US economic data and growth outlook from the ECB sent the markets first up, then down, and then sideways.


This morning began with air of anticipation. Investors around the world were waiting on news from the ECB and economic data from the US. European markets were largely in the green, ahead of the ECB, and helped to lift futures trading here, which were also aided by positive labor data. After the ECB things changed a bit but by the end of the day the market was flat.

There were a couple of releases today, led by the Challenger report on planned lay-offs and followed up by weekly unemployment claims, both of which are in line with current trends. The positive spin to early trading held steady until the ECB released its decision, shortly after 8:30AM. At that time European markets hit the skids, beginning a decline that took them more than 1.21% lower. Our markets were also negatively affected, futures dipped just below break even and held there until the opening bell.

Mario Draghi and the ECB did exactly what they have done before; nothing. The bank held interest rates steady and enacted no new forms of QE, stimulus or other reforms. What he did do was talk the same talk. At the news conference he said that the bank was “stepping up preparations for new measures” which means nothing, really. Mario Draghi went on to say that any moves that do come were going to happen next year. What the market took to heart though is lowered outlook. The ECB has lowered its growth outlook for the EU out to 2016. He also says that the risk remains to the downside. This will of course be a drag on global GDP but my question is how bad will it hurt US GDP? Especially since our GDP appears to be gaining momentum.

Market Statistics

The market moved lower at the bell, but only just, and then hung below break even for the first hour. Around 10AM the market began to fall off with the SPX losing about 13 points over the next 45 minutes. Support began to appear around 10:30 and 2062.50, at which level the market created a double bottom and then moved higher. Around mid day the bulls were able to push the indices into the green but it did not last. By 1PM the market was back underwater and drifting sideways, just below break even, and held there into the close of trading.

Economic Calendar

The Economy

First up on the economic calendar is the Challenger Grey&Christmas report on planned lay offs. The number of planned lay offs fell in November, dropping more than 30% to 35,940. This is down from last month, which was a seasonally expected peak and the second highest level all year. The number is down from last year, -21% compared to last November and -5.8% year-to-date. These numbers are good news, support continued economic expansion and put us on pace for the lowest number of lay offs since 1997.

Challenger Grey & Christmas Reported Layoffs

Initial claims fell this week as well, dropping back below 300,000. This week initial claims were reported at 297,000, -17,000 from last weeks upwardly revised 314,000. The revision was only 1,000. The four week moving average moved counter to this weeks drop, reflecting the spike in claims last week, and gained 4,750. On a not adjusted basis claims fell by 62,943 or -17.6%, nearly 50% more than expected and another sign that there is some underlying strength in the labor market.

Initial claims have been moving higher over the past two months, in line with the expected seasonal increase in pre-end of the year lay offs, but are still near long term lows. The long term down trend in claims may have leveled off but it has not reversed. Claims may continue to trend sideways in a range near or just below 300,000.

Continuing claims rose this week, reflecting the lag between initial and continuing claims. Claims gained 39,000 from an upward revision of 7,000 to hit 2.363 million. Continuing claims, a better and less volatile indicator of labor trends, is still trending lower regardless of this weeks increase and have yet to level out.

Total claims also rose this week, gaining over 120,000 to reach 2.249. Total claims,which lag initial claims by two weeks, have been on the rise as well. This is a mild concern but also could be a positive. It could be a sign of a rise in participation rates. There was a gain in participation last month, there could be another increase this month.

Tomorrow the NFP and unemployment data will be big news. NFP should remain strong, expectations are for near 250,000 with unemployment holding steady at 5.8%. All the data is pointing in the right direction, the only weakness being the slight rise in unemployment claims that occurred this month. Claims may come in light, but I think positive revisions to the previous month would cancel that out. What we need to see is steady numbers in the current and revised numbers.

The Oil Index

Oil had been holding its ground, above $67, until two bits of news weighed it down. First, the Saudis announced another series of price discounts. Second, the Sharara oil field in Libya is about to come back online, again. The Saudis are still scrambling to stay ahead of the market, in whatever way they can while global supply and infrastructure continues to operate at high capacity. Together these two headlines helped to trim a full percent off of WTI and a half percent off of Brent and are no sign of a bottom in oil.

The Oil Index fell on the news as well, but was able to regain most of the loss. The index dropped about 5 points at the open, fell even further during the morning and then recovered the decline to close at today's open. This index looks ready to fall on bad news, but equally ready for buyers to step in on the dip. Support is still indicated below the current level although the indicators are looking bearish. The bearish MACD peaks are in line with support at this level and stochastic is holding firm in the middle portion of its range. Support is around 1,350 with resistance just above near 1,400. Oil prices will be the deciding factor as always, as I don't see anything to support oil prices I am expecting to see the Oil Index continue to test support.

The Gold Index

Gold prices held firm today, only experiencing mild volatility compared to earlier in the week. Gold made a $10 swing this morning as the ECB statement and press conference hit the air waves. The EBC statement helped to firm the Euro and weaken the dollar which in turn helped to support gold prices. Prices stabilized around $1207 by the close of the US session and are still above $1200.

The Gold Index traded lower today but was not able to recover the loss. The index fell -1.85% to drop below $67. The index is trading below the short term 30 day moving average but above long term support. Support is currently at $66.59, a significant Fibonacci Retracement level, and extremely long term in nature as it dates back roughly 6 years to before the 2008-2011 bull market in gold.

