The Dow will try today to make it back to back up days for the first time since late July, but first traders have to assess the Weekly Jobs Claims Report. Given that the economic recovery is not on pace, traders will be looking for anything bullish to give them an excuse to go long equities. The low yields in the Treasurys are making equities look attractive.
U.S. stock futures are trading higher, three hours before the opening of the regular session. Stronger retail sales out of the U.K. gave equities a boost a short while ago. The strength may fade, however, as we approach this morning’s Weekly Initial Jobs Data.
According to Briefing.com, the report should show 470K initial claims versus the consensus guess of 475K. Last week the number of new claims was 484K. A number less than the consensus should help underpin the equity markets. What investors don’t want to see is an increase. This would be a sign that the pace of the economic recovery is continuing to weaken.
Technically the September E-mini S&P 500 backed off its high on Wednesday after testing a minor 50% price level at 1097.00. The tone remained firm, however, based on a positive outlook for the retail sector. The subsequent setback was met by buying overnight.
Clearly the chart indicates that a breakout over 1097.00 is likely to trigger a rally to the .618 retracement level at 1104.25. Let’s get to this level before we decide if the market has enough power to move higher. On the downside, it looks as if longs will throw in the towel under 1083.75, but may run into support at 1082.50 to 1078.50. Be careful selling too far in the hole today.
September Treasury Bonds are trading lower ahead of the jobless claims report. Talk of a T-Bond Bubble may be encouraging some profit taking, but journalists have been calling for a bubble since at least 2008 when the Fed lowered rates to near zero. In my opinion the T-Bond traders got it right – the economy has been weakening and the Fed is likely to keep rates low for the next 12 to 18 months.
Why call it a bubble if investors used sound economic reasoning to go long? I haven’t seen evidence of any wild speculation. Furthermore, the Fed said last week that it was going to buy Treasurys.
Those calling for a T-Bond Bubble better have someplace to put their money for safety. When the consensus began calling for a housing bubble years ago, I can’t recall a single advisor who recommended selling one’s primary residence.
I believe that when the general public buys government debt, they commit to the duration of the instrument. Most like getting the interest check and are happy that at the end of the maturity, they get the face value of the instrument. Regular folks want to know that they will get the principal at maturity. They are not marking the instrument to market. If you “play” the T-Bond market, then you should be worried about a bubble. If you buy and hold T-Bonds, you are usually in the game until the end.
That being said, sure the recent almost vertical rise in September Treasury Bonds is scary, but let the speculators deal with that. The current chart formation suggests that this market is vulnerable to a correction back to 130’01 to 129’03. A break back into this zone should be considered normal, because markets make percentage corrections.
As long as the T-Bonds maintain a higher-top, higher-bottom formation, then look for the trend to continue. As long as the Fed continues to say that the economy is sluggish and interest rates are going to remain low, then look for investors to underpin the market on any breaks.
The September Euro is trading lower overnight. Based on the daily chart, this market has been having trouble regaining the bullish side of an uptrending Gann angle from the 1.1876 bottom. This angle comes in at 1.2936 today. The market will remain in a weak state unless this angle can be regained. Downtrending Gann angle resistance is at 1.2974.
The main trend on the daily chart is down. This trend turned lower when the market crossed the swing bottom at 1.3119 several days ago. A new main bottom has been formed at 1.2732, creating a new range at 1.3334 to 1.2732. We are trading inside of this short-term range right now.
The way I see it, we are in the middle of nowhere at this time. Based on the major range of 1.1876 to 1.3334, the best value area for a possible buy is 1.2605 to 1.2433. From a seller’s perspective, the best area to initiate new shorts is in the retracement range of the 1.3334 to 1.2732 range at 1.3033 to 1.3104.
This being said the best way to play the Euro is to look for the acceleration points or logical prices for stop placement. On the upside, watch for a possible breakout above the Gann angle at 1.2936. A move above this price could trigger an acceleration to the retracement zone at 1.3033 to 1.3104.
Based on the current pattern, the market has yet to form a secondary lower top. The first sell-off turned the main trend down but this move was most likely longs bailing out. This means that fresh shorts may be waiting to enter the market if the price is right.
The buyers are looking for value and the opportunity to go long at a favorable price. From June to August the Euro rallied from 1.1876 to 1.3334. The ideal spot for fresh buyers to be waiting is at the retracement zone at 1.2605 to 1.2433.
Until the market makes its move toward either of these retracement zones, look for choppy sideways action. If you feel the need to trade, then look for an acceleration area and go the way of the move until the momentum slows down. This is likely to occur when either a big buyer or big seller shows up inside the retracement zones.
Besides the initial claims report, investors will get a chance to gauge monthly activity with the Philly Fed Manufacturing Index report. At the same time, the Conference Board Leading Indicators Index for July will be released. Both reports will be watch closely because of the recently announced change in the Fed’s view of the economy. 
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