The Trump Rally takes a breather on the first day of December. Market action in the major indices was to the downside as the market begins testing support at the new highs. Tomorrow's NFP report could also have had an affect, giving traders reason to pause, another reason to pause, while we wait for the ol' December FOMC meeting and a much expected rate hike. Today's economic data was consistent with ongoing trends, supports the idea of higher interest rates and helped send the CME's Fed Watch Tool up to the highest reading I've seen, 98.6% chance of December hike.

Asia traded higher in the Thursday session, gaining more than 1% in most cases, as data from China and Japan was better than expected. Official PMI readings in both countries, 51.7 and 51.3 respectively, shows expansion in the manufacturing sector above expectations. European indices were not buoyed by the news, falling about -0.5% on average, as concern over Italian referendum begins to grow.

Market Statistics

Futures trading indicated a flat to negative opening for most of the early hours of the electronic session. Trading was moderate and began to lift as we approached the opening hour. Economic data at 8:30AM helped lift futures into positive territory, where they remained into the opening bell. The open was flat, the SPX trading without impetus, leading to an hour of sidewinding just above break even levels. By 11AM the the broad market had fallen into negative territory, barely, and begun another hour or so of sideways trading. By 1PM the market had dipped slightly lower once again, and once again entered into a narrow consolidation range. By late afternoon the indices had set another intraday low and closed near the lows of the session.

Economic Calendar

The Economy

Lots of data today, beginning with the Challenger Grey&Christmas report on planned layoffs. The number of planned layoffs fell -12% month to month, -13% year over year, to 23,936. This is the lowest level for 2016 and the 2nd lowest level in 16 years. Year to date there have been 493,288 layoffs,-5.5% below this same time last year. Retail led with new layoffs, but the losses were offset by gains in seasonal hiring by other firms within the sector. To date, retail remains the number 3 sector in terms of layoffs this year, behind energy and computer. Regardless, layoffs are trending lower from last year, noticeably so in the past few months, and are consistent with labor market health.

Initial claims for unemployment jumped 17,000 to 268,000, the highest level in a month. Despite the jump claims remain below 300,000, the 91st week in a row and the longest streak since 1970. The four week moving average of claims rose to 251,000. Both last week's headline and moving average were not revised. On a not adjusted basis claims fell by -13% versus an expected drop of -18%. Despite the miss claims are down -4.6% over this same time last year. Although there has been some volatility in claims over the past few weeks, due to seasonal shifts in hiring, claims remain near long term lows and consistent with labor market health.

Continuing claims rose by 38,000 to 2.081 from last week's not revised figures. The four week moving average also rose, gaining 12,750 to hit 2.037 million. Continuing claims has seen volatility similar to that in the initial claims figures but is also bouncing from long term, historic, generational, low levels and consistent with ongoing labor market health.

Total claims surged by 123,175 to 1.903 million, consistent with seasonal trends. On a year over year basis claims are down by -7.5%, consistent with long term labor market improvement. The seasonal upswing in total claims will likely continue for the next 6 to 8 weeks, with some noticeable spikes in the next few weeks. So long as the peaks remain consistent with the down trend there will be no reason to think labor market improvement won't continue into next year. Based on the ADP figures tomorrow's NFP could be a little hotter than expected, possibly above 220,000. Regardless, so long as job creation remains consistent, wages show growth and unemployment is steady the report will be a good one.

Construction Spending data was released at 10AM and was also better than expected. Spending increased by 0.5% from the previous month and 3.8% year over year to hit a new 2016 high. Residential spending leads with an increase of 1.8% month to month, 4.6% year over year, while non-residential saw a month to month decline of -0.3%. Non-residential is still up year over year, 2.6%. These figures are not strong but nonetheless show a continuation of positive trends within the housing sector.

ISM Manufacturing data was also better than expected, rising to 53.2% from last months 51.9%. New Orders, 53, Production, 56, and Employment, 52.3, are all on the rise and expansionary. Inventories and deliveries are both below 50 although inventories rose 1.5% to 49. Prices paid are unchanged.

Auto sales data was released late afternoon. Monthly auto sales came in at an annualized pace of 17.8 million units, down 0.3 million from last month but ahead of estimates.

The Dollar Index

The dollar was supported by the data although the Dollar Index lost a little ground in today's trading. The index fell -0.45% in a move continuing the 2 week consolidation above the $100.50 level continues. The index is supported by economic trends and FOMC outlook but may have reached a plateau unless the Fed comes across more hawkish than currently expected. The indicators are consistent with the peak and suggest through convergence that the recent high will be retested again. Another factor in play is the ECB meeting which is next week, no change is expected but you never know what Draghi may do or say, so the index may remain range bound in the near term. Support is at the recently broken high, near $100.50, with resistance at the current high near $102.

The Oil Index

Oil prices continue to surge on the OPEC deal. All I have to say about that is that they didn't cut very much, their new production cap is measly 1.2 million barrels below record production levels which leaves it above the level they proposed to cap production at earlier this year. And the deal hinges on cooperation from Russia and other non-OPEC countries. I'll believe it when the data show it and not a moment before. In any event WTI gained more than4.20% (can we say short covering?), to trade above $51.50 for the first time in over a month. This move may continue higher but I am very leery of it, and more inclined to fade it than get on board.

