A poor showing from the retail sector sends traders to the sidelines. Stronger than expected economic data and political upheaval lent a hand. Morning news included a raft of weak earnings from brick-and-mortar retailers with Macy's at the fore. The company managed to make money but not as much as expected and on declining revenue and store closures. Economic data included better than expected jobless claims and hotter than expected producer level inflation, both of which helped to increase expectations for a June interest rate hike.

International markets were cautious in anticipation of data, earnings, central bank meetings and political hooplah. Asian indices closed mostly higher and in the range of 0.30% following a meeting of the Reserve Bank of New Zealand. The bank held rates steady and sent the kiwi to 12 month lows. European indices had moves of similar proportion but to the downside. The FTSE managed to eek out a small gain, 0.02%, after the Bank Of England held rates steady.

Market Statistics

Futures trading was flat to negative for the most of the morning but did gain a little strength just after the 8:30AM release of economic data. The bounce did not last long, just into the open of the session, at which time the market began to sell off. Selling intensified into the first hour of trading and hit bottom just after 10:30. Bottom was fairly definitive and resulted in a quick consolidation and bounce back to recover more than half of the day's losses. Bottom for the SPX was about -0.75%, closing price closer to -0.25%.

Economic Calendar

The Economy

Initial claims for unemployment fell -2,000 from a not revised figure to hit 236,000, analysts had been expecting a gain of 10,000. The four week moving average of claims rose 500 to 243,000 and has been trending around this level for several months. On a not adjusted basis claims rose by 1.8% versus an expectation for 2.5% and are down -17.84% from last year at this time. Despite recent volatility the initial claims figure remains consistent with labor market health.

Continuing claims fell -61,000 to 1.918 million and has hit a new low dating back to November 1988. Last week's figure was revised higher by 15,000, the four week moving average fell -27.500 to 1.965 and also set a new low. The four week moving average of continuing claims is now at the lowest level since February of 1974, a 43 year low, and is consistent with ever-tightening labor market and labor market health.

The total number of claims fell by -64,720 to hit 1.987, in line with expectations and down -7% from last year. The total number of claims continues to fall in-line with seasonal and long-term trends and is expected to continue falling for the next 4 to 5 weeks. This figure along with new lows in continuing claims suggests that people who are out of work are finding it and at a faster pace than last year.

The Producer Price Index came in more than double expectations and is running at the hottest pace YOY since February 2012. Headline PPI is 0.5%, core ex-food and energy is 0.7%. On a year over year basis headline is up 2.5% with core running just over 2.1%, both above the FOMC 2% target. This data, along with strong labor data, helped to increase FOMC outlook. The CME Fedwatch tool shows expectations for a June rate hike up 4.6% in the last day and a near certainty at 87.7%. The caveat is that there is a lot of data coming out of the EU as well. Stronger or even just OK data could intensify ECB expectations, strengthen the euro and send the dollar index lower or at least keep it range bound at current levels.

Tomorrow's data includes CPI, expected to come in a mild 0.2% over last month, along with Retail Sales and Business Inventories. Next week is light on data but includes the first of this months real estate figures.

The Dollar Index

The Dollar Index gained strength on the data but flight-to-safety capped gains. The index gained nearly a half percent in early trading but closed virtually flat on the day, just below the short-term moving average. The index has been bouncing from short-term support levels and could be moving higher. The near-term outlook is bullish, tomorrow's CPI data is likely to show rising inflation as well, with upside target near $100. The indicators are bullish and pointing higher in support of this move. The only thing holding it back is the short-term moving average, a break of which would be bullish.

The Gold Index

Gold prices held relatively steady today on stable dollar values. Spot price was able to move higher on flight-to-safety but less than 0.5% and not above resistance. Prices are under pressure from dollar outlook and getting stronger. Tomorrow's CPI could easily tipped the scale and send gold back to retest the $1,200 level.

The Gold Miners ETF GDX gained a little more than 2% in today's session and look set to move higher within the short-term trading range. Support has been confirmed at the bottom of the range, near $21, with upside targets at $23.50 and $25.0.

The Oil Index

Oil prices continued to bounce higher today amid conflicting reports. Conflicting in that one shows tightened supply while another shows increased. Topping the list in support of higher prices is the expected extension of the OPEC production cut due to be decided later this month. Helping this is yesterday's bigger than expected draw of US inventory and a Saudi cut to Asian supply. Balancing these out are rising global production, a report that the Saudis themselves pumped more last month than the month before and an OPEC forecast upping the estimate for non-OPEC production. WTI gained a little more than 1% to trade just shy of $48 and likely to move higher. Some resistance is probable at $50.

