highs but to date the last two peaks were whipsaws outside the current range. The longer term MACD analysis is convergent with higher prices even though the index is moving down at this time. Momentum is currently declining from an extreme peak, near to crossing into bearishness. Stochastic is pointing down and crossing below the upper signal line. Nearer term fears may keep this index range bound until the longer term trends can take over, providing the index is not at a longer term top. Current support exists at the short term moving average, a drop below this level has a target around 14750-15000 level. Resistance is at the top of the range around 15,500. The ten month trend line is also in question. Failure to regain trend would add pressure and help keep the index within the range.
Dow Jones Industrial Average
As a group it looks as if the other major U.S. indices are trending to up to sideways. It also looks as if they are all cresting a short term top with the potential for a larger downward movement. Long term trends are still intact although the Dow looks as if it could break trend. The S&P is also still trending up and has recently crested a new high. The index is now trading at support with bullish momentum. Momentum is in decline, stochastic is moving below the upper signal line but while the index remains above support this looks like consolidation following the recent break above 1,700. If the S&P moves lower it will find support in the 1675-1690 level and then just below that at the long term trend line.
There is a lot of noise in the markets today. On one hand we have a simmering IPO and M&A scene, on the other there is the Debt Ceiling Debate and impending government shut down. In between all of that is the economy, tapering and Obamacare. Longer term the economy is getting better. This should keep the long term trends up so long as future out look does not deteriorate. Increasing employment (evidenced at the time by decreasing unemployment claims) leads me to think that the economic trends will continue as is for now. In the meantime short term fears may weigh heavily on the markets. And I haven't even mentioned earnings season yet. Even though the season is upon us the real giants don't start reporting until week after next. Monday after next is Alcoa, Friday after next is Wells Fargo and JP Morgan.
Until then, remember the trend!