Introduction

A classic candlestick formation points to indecision within the broad market. Spinning tops are small, often doji-like, candles that appear in small clusters. They are often a sign of consolidation within near-term trends and can lead to a continuation of the trend.

The economic outlook is bright but overshadowed by the trade war, trade tensions and trade tariffs. The question now is whether the tariffs will remain in place, if scheduled tariffs will take effect or if some accord will be reached. Based on today's news from China an accord is more likely than some expect.

Asian indices rebound in Thursday trading as signs emerge of division within China's ruling party. Reports from China suggest that while Xi retains firm control of the country, there are some within the inner circles at odds with his approach. They believe his confrontational responses have escalated the situation unnecessarily and may force an altered approach. European markets were decidedly mixed; the DAX was up about 0.35%, the FTSE down about -0.45% and neither shows signs of strong movement.

Market Statistics

Futures were flat all morning. There was little exciting news save the PPI which was both weaker than expected and in-line with the FOMCs rate-hike timeline. The open was calm, and trading on the SPX held within a few points for the first half hour of the day. After that, the range widened up a little but remained tight relative to recent action. By the end of the day, the broad market index was still within that range and closed near the low end of it.

Economic Calendar

The Economy

Initial claims for unemployment fell -6,000 to 213,000. This week's data is offset by an upward revision of 1,000 to last week's figure. The four week moving average of claims fell -500 and is now 214,250. On a not adjusted basis claims rose 2.7% versus an expected increase of 5.5%, not adjusted claims are down -12.9% in the YOY comparison. I don't have the specific data, I don't track it specifically, but the gap between this years figure and last years figure has widened noticeably and suggests acceleration in labor market tightening.


Continuing claims increased by 29,000 and, with the addition of last week's upward revision, bringing the total to 1.755 million. The four week moving average of claims also rose and is now 1.745 million. Despite the gains continuing claims is trending at long-term lows and consistent with labor market tightening.

The total number of claims fell by -50,522 and are now at the lowest level in three weeks. The total number of claims is now in its seasonal drawdown and looking strong out of the gate. I expect to see total claims fall to at least 1.5 million over the next two months and it may go lower. The total claims figure is -12% below last years figure, a gap that has widened noticeably over the last month or so, and another sign of accelerated tightening within the labor market.


The Producer Price Index was a mixed bag. The headline figure was unchanged from last month and weaker than expected. This was offset by a 3.3% increase in YOY PPI which was above expectations and accelerating from the previous month. At the core level, PPI came in at 0.3% MOM and 2.8% YOY and above the Fed's 2.0% target. These figures are in line with FOMC outlook which means we can expect them to continue with rate hikes this year and probably next. The Fed Funds Futures show a 96% chance of rate hike at the next meeting and a 67% chance of another hike at the December meeting. If tomorrow's CPI figures come in like today's PPI, those odds are likely to increase.


Sales of wholesale goods fell a surprise -0.1% in June (this is lagging data, FYI) but remain strong when compared to last year, up 10.2%. Inventories of wholesale goods were up 0.1% in June and up more than 5.1% from the same time last year. The inventories to sales ratio, an indication of the pace of inventories build relative to sales, continues to show sales are outpacing inventories and is indicative of strong demand within the economy.

The Dollar Index

The Dollar Index moved up by 0.50% and is still struggling with the $95.50 resistance line. The index is supported by strong US economics, but that strength is offset by signs of strength abroad. The ECB released their EU Economic Outlook this morning and had reaffirmed broad-based growth within the European economy. The indicators suggest the index will continue to test resistance, but they are not strong, so a move to new highs is still questionable. Tomorrow's CPI may do the trick, but it will need to show a surprising amount of MOM and YOY acceleration to warrant an acceleration in the FOMC's timeline.


The Gold Index

Gold prices held steady in another day of listless, sideways trading. The metal is trending near a long-term low and key support zone but looks like it may move higher in the near term. The indicators are bullish and gaining strength which supports such a move; the caveat is that the metal is in a near-term downtrend and there is resistance at the short-term moving average. A break above the EMA would be bullish within the long-term trading range; a move lower is likely to find support near $1,205-$1,210.


