The market is hanging at or above recent highs while the technicals deteriorate and economic data remains strong.


The market traded just above break even for most of the day, hanging near the long term and all-time highs set in the past week. Earnings and an injection of economic data helped support prices until late day buyers stepped in to push the market to today's highs. Overall, trading was quiet today with nothing really there to grab the market's attention.

The over seas sector was fairly quiet as well, European investors at least are waiting on tomorrow's ECB meeting. There is some expectation for the ECB to make a move to help the ailing EU economy but it is unclear what it may be. Based on Mario Draghi's history of talking the talk and then failing to act I would expect to hear more talk and see little action. Any moves by the bank will occur before the New York open.

Index futures were flat for the first hour or so of the early morning session. The S&P 500 was indicated down by about a point ahead of today's economic releases but slowly gained traction as they hit the wires. The data was decent, not great, but definitely enough to help support current trends. Job creation remains steady, productivity is up, labor costs are down and the economy is growing. Today's releases include the ADP report, Productivity, Unit Labor Costs and Services Sector PMI. Once the data began coming out the indices began to firm, a little. Daily lows were set just after the opening bell and then left behind as most indices moved into the green.

Market Statistics

After the start of trading the market was still quiet. Today's news, including earnings from a couple of teen retailers, helped to support prices but was not enough to really lift them. There is still a load of macroeconomic data due out this week that both bulls and bears may be waiting for. Tomorrow Challenger Gray & Christmas report on planned layoff's/hirings then Friday will be dominated by the Non Farm Payrolls and total US unemployment reports. Another factor possibly affecting trading today was a speech/Q&A session given by President Obama at the business summit. He spoke about the need to come together to get things done, potential hurdles in the Congress and how tax reform shouldn't blow the deficit. Whatever the reason, stocks traded in a tight range for most of the day, and then strengthened into the close. The last half hour of trading saw a number of buyers step into the market and drive prices up to the daily high.

Economic Calendar

The Economy

The ADP employment report was released first. According to the report there were 208,000 new jobs created last month. This is slightly below the 215,000 expected and the 225,000 reported last month. It is a little low but still above the 200,000 level and inline with the steady improvement in labor that has been going on all year. Additionally, the previous month was revised up by 8,000 to 233,000, the fourth straight month of positive revision and an indication of momentum. November gains were broad but led by small business, and by the services sector. There were 101,000 new small business jobs, and 177,000 new service sector jobs. There were notable gains in trades/transportation, construction and manufacturing as well.

Productivity and labor costs were both positive surprises. Productivity for the 3rd quarter was revised higher by 0.3%. This is slightly ahead of the consensus estimates. Unit Labor costs dipped by -1.0%, unexpectedly, versus the estimated 0.0% predicted by analysts. This is also well below the -0.3% decline reported in the last estimate. Labor costs are now up only 1.2% for the year, below the 2.2% long term average. Together these data points are positives for the economy as they mean business are making more revenue with less costs and are more able to pay higher wages without raising prices. It is also a sign that inflation is still tame. The flip side is that, over the long term, as wage earners have more money and want nicer stuff the prices for premium items may go up.

The Services Sector ISM jumped last month too, climbing 2.2% to reach the fourth highest level ever recorded. November ISM was reported at 59.3, much better than expected. A gain was predicted but this reading topped it by nearly 1.5 percentagepoints and indicates growth and growing momentum in the non-manufacturing portion of the economy. Business activity, new orders and prices paid were all indicated higher, business activity and new orders both above 60. Employment was the only portion of the report to decline but is still reading at 56.7, well above the expansionary 50 level.

The last piece of economic news released today was the Fed Beige Book. This was released at 2PM and largely confirms what we already know. The Fed is generally upbeat on the economy but remains cautious over the housing market. Consumer spending, aided by low oil prices and improving labor conditions, is advancing and retailers are optimistic about the holiday season. Looking at jobs the Fed says the gains are widespread throughout all 12 Federal Reserve Districts.

The Oil Index

Oil prices traded to the upside and held steady today around $67.25. Prices have been consolidating below $67 ever since the OPEC inspired dip below $70 and have yet to break back through. Today, a drop in US inventory sparked a brief surge to $68 but it was not long lived, prices soon retreated back to near $67.25. Volatility could continue in this market as traders try to figure out how world demand, cold weather, inventories and the global supply situation are going to affect prices long term. WTI and Brent are both on the verge of another move lower if nothing emerges to help support the long term outlook.

The Oil Index traded to the upside today as well. The index gained close to 1.5% on an intraday basis before resistance pushed it back. The index is now just off of the long term low, set last week when oil prices tanked, and above support along the 1,350 level. The indicators are weak but also still consistent with support along this level but that could change. Oil prices will have a lot to do with how strong support turns out to be and may remain volatile. Should they fall sharply again they will likely carry the Oil Index down too. Resistance is currently around 1,400 with current support around 1,350.

The Gold Index

Gold prices rose today even as the dollar index broke out to a new high. Spot prices for gold climbed about 1% to just shy of $1210 per ounce in today's session. This is after the extreme volatility we saw in gold prices earlier in the week, sparked by the Swiss referendum on gold reserves, and further sign that gold may be bottoming. Gold has now bounced from the $1150 level twice and is currently trading above the $1190-$1200 resistance level. There may be more volatility in the coming weeks but it looks like there are buyers waiting to step in on the dips.

