The market continues to consolidate near the recent highs while we await tomorrow's NFP data. The data will be important for many reasons including but not limited to FOMC rate hike expectations, labor market health, consumer strength and earnings outlook. Today's data points to ongoing recovery in labor but fell a bit short in terms of manufacturing.

Asian markets were mostly flat in today's session but one market, Japan, stood out. The Nikkei rose more than 1% due to a late day weakening in the yen, a weakening that still leaves the USD/JPY hovering near 2 year lows. European indices were a bit more enthusiastic, rising about 0.5% on average but led by a 1.5% gain in the FTSE. Today's gains were driven by the BOE policy statement in which they lowered the key rate to 0.25% and increased bond purchases. Along with the policy changes the BOE says that the Brexit will hurt the British economy but moderate growth is expected in the 2nd half of the year.

Market Statistics

Futures trading indicated a positive open all morning, about 0.25% for the S&P 500. This held steady throughout the morning and was little changed following the 8:30AM release of economic data. After the open the indices drift sideways in mild but choppy trading, hovering around break even levels. The range held all day, leaving the indices near their open at the close of the day.

Economic Calendar

The Economy

The Challeger Gray & Christmas report on planned lay-off's was released at 8:15AM. The July report shows that lay-off's jumped by 19% over the previous month but there are some key points to consider. First, the July figure is -57% below last year's July read, second the YTD total is down -8.7% over the same period last year. Also, the July jump is due to a massive uptick in lay-offs in the energy sector, 17,725, which accounts for 39% of the monthly total. Comparing this year to last year the energy sector is accelerating the pace of lay-offs, up 37% YOY, but this is expected to reverse in the next year or so as a wave of retirements hit the sector. The sector is expected to add 30,000 per year over the next two decades in order to maintain the workforce. The computer sector is the 2nd biggest loser of jobs this month, ytd losses for the sector are up 94% over last year. So, job cuts are up but only in the areas that were already weak, and outlook for job growth in at least one of those sectors is positive into the long term.

Initial claims for unemployment gained 3,000 this week, from last week's not revised figure, to hit 269,000. The four week moving average of claims also rose, gaining 3,750, to hit 256,000. On a not adjusted basis claims fell -5% versus an expected fall of -5.9%. On a year over year basis not adjusted claims are down -1.7%. The states with the biggest increases in claims were Michigan and Illinois with gains of 2,598 and 480. The states with the biggest decreases in claims were New York and Georgia with declines of -7,113 and -4,604.

Continuing claims fell by -6,000, following an upward revision of 5,000 to last week's data which leaves this week's figure near flat at 2.138 million. The four week moving average of continuing claims rose by 5,250 but is trending flat near 2.14 million. This week's data remains low and consistent with labor market health.

The total number of claims fell by -18,043 to hit 2.179 million and is -5.3% lower than this time last year. Even with the recent spike, expected due to seasonal trends, total claims remain consistent with declining unemployment and labor market health. It may not point to new job creation but it does point to higher employment levels. The ADP figure on Wednesday suggest that job creation remains steady near 200K monthly, tomorrow's NFP should confirm. The risk with the NFP is that last month's high number will be revised lower. The expectation is for July NFP to come in around 171,000.

The final read on June factory orders was released at 10AM. The figure came in at -1.5%, slightly better than expected but the second month of declining orders. Shipments however rose, by 0.7%, leading to a decline in unfilled orders, -0.8%, and inventories, -0.1%. Inventories have fallen 14 of the last 15 months.

The Atlanta Federal Reserve revised its 3rd quarter GDP estimate by a tenth to 3.7% from 3.6%. The revision is due to today's slightly better than expected manufacturing data. The range of estimates provided by economists is 1.8% to 2.8%.

The Dollar Index

The dollar strengthened a little today but the gains were minimal. The Dollar Index rose about 0.15% on the BOE announcement but remains below resistance at the short term moving average. The indicators remain bearish and pointing lower although momentum has fallen off. Tomorrow's NFP could be the next mover of the index as it plays into FOMC outlook. If outlook turns hawkish the dollar could rise to test resistance, near $96. If outlook remains dovish a drop looks likely. At this point I think it will take a very strong NFP number to increase expectations of a rate hike and so I expect to see the index move lower to test for support. First support target is near $95, a break below this could take it down to $94.30 or lower. As of today the CME Fed Watch Tool shows only about a 15% chance of rate hike over the next two meetings and only goes up to 30% for the December meeting.

The Oil Index

Oil prices rebound today but the move was more short covering than rally. WTI gained more than 2.5% to trade near $42 and has moved out of bear market territory. Today's move was driven by yesterday's unexpectedly large draw down in gasoline stocks, and by a report that stockpiles in Cushing fell less than expected. Tempering the news however is an ongoing supply glut which is showing little sign of changing. Also capping gains were a statement from an OPEC official revealing the cartel's July production was the highest since January, and data from Singapore showing mid-level distillate stockpiles are at a 5 year high. Today's bounce may continue with upside target near $45, if however data remains tilted toward the supply side any gains will likely be limited.

The Oil Index rose in tandem with oil prices, gaining about 0.25%. The move however has taken the index up to resistance targets near 1,120 and may have already hit its ceiling. A break above this level would be bullish and could take the index up to the 1,175 level but even so, would leave it range bound. A failure to break above current resistance levels, consistent with the mid-point of the four month trading range, is bearish and likely will result in a retest of support near the bottom of the range.