The Oil Index gapped higher at the open to trade above potential resistance at 1,235. The index tried to move higher from there but eventually fell during the day to create a small bodied black candle. The candle, along with the gap higher and weak indications from both MACD and stochastic, lead me to suspect that the rally may not be able to sustain current levels. Today's candle could easily turn out to be a shooting star/abandoned baby, all it would take is for OPEC-deal crazed traders to settle back down to reality.

The Gold Index

Gold prices retreat back to test the recent lows, and set new ones not seen in 10 months. Weighing on the metal; economic trends FOMC outlook dollar strength and Trumponomics. Prices were able to recover most of the loss before settlement but near term outlook remains bearish. My target for strong support is near $1,150.

The gold miners remain under pressure. The miners ETF GDX opened with a small loss, moved slightly lower, and then regained the loss to close with a small gain although today's action is nothing more than another day moving sideways within a short term triangle pattern. The ETF has been in downtrend for 4 months, making a series of three lower lows so far, and the indicators are somewhat consistent with this. Stochastic is trending near the bottom of the range over the past 4 months and is set up for a trend following bearish crossover at this time, MACD is less decisive in its indication but at least bearish at this time. Support is near $20 and has so far held, a break below here would be bearish with target near $16.50.

In The News, Story Stocks and Earnings

The VIX has begun to creep up again, gaining a little more than 7% in today's session. The fear index created a medium sized white candle that was halted at the short term moving average. The moving average may act as resistance and cap further movement, a break above indicating a possible correction in the SPX. The indicators are rolling into a buy signal so it is likely that resistance will be tested at least, a break above the moving average could go as a high as $17.50 or $20.

Auto sales for November were reported throughout the day. Ford reported a 5.2% increase in November sales, above estimates, although other data within the report is not so rosy. First, there were 2 extra selling days this year so 5.2% doesn't seem like such a big deal, on top of that sales of cars were down nearly -10%. Strength was seen in trucks, +5%, and SUVs, +19%. Year to date sales are flat over last year, leaving full year guidance in question. Shares of the stock responded well though, gaining more than 8% intraday to hit resistance at $12.50.

Starbucks CEO Howard Shultz announced he was stepping down from his position. Speculation abounds, one theory is that he wants to run for public office. Shares of the stock fell more than -5% on the news.

The Indices

Action across the major indices was mixed, led by the Dow Jones Transportation Index. The transpots posted a gain of 0.62%, creating a small white bodied candle and setting another new high in its march up to test the current all time high. The indicators remain consistent with a bullish wave higher although momentum is waning and has nearly reached zero. This leg of the rally may be nearing its peak if it has not already reached it, a pull back or correction of some sort may be brewing and could begin before a touch to the all time high. Until then, upside target remain the all time high.

The Dow Jones Industrial Average also closed with gains in today's session, about 0.36%. The blue chips created a small white bodied candle and set a new all time closing high. The index is drifting higher on the last legs of the election rally and may be setting up for a consolidation or correction in the near term. Both indicators remain bullish so upside momentum is likely to continue carrying the index higher with a target near 19,500. First target for support should the index begin to correct is 19,000, next is near 18,600 and the short term moving average.

The broad market S&P 500 posted the smallest loss in today's session, about -0.35%. This index has already begun a consolidation/correction and today's action has brought it down to a 1 week low to test support at the recently broken previous all time high. The indicators are consistent with a peak within an uptrend and test of support, how deep the test will go is yet to be seen. Support is so far at the previous all time high, a break below here could go as low as 2,175 or 2,120 in the near term.

The NASDAQ Composite made the largest decline in today's session, about -1.36%, and is deep in the throes of profit taking following the post-election rally. The tech heavy index created the second of two long black candles in today's session, price action coming to rest just above support target at the 5,250 level. This level is a previous all time high and potentially strong level of support. The indicators are consistent with a test of support within an uptrend so this level could be tested further, possibly with strength. A break below 5,250 would be bearish in the near term and could go as low as 5,000 and the long term up trend line.

The post-election Trump Rally is losing momentum. The indices are all showing signs of impending correction or the early signs of a correction, the only thing left is to see just how deep it goes. So far, it doesn't look like it will be too deep as economic data and earnings outlook are positive and support the idea of further rally. So, what I think we have brewing is the proverbial dip for which savvy traders await.

In the near term we have data to watch out for and central bank activity to be wary of; there isn't too much in the way of earnings, not for a few more weeks yet. The next big hurdle for the market will be the FOMC meeting which is in just under two weeks. Next week the ECB meeting may induce some volatility, same with tomorrow's NFP report. I'm bullish, still cautious because I don't want to get caught with my pants down, and anticipating a sustained bull market rally driven by economic tailwinds and positive earnings growth.

Until then, remember the trend!

Thomas Hughes



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