The Gold Index gained more than 3.5% today, moving up from support around the $67 level. Today's action is another indication that the Gold Index may have bottomed. It is still early to say for certain but the index appears to have found long term support at the 100% retracement level of the 2008-2011 bull market in gold. The indicators are bullish and setting up for a secondary confirmation. This is not a signal nor does it mean a rally is about to kick off, merely that the bear market may be over. If so I would expect to see several months of side to side action at least, with a possible retest of the long term low near $60. In the short term, support is indicated along the retracement level at $66.49 with $60 next target should it fail. Resistance is potentially at $72.50 with a target near $80 should the index rise above it.

In The News, Story Stocks and Earnings

Retail and especially Teen Retail were in focus today. A minimum of four commonly traded retailers reported out of about 30 earnings reports on today's calendar. Abercrombie&Fitch reported a horrible quarter this morning but the news turned out to be an ugly duckling. This quarter is a goose egg, but next year may be better than expected. Revenues and sales missed forecasts for the quarter, along with full year guidance, but signs are emerging that the long term plans to turn the company around are working. One such is to reduce logo merchandise in favor of non-logo merchandise and is already paying off. The company reported that comp store sales fell by 10%, but were positively impacted by gains in sales of non-logo products. Shares of the stock opened at a 5 ½ year low but quickly found buyers. The stock then moved nearly 3.5% higher on 3X average daily volume.

Aeropostale reported after the bell and did not inspire the same confidence as its competitor. The company reported a loss of -0.66, about 50% wider than expected. Along with this the teen retailer also guided fourth quarter earnings to a range below current estimates. Shares of the stock had been trading higher by more than 3% during the regular session but fell hard after the report was released.

Guess also reported after the bell. Revenue and earnings fell from the year ago period but came in ahea of expectations. On an adjusted basis EPS was $0.42, more than double consensus estimates. Along side this execs raised full year guidance. Shares of the stock closed the day about 1.25% above yesterdays close and extended that gain in the after hours market.

The retail sector has been in sharp focus the last few weeks as investors eye the holiday shopping season. Today's results from the teen retailers is example of the industry as a whole; consumers are spending but some retailers are doing well and some aren't. The sector has been trending up along with the rest of the market over the past two months and is now bouncing from support. The Retail Spyder XRT pulled back this week after hitting a high last month and could now be in the middle of a rotation. The disparity between the good and the bad retailers is growing and this could lead to a reallocation of portfolios. The indicators are also weak with divergences in line with a pull back. Current support is around $92.50 with the possibility of a pullback to $90.

The Indices

The indices did it once again; They pushed to new highs after a day of quiet trading. There was no one thing that I can put my finger on to cause it exept to say economic data. None of the reports released today was particularly stunning in terms of bullishness but taken together paint a Goldilocks picture of improving labor market, improving consumer, improving economy and low inflation.

All the major indices closed in the green but not all made new highs, the Dow Jones Transportation Average leading today's charge. The transports moved higher by 0.79% and are approaching the all time high set last week. The index appears to making a trend following bounce from the short term moving average but as of yet this is not confirmed by the indicators. The index is still trending up but also still losing strength. MACD is bearish, but very weak, while stochastic is below the upper signal line and moving lower. These could rollover soon but until then caution is warranted. Near term support is along the short term moving average near 9,000.

The NASDAQ Composite added 0.38% today and is now about 5% away from its all time high just over 5,000. This is a monumental number for the tech heavy index and one the market will be watching intently. Until then the index is trending higher and moving up to test current long term highs which are about 1% above today's closing price. The indicators on this chart are also weak and suggestive of a pull back in prices but it has not materialized yet. Price action continued to move higher, supported by the rising economic trends. Providing trends do not change, or outlook does not diminish, they could continue to support prices into the near future. First target for support is around 4,700 with next target near 4,650. Resistance is the current long term high near 4,800.

The S&P 500 was next biggest gainer today, moving barely half as much as the transports. The broad market gained 0.38% but still managed to set a new all-time closing and new all-time intraday high. Today's action barely touched into new territory but touch it did. The index has been trending higher and is now bouncing from support in line with the prevailing trend. The indicators remain weak but, like the transports, are set up for a possible trend following signal. Until then, the indicators are displaying significant divergences that could lead to a correction or pullback of some variety.

The Dow Jones Industrial Average brings up the rear today with a gain of only 0.8%. The blue chip index, despite the smallest gain, put in the most impressive performance by setting a new all time closing and intraday highs. This move is an additional confirmation of Dow theory as now the industrial average is setting new highs on its own, after being led to new highs by the transports earlier this year. The indicators however are still weak but have at least begun to show early signs of rolling over, stochastic is creating a weak, trend following, bullish crossover.

The indices are trending higher and appear to be moving higher on a bounce. Today two of the four majors hit new highs while the other two moved closer to testing their current highs; all supported by rising economic trends. The caveat is that all four also appear to be losing momentum and are at risk for correction. The thing is, there just isn't any sign of one except in the indicators. Price action is bullish, trends are up, economic data is good and outlook is good. For now the trend is up, the economics are rising and expectations are optimistic. So long as this continues weakening indicators are just as likely setting up for a potential trend following signal as not. It will take a catalyst to move the market either way and that catalyst could be data due out tomorrow/Friday.

Until then, remember the trend!

Thomas Hughes

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