The Gold Index

Gold prices held steady near $1,365 today despite intraday strength in the dollar. The BOE move raised a little fear of Brexit fallout but enough to spark a full on rally. The metal may continue higher in the near term but the real catalyst will be FOMC and rate hike outlook, and the dollar. Tomorrow's NFP will likely move prices but without a real change in outlook gold will likely remain range bound. Resistance is about 1% above today's close, near $1,380, first target for support is near $1,350 with a chance of moving lower to $1,320 depending on how the data plays out over the next week.

The gold miners were able to move higher despite flat performance in the underlying metal. The miners ETF GDX gained a little more than 1.25% in a move that appears to confirm the break out to new highs which occurred earlier this week. Today's action moved higher from the $31 level, previous resistance turning to support, with bullish indications. Both MACD and stochastic are pointing to higher prices but there is a caveat, momentum is still weak and stochastic is not overly strong. If the break to new highs does not hold and the ETF moves back below $31 first target for support is $30 and then $29. If the move holds and is supported by gold prices the index could go as high as $36 in the near to short term.

In The News, Story Stocks and Earnings

Duke Energy reported earnings before the opening bell. The integrated energy utility reported earnings above expectations on revenue that fell slightly short of consensus. Full year guidance was maintained. Special items impacting GAAP earnings are an impairment charge related to South American operations and costs of mergers and other cost saving actions. Looking forward the company is expecting to close the acquisition of Piedmont Natural Gas and the sale of Latin American assets. The dividend remains unchanged at $3.42 annually, or about 4% at today's share prices. Shares of the stock fell about -0.25% today but are basically flat over the last month, trending just below a 15 month high.

Kellog also reported before the opening bell. The breakfast foo giant reported EPS in line with estimates on lighter than expected revenue. Despite the drop in revenue the company was able to post a profit in all segments of business. Looking forward the company has raised full year guidance to a range just above the previous and expects to see a margin expansion of 350 BPS over the next 24 months. Shares of the stock gained more than 1.5% in the pre-opening session, gapped up at the open and then moved as high as +5% during the day before falling back to close near the open.

Priceline reported after the bell, beating EPS estimates by $1.24, or roughly 9%, although revenue fell short. The beat was driven by strong travel demand, up nearly 20% and led by the international segment. Bookings are also up about 20% and expected to remain strong into the 3rd quarter. Guidance for the quarter is bookings up 14% to 19% with a 12% to 17% growth in revenue. Shares of the stock jumped more than 4% on the news.

The Indices

Today's action was light, choppy and held within a very tight range. Basically, more of the same we've been seeing over the past three weeks ever since the SPX first set a new all time high. The markets are winding up, waiting for something, possibly tomorrow's NFP report. Regardless, today's leader was the NASDAQ Composite Index which gained a little more than 0.15%. The tech heavy index created a small spinning top candle, near the recently set high, but does not look like it wants to go higher. The indicators continue to weaken, momentum has retreated to 0 and stochastic has fired a bearish crossover, suggesting the rally has reached its peak. If the index were to break above the current high, near 5,200, it would be bullish in the near term and could lead the index higher. A failure to break above it would be neutral but could lead to a retreat to 5,050 and a stronger support level coincident with the short term moving average.

Runner up in today's session was the Dow Jones Transportation Average which gained barely more than a tenth of a percent. Today's move was very small, price action created a small spinning top doji just beneath resistance at 7,750. This level is coincident with the short term moving average, which is moving lower within a range. The index looks like it has reversed within a trading and is now heading lower with near term target of 7,500. The indicators are consistent with this, both pointing lower, although tomorrow's data could change this. A confirmation of the 7,750 level, the mid-point of the 5 month trading range, would be bearish but may not break the index out of its range. A move above 7,750 would be near term bullish with upside target near 8,000.

The S&P 500 is third in line with gains of only 0.02%. This move creates a near perfect doji and indicates a market in balance. The balance may be tenuous however, both indicators are pointing lower and suggest an underlying weakness is building. Price is above 2,050 and bouncing although the indicators suggest the test of support is not over. First target for suppor is near 2,150 and maybe just a little below, near the uptrending short term trend line. A break below these levels could become bearish and lead to further downside. Next target would be near 2,030 and the previous all time high. Should tomorrows data spark a rally resistance is at the current all time high, a break above that is bullish with upside potential of 1-3%.

The Dow Jones Industrial Average brings up the rear today, posting a loss of -0.02%. This index also created a near perfect doji and is sitting just above support. Support is near 18,350 and is confirmed by the short term moving average. A break below this level could be bearish in the near to short term with targets at 18,000 and 17,750. A bounce from this level may hit resistance at the new all time high depending on how the data comes in. A break above the high is bullish and likely to lead to further upside.

The indices continue to consolidate near their recent highs although drifting lower over the past two weeks. Today's price action was choppyand on low volume, as it has been since the SPX hits it's new all time high. It and the other indices could be preparing to move up to new highs but tepid economic data and declining earnings growth outlook do not support that view.Tomorrow's NFP data could tip the scales one way or the other, but what it will probably come down to is summer seasonality and range bound trading. Will there be enough volume to move the market below support or above resistance, depending on what the numbers say? If not we could be in for a few more weeks of sidewinding.

It'll be another 4 or 5 weeks until full volume returns to the market and until then these small day to day moves are just noise anyway. If there is a sell off it will probably be short term in nature, sharp and quick. The long term moves will probably get started once the fall trading season is under way, now is the time to watch and wait, getting ready for what the market will do this fall. Until then I remain cautious.

Until then, remember the trend!

Thomas Hughes