Economic Data Will Set the Tone for the Balance of the Week

The good news from the ISM Manufacturing data on Tuesday was a catalyst for the broad markets. Economist were looking for the month-over-month number to be flat and it grew by 1.5% giving some hope the economy was still improving. One data point doesn’t make the economy strong, but it does give some hope. The data has been lagging at best over the last three months and the first quarter GDP dropping to 2.2% was confirmation that growth had slowed in the US. Thus, the stronger manufacturing data was a positive for investors. The challenge however, came in the afternoon as the broad market indexes gave back half or more of the gains from earlier in they day. For me that left a technical bad taste heading into today’s trading day.

ADP Jobs Report is out today and it will set the tone early for the trading day. The jobless claims for April were a challenge as they rose slightly and the expectations are low which means any positive number would act as a relief. The report will set the tone for the government Jobs Report on Friday. Throw in the Factory Orders out at 10 am and we could see a repeat of yesterday’s reaction if the data is positive.

If the selling from the last hour of trading on Tuesday continues into the open on Wednesday watch for a test of the mid-range breakouts from Friday. If they fail to hold at those levels that is a short term negative for the move back to the April highs. Investors acting tough, but they are still scared of the current market environment. The VIX index spiked higher on the selling early on Tuesday before moving back below the 17 mark on the manufacturing data. They are attempting to build some confidence, but it remains on alert.

The energy sector was the clear leader on Tuesday and it has taken the lead since the April 23rd test. The snap back is due to crude oil rising back above $106, natural gas moving off the near term lows and investors seeing value in the sector short term. XLE, SPDR Energy ETF closed at $72.26 with the first resistance level just ahead at $73. With a five percent gain over the last six trading days watch for a test of the move at or near resistance. The relative strength index for the sector has accelerated and reversed the downward slope helping the S&P 500 Index push toward the April high.

The consumer discretionary sector has been the primary leader since the December test of the current trend, but retail showed some intraday weakness worth watching. There were analyst reports stating the retail sales for April would be less than expected. The weather of course is the general blame as it was colder and Easter fell in March. Regardless of the rationale the lower expectations pushed the sector from 1.5% gain to a 0.5% loss on the close. Watch how both XLY and XRT respond today.

Natural gas has moved off the lows near $1.90 to $2.36 BTU the last two weeks pushing money flow in the direction of the commodity and the stocks. UNG, United States Natural Gas ETF has gained 18% in that period. FCG, First Trust Natural Gas Industry ETF equally has moved higher by 10.1%. I am not convinced it goes straight up from here, but the bounce off the low is established short term and it has been worth a trade on the move. Watch to see how it plays moving forward.

Copper is another commodity which has been on the move of late. JJC, iPath DJ-USB Copper Total Return ETN has gained 6.5% over the last six trading days. FCX, Freeport Mcmoran has responde in kind, but is still settled into a base pattern the last eight weeks. Both are worth watching short term to see if the move is anymore than a bounce.

The broad markets remain in the current trading range with the recent move towards the April highs. The economic data will need to provide more surprises along with earnings to push them beyond the top end of the range. For now