CPI was hotter than expected; expectations for the next interest rate hike have been stepped up. Based on the CME's Fed Watch Tool there is now slightly greater than 50% chance for the next interest rate hike to come before the end of this year. Looking further out odds increase to 62.5% by March and to near 75% by June, up significantly from the 50% June probability predicted only a week ago. The news did not have much affect on the market other than to reinforce the idea of economic expansion, and the need to pay close attention to the FOMC next week.

International market were mostly lower although losses were minimal. In Asia trading was influenced by weaker than expected data out of China. The industrial production, fixed asset investment and retail sales figures were all about 0.5% below expectations but still quite strong at 6.5%, 7.8% and 10.5% respectively. In Europe traders had their eye on the BOE which held rates steady with no significant changes to their statement. Indices their held close to break even with most posting small gains, the FTSE led decliners with an anomalous -1.14%.

Market Statistics

Futures trading was steady and stable near break even for the better part of the morning. There was a dip between 8AM and 9AM on rumor North Korea was readying for another missile launch but I couldn't find much info about that. The dip bottomed shortly after the CPI data was released and prices moved back toward break even going into the open. The open was a bit hectic. Sellers stepped in on the bell and drove prices down to the low of the day within the first 10 minutes. Bottom on the SPX was hit just before 9:40AM, roughly -0.25%, at which time selling pressure let up and the index was able to return to break even. The rest of the day saw it trend within a narrow range at break even levels and closing near the highs of the day.

Economic Calendar

The Economy

Jobless claims data continues to be impacted by the Hurricanes but has yet to show truly significant damage to labor markets. Initial claims fell by -14,000 to 284,000 from last week's not revised figures. The four week moving average of claims rose 13,000 to 263,250. On a not adjusted basis claims fell -14.6% versus an expected -10.5% but remain up YOY by nearly 10%. From the hurricane perspective; it looks like the affects of Harvey have started to wane while those from Irma have yet to be felt. With this in mind we can expect to see another big jump in claims next week. The bigger picture; long term trends remain intact for now. Looking forward the rise in claims from the storms is much less important than where the figure settles once things get back to "normal".

Continuing claims fell by -7,000 this week and have yet to see the impact from Harvey much less Irma. Those affects should begin to show in the data next week. The previous week was revised up by 11,000, the four week moving average fell by -2,500. Looking at these figures it is easy to see that labor market turnover was low, steady and stable going into the stormy period.

The total number of Americans receiving benefits fell -28,887, in line with seasonal and long term economic trends. It will be at least one more week before we see affects from the storm enter this data. That being said the total claims remains well within trend, in line with healthy labor markets and down -8.3% from last year.

The CPI was hotter than expected. The headline month over month figure is +0.4%, a tenth more than the 0.3% predicted by economists. The rise is due primarily to energy and more specifically gasoline but also includes an increase in the cost of shelter. On a year over year basis headline CPI is up 1.9%, up 0.2% from July and the second month of gains. The energy index rose 2.8% for the month with the gasoline sub-index rising 6.3%. The shelter index rose a more modest 0.5%. On a core basis ex-food&energy CPI rose only 0.2% for the month and 1.7% for the past 12. It has held steady at this level for 4 months.

The Dollar Index

The CPI does not suggest a rate hike is coming real soon. What it does do is suggest that declines in forward FOMC rate hike expectations have come to a halt, setting the stage for a dollar rally should the FOMC sound hawkish next week, or other data begins to come in stronger than expected. There is little in the way of FOMC moving data between now and next Wednesday but there is plenty of other data points that could sway forward economic outlook. The Dollar Index strengthened immediately following the news but resistance was met and the gains were given up. The index remains near the long term low and could remain there into the near term.

The Gold Index

Gold prices held firm even in the face of rising inflation and steadying FOMC outlook. Spot gold gained about $3 to trade in a very tight range near $1,230. The metal is sitting on potential support levels that may keep it range bound in the near term. On the bull side; gold prices are up on a weakened dollar and geopolitical risk that has yet to abate. On the bear side; inflation data suggests a firming in the rate hike timeline that is lending strength to the dollar. A bounce from here will face resistance at $1,350, a fall may find support near $1,320 or $1,300.