The Gold Miners ETF GDX moved higher in today's trade. The move is a rebound from long-term, extremely low levels but was halted by resistance. The candle is a medium-sized and red, confirming resistance at the $21 level and may be indicating a deeper decline is on the way. The indicators are weakly bullish, and both show evidence of support at this level, but neither indicates reversal just yet. At the very least a consolidation will form, possibly below the $21.00/$21.80 level. If so a move to $20.25 is likely.


The Oil Index

Oil prices tried to rebound but were unable to hold much gain. The price of WTI moved up about a half percent but did not hold the gain instead creating a small tombstone doji. The candle is sitting on support at a previous high of $66.50. The indicators are bearish and suggest support will be tested; they are also divergent from the new lows suggesting support may hold. A break below $66.50 would be bearish; a bounce would be bullish. I haven't forgotten about the extreme peak that formed in late June/early July, a retest of $74.00 is still not out of the question.


The Oil Index shed about -1% but still does not look overly bearish. The index is moving lower within a consolidation range, and it may reach the bottom of that range. So long as oil prices remain in the $65 to $70 range outlook for earnings should keep the Oil Index from falling much further than 1,475 or so. Longer-term the outlook remains bullish, earnings are expected to remain strong, and that will fuel dividends and buybacks to help support stock prices.


In The News, Story Stocks and Earnings

Rite Aid and Albertson's announced the dissolution of their agreement to merge. The news is not a big surprise as the deal was facing major headwinds from shareholders. There is no termination fee, but there was a toll on outlook. Rite Aid is now going to have to face its competitors as a stand-alone company, and that has the market running scared. Shares of Rite Aid fell nearly -12.0% and are trading near a one year low.


Amazon announced the first in-house primary care office for its flagship headquarters in Seattle. The office will serve a select number of employees to start and then expand services sometime next year. This news follows the creation of a healthcare venture with partners JP Morgan and Berkshire Hathaway. Shares of Amazon moved up about 1.35% on the news and has set another new all-time high.


Overstock.com reported after the bell and gave the market a shot of some good news. The company posted a net loss, but that was expected, what was not expected was an 11.8% increase in revenue and a much smaller than expected. Of particular interest is increased detail about the blockchain ventures which appear to be going well. The company announced several advancements along those lines that helped send the stock up by more than 25% in after-hours trading.


The Indices

The indices were mostly flat in Thursday trading, the third day in a row at current levels, with one standout. The NASDAQ Composite was able to post a gain near 0.15% and set a new one month closing high. Today's action in the tech heavy index is just shy of the all-time and by all indications that level will be reached. The MACD and stochastic are both pointing higher following bullish crossovers consistent with rising prices within a bull market. A move above to new all-time highs is questionable but, if accomplished, could lead to significant gains in the near term.


The S&P 500 closed with a loss near -0.13% and created a small spinning top type candle. This is the third such candle and forming a textbook Spinning Tops pattern. This pattern is often a consolidation and continuation signal which, in this case, would point to higher prices. The indicators are bullish and pointing higher so upward movement in prices should be expected. Now that the index is above 2,850 my next target is the all-time high near 2,873. A move to new highs would be bullish.


The Dow Jones Transportation Average closed with a loss near -0.15%. The transports created a small doji candle as part of a near-term consolidation that may lead to higher prices. The indicators are bullish but weak, indicative of rising prices but suggesting resistance is near, so upward movement may be limited. The first target for resistance is 11,250, a move above that would be bullish and may go as high as the all-time high near 11,400.


The Dow Jones Industrial Average closed with a loss of -0.13% and created a small red candle. This is the third candle to trade at this level and is just shy of the recently set high. The indicators are bullish and suggest upward movement will dominate in the near term; they are also diverging from the fresh high and suggest the rally may be losing steam. A move up would be bullish, trend following, and may go as high as 26,000 in the near term.


Today's action was hopeful. The indices held their ground near the all-time highs and look like they could keep going higher provided sentiment does not sour. The trouble is that trade woes are not behind us, earnings season is coming to a close and outlook is dimming if still bright. This combination leads me to think a test of the highs (on the SPX), or move to new highs could draw out the bears. All-time highs are attractive levels for profit taking, and the market is up about 10% off this year's lows, I wouldn't blame anyone for taking some money off the table. I remain firmly bullish for the long-term and cautiously bullish for the near-term, looking toward next quarters earnings cycle.

Until then, remember the trend!

Thomas Hughes