The Oil Index did not move higher in today's session. It opened slightly higher but quickly gave up those gains to close with a small loss, near 0.05%. The index is at a near-term top and just beneath resistance targets but otherwise looks bullish. Today's candle closed above the short-term moving average while within an upward movement and is supported by bullish signals in both indicators. Stochastic is forming a strong buy confirmed by a MACD zero line crossover and suggestive of higher prices. A move higher will face resistance at 1,170, a break above that will face next resistance at 1,200. I'm still bullish long-term, still cautious in the near-term.

In The News, Story Stocks and Earnings

Macy's was the big earnings news this morning. The company reported a -30% earnings miss on a -7.5% fall in YOY revenue and it was not the only one ailing. Kohl's was equally burdened by the challenging retail environment and failed to live up to expectations. The company manged to beat on the earnings end but that was luck, revenue and comp store sales both fell in the YOY period and more than expected. The company CEO says sales have picked up in the quarter-to-date period and encouraging after a weak start. Shares of the stock opened with a gain but fell under heavy pressure to shed more than -6%.

The XRT Retail Sector SPDR fell more than -2.25% in today's session. The ETF fell from the middle of a long-term trading range and looks like it could go lower. There is some support at the long-term moving average as evidenced by the long lower shadow on today's candle and the indicators suggest it will be tested. Stochastic in particular looks bearish and firing a fairly strong sell signal. Downside target would be the bottom of the range, near $40.50.

The VIX popped today but met resistance in the process. The index jumped about 10% to move above the $11 level but fell back to create a shooting star type candle at resistance. The indicators are mixed, stochastic suggests resistance will be tested while momentum remains bearish, so a major reversal in sentiment is not likely at this time.

The Indices

Markets tense with political intrigue and FOMC speculation sold off in a knee jerk reaction to poor earnings from the retail sector. The dip hit a low in the range of -0.75% for most of the indices but only resulted in a buying opportunity for some traders. By the end of the day most the losses had been regained and price action had confirmed support.

The days loss leader is the Dow Jones Industrial Average which fell more than -1% at the low. The transports closed the day with a loss closer to -0.4% creating a doji candle above support. Support is the long-term 150 day moving average and has been confirmed twice before in the past two months. The indicators are bearish and pointing lower suggesting support could be tested again but also near the middle of their respective ranges and consistent with range-bound trading. A move up from the moving average is trend following and bullish, a move below would be bearish with downside target near 8,500.

The S&P 500 was a close second with a loss of -0.27%. The broad market created a medium sized tombstone doji at support. Support is a long-term uptrend line that is confirmed by the short-term moving average. The indicacors are bullish but have rolled over consistent with a touch and fall from resistance. Support at the trend line could be tested further tomorrow and next week, a bounce from which would be bullish and trend-following. A break of support would be bearish with downside targets at 2,350 and 2,330.

The NASDAQ Composite shed about -0.25% in a small retreat from fresh all-time highs. The index created a small to medium sized doji candle within the near-term congestion band and at near-term support. The index is extended above the long and short-term moving averages and showing signs of consolidation and/or topping. The indicators are both bullish but consistent with resistance to higher prices. A move up from here would be trend following and bullish, a break below 6,050 would be bearish in the near to short-term with downside target near 6,000 and 5,800.

The Dow Jones Industrial Average shed the least in today's session, a mere -0.2%, and created a small doji candle sitting on support. Support is a long-term trend line confirmed by the short-term moving average at 20,800. The indicators are both consistent with a retreat from higher prices within an uptrend and suggest support may be tested again. A bounce from this level would be bullish and trend-following, a break of support would be bearish. Upside target is new all-time highs, downside target is 20,500 in the near term.

The markets have retreat from recently set all-time highs on renewed political angst and weak earnings from the retail sector. On the one hand political angst comes and goes and seldom affects the maket long term, on the other weak retail earnings were expected and not all the news from that sector is bad. Some retailers are making money and growing, you just have to look for the right ones.

That being said, the markets are looking like they could spring higher, the indices have pulled back to support levels within established up trends with indicators poised to fire trend following signals. I am bullish but very cautious, the indices could just as easily fall through support as bounce from it, depending on what happens tomorrow and over the next week. Longer term I remain firmly bullish and would view correction as the next starting point for long-term positioning.

Until then, remember the trend!

Thomas Hughes