The Gold Miners ETF moved lower in early trading as CPI data strengthened the dollar. Those losses were recouped later in the day as the dollar gave up its gains and gold prices steadied. Today's action created a small green candle just above support targets at $24. The visible lower shadow confirms the presence of support at these levels but not its strength. The indicators have both rolled over into bearish signals within a trading range suggesting that support will likely be tested. Support target is further confirmed by the short term moving average, a break below which would be bearish in the near term with downside target at the long term moving average. A bounce from this level would be trend following in the near term but face resistance at the top of the long term trading range near $25.50.

The Oil Index

Oil prices rose to a 6 week high on post-hurricane demand. WTI gained 0.75% to trade above $49.50 an looks like it is heading up. First resistance is near $50 and the top of the near term trading range, next target is near $55 should the $50 level break.

The Oil Index gained a little more than a half percent to test support at the 1,160 level. The index has broken its down trend and entered a new sideways trading range but not yet confirmed reversal. The top of the range is 1,160, a break above which would be bullish. The indicators are bullish and have shown some strength with the caveat they are now rolling over and consistent with the top of a range. First target for support on a pull back is near 1,140 and the short term moving average. Next target below that is near 1,120 and the long term moving average. Longer term I am bullish on this sector and will look to buy on dips and tests of support within the range. Near term I am cautious with an eye on the top of the trading range.

In The News, Story Stocks and Earnings

Whole Food's made the news today as analyst Brian Nowak estimates the newly acquired branch of Amazon can more than double its customer base within the next 2.5 years. The news adds to malaise within the grocery sector as retailers struggle to compete. Kroger for example has quietly launched a new restaurant concept designed to enhance customer appeal. Shares of that stock fell more than -2% on the news and are trading just above a 3 year low. Support is near $20.50, a break below there could take it down to $15 with a quickness.

Oracle reported after the bell and beat estimates of $0.60 by $0.02. This is significant in two respects, first being a positive for Oracle and the second as an indication of the onset of 3rd quarter earnings. Oracle reports midway between cycles and is my signal the season is approaching fast. The results were driven by cloud computing with segment revenues up more than 50% YOY. Total revenues were up 7%. CEO Larry Ellison also announced the unveiling of new cloud based service that is expected to further boost revenues. Shares of the stock rose in after hours trading.

The VIX fell a little more than -0.50% to come to rest on the 10.25 support line. The index has subsided from recent highs and looks like it may dip below support to retest recent lows. The VIX trending at current low levels is consistent with bull market conditions, a dip below support would be consistent with rally.

The Indices

The indices were a bit mixed today but in general held steady at and near current all time highs. The day's leader is the Dow Jones Industrial Average with a gain of 0.20%. The blue chips created a small green bodied candle drifting up from the long term up trend line and set a new all time high. The index is supported by the indicators which are both bullish and rising. Stochastic is showing strength with a strong trend following entry signal and suggests further upside is on the way. Upside target is near 22,600 to 22,800 in the near term.

The NASDAQ Composite is the day's biggest loser with a decline of -0.48%. The tech heavy index created a small red bodied candle just below the current all time and may have hit a near term peak. The indicators are bullish but show near term weakness consistent with consolidation and near term resistance. Resistance is the all time high, a break above which would be bullish. If the index declines support targets are 6,400 and the short term moving average near 6,350.

The Dow Jones Transportation Average posted the 2nd largest decline, 0.22%. The transports created a small doji like candle just below the current high and sideways from the past 2 candles. The indicators remain bullish but do show a slight weakening in the near term consistent with consolidation within an up trend. Near term resistance is at the current level, a move above which would be bullish with upside target at the current all time high.

The S&P 500 made the smallest decline today, only -0.11%. The broad market index created a small doji candle just below the current all time high and appears to be in a near term consolidation. The indicators are bullish and moving higher, consistent with higher prices, and showing some strength. MACD is the weaker of the two but rising to a 6 month high while stochastic makes a bullish crossover of the upper signal line. A break to new highs would be bullish with near term upside targets at 2,540 and 2,580.

Today's action was mixed but still consistent with a rising market. While the Dow Jones Industrials were the only one to make a new all time high the others were still able to hold strong at record levels with indications of underlying strength. With earnings season close at hand, expectations for earnings growth and signs of economic strength we may not need a catalyst to push them to new highs. A crowded market, one eagerly anticipating 6 quarters of double digit earnings growth, could easily move higher on its own. The charts are signaling rally so I am bullish for the near and long term.

Until then, remember the trend!

Thomas Hughes