Markets still looking for direction

What do jobless claims climbing and the IEA lowering the demand estimates for crude oil again have in common? They pushed the markets lower to start the day and kept the broad indexes in check for the most part. They obviously weren’t the only worry hanging over the markets as there was the concern about the Fed and interest rates, global economic weakness, the Presidents move back to Iraq and Apple’s credit card business raising questions about banking regulations enforced on the company. No one item enough on it’s own merit, but collectively these and more are putting a ceiling on the markets upside short term. This requires patience and focus on our part not to deviate from the course of discipline and letting the noise settle and direction define itself. Indexes remain in the topping pattern and sideways consolidation we have been in for the last three weeks.

Jobless claims were disappointing by growing 13,000 and well off the expectations. This raises questions for the jobs report, but not much more for now. The lowering of crude demand did have an impact on the price of oil in early trading, but the commodity bounced back and closed up more than 1.7% on the day. Crude is now back above the $93 threshold and looking better despite the downtrend in play off the June highs. USO gained 1.5% on the day with a move back above $34.60 as a positive off the lows. Still not enough clarity to be long currently and we will be tracking the opportunity that plays out.

Retail Sales are due in the morning prior to the market opening and expectations are 0.6% growth in August. The news around the retail sector has been positive to this point and I would expect the news to be neutral. XRT continues to consolidate near the highs and good news in the AM would give the upside a boost and potentially move back to the upside as a continuation of the current trend. This has been one of the strange leaders for the broad markets. All the talk about less spending and a slowing consumer have not showed up in the chart. Stops at $87 currently and see how this unfolds.

Banks (KBE) break above resistance today and that is a positive from my view. I still like the sector of financials overall and even if Congress does put more pressure on breaking up the bigger banks the interest rate play here makes sense. Longer term outlook remains the focus for the sector currently and a willingness to accept the ongoing volatility is key to owning the sector. Rates have climbed 20+ basis points on the ten-year treasury bond the last two weeks and that helps the spread for banks which translate to making more money.

Russell 2000 Small Cap index set the upside tone today gaining 0.6% and reversing the downside look it had the first three days of the trading week. Closed at $116.60 on IWM and I am still looking for a move back to the previous high at the $120 level. Biotech was down early putting some pressure on the sector, but managed to erase most of the losses on the day. If the leadership continues in the sector we like the implications to the broad indexes as a result.

Global markets are still struggling to put the upside back in play. They have tested on economic data still showing signs of weakness around the globe. China has been a drag on the emerging markets and Europe has been a drag on the EAFE index. Make sure your stops are in place in the event the upside doesn’t return and negative momentum builds. Currently it is a flip of the coin on which side will win.

Tomorrow ends the trading week and there will be plenty of data to ponder prior to the trading day starting and we will watch for the impact to start the day. Manage your positions according to your risk tolerance and time horizon on each.