Gold Index-10yrs/One Month Candles

Flipping back and forth between monthly, weekly and daily charts the time frames do not really match up in terms of trend but an argument for a bottom could be made. Right now I am very cautious with both gold and the index , it looks like a bottom could be forming but I still think it is too soon to say. On the short term daily charts both indicators are in decline and neither consistent with any kind of longer term signal. This, along with price action is leading me to think there could be retest of support along the retracement level or lower, at or near the current long term low near $60.

Gold Index -6M/One Day Candles

In The News, Story Stocks and Earnings

Attention is mostly on the economy but there were still a few interesting story stocks today. Disney announced this morning that it was raising its dividend by 34%. This raises the annual pay out to shareholders to $1.15, or +$0.29, and brings the rate up to just over 0.9%. Not very much compared to some other stocks I could name. The news was not met with much fanfare and failed to lift share prices. Disney traded slightly higher after the announcement, opened marginally higher and then fell back to trade near yesterday's close. The stock appears to be cresting a peak, which is supported by the indicators. There are divergences in both MACD and stochastic that bear close watching. Prices are trading just below the all time high and could easily pull back to support near $90.

Barnes&Noble reported earnings before the bell and did not inspire confidence. The company reported revenue and earnings below estimates but what really got to the market was the announced separation from Microsoft. B&N will be ending its agreement with Microsoft concerning the Nook which will has raised some concerns. The move will lower costs but also reduce reach by 34 countries. It also led execs to push pack a planned spin off of the Nook business next summer. Shares of the stock sank more than 10% in pre-market trading and opened near the bottom of the 6 month range. Buyers stepped in at this level and drove prices back up but did not recover all the loss. Today's volume is more than 5X the 30 day average.

Gap reported earnings after the bell. The news included a 6% increase in comp store sales as well as strong sales for the month of November. The gains were led by Old Navy but other brands also performed well. Execs report that they expect momentum to continue into December. Shares of the stock were basically flat at the end of today's trading but surged right after the release. The euphoria did not last long as investors found reason to doubt future gains and eventually sent shares sinking lower.

The Indices

There was some volatility in the market today. Optimism for ECB support was dashed, sending the market lower, and then later regained and supported by US economic data. Supported by US economic data being the more important of the two. Today's data is in line with trends and pointing to continued recovery. Anyway, if the market were going to sell off on data it will be tomorrow when they release the NFP report. Today's action was led by the Dow Jones Industrial Average which lost less than a tenth of a percent. The rest were not far behind, lined up with losses of -0.11%, -.12% and -.13%.

The blue chips created a small hanging man doji today. A little ominous when looking at the chart but more of a spinning top when you consider the important economic data being released tomorrow. The index is still trending higher and was able to touch a new intraday high today so there are at least some bulls still out there. The indicators are mixed but the first glimmers of a trend following signal are emerging. MACD is still bearish but stochastic is firing a bullish crossover. This is a late rally signal but a strong-ish looking one because both %K and %D are moving higher. If confirmed this could lead to a follow through that could take the index higher into the end of the year.

The Nasdaq Composite is next in line with a decline of -0.11%. The tech heavy index also created a little doji but this one looks more indecisive. It's small, and has equal length wicks on both sides which indicate more of a balance between buyers and sellers. This index is also still trending higher but is not yet making new highs. It is however very close to the 10,000 mark and top of the Tech Bubble so don't forget about that. There could be some volatility but it looks like this one is still moving higher in the longer term.

The S&P 500 fell -0.12% and also created a small hanging man doji. This one also gives the appearance of indecision as it is not an overly large candle, is sitting at the all time high and comes one day before widely anticipated economic data. The trend is still up with this one as well and is being confirmed by a bullish crossover on the stochastic indicator. The caveat being that momentum is still bearish, if very weak, and both indicators are diverging from price. Basically the indicators are as indecisive as the candlestick. Support is near 2,050 on a pull back with targets near 2,025 and 2,000 on a deeper correction.

The Dow Jones Transportation Average brings up the rear today with a loss of -0.13%. This index created a small shooting star-like doji and one a little more suggestive of resistance to higher prices. It is still a very small candle and not overly alarming at this time. The indicators are also a little more bearish looking than the others as stochastic has fallen below the upper signal line and is moving lower while bearish momentum persists. Trend and price action suggest the index is moving higher while the indicators continue to weaken, reason for caution. My first target for support, should the index pull back, is around 9,000 and just below that along the short term moving average. Resistance is just above, near 9,250 and the all time high.

The market is waiting. Waiting on the NFP and unemployment data to be released. The economic trends are up and the market trends are up and tomorrow is not likely to be a day to change that. A negative surprise may spark some selling but the long term economic trends are in place and gaining momentum if the data as a whole is to be believed. We'll find out tomorrow, maybe. Most likely the numbers will be more of the same, which so far have been good enough to lift the economy and the market but not really enough to get all exited about. In the end steady may be best; Too good and it raises the specter of the FOMC and higher interest rates and if its too low maybe the economy isn't as strong as we think it is.

Until then, remember the trend!

Thomas Hughes

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