The market day didn't feel like one beset with heavy winds, but that was because the indices' strength matched the strength of those winds. When the winds abated late in the day, indices pitched forward.
With hurricanes hitting the U.S. one after another during this hurricane season, all have watched evening news programs showing reporters leaning into wind-driven rain to deliver news about the hurricanes' expected trajectories. Wednesday morning, markets appeared to be leaning into winds caused by record highs on crude and warnings from AmerisourceBergen (ABC) and multiple tech stocks. Fannie Mae's Raines was scheduled to appear before a U.S. House Panel Meeting to discuss the company's accounting practices.
The stalwart TRAN, the Dow Jones Transportation Index, and the weakened-but-attempting-to-recover DJUSHB, the Dow Jones US Home Construction Index, leaned far into the wind Wednesday morning. They tried to buffer markets and tug the lagging techs and healthcare stocks along with them. Late in the day, Verizon (VZ) and Computer Associates (CA) helped by giving positive capital expenditure guidance (VZ) and raising expectations (CA). Still, it was the TRAN's performance that most buffered the effect of those winds. When the winds abated, the indices leaped forward.
Annotated Daily Chart of the TRAN:
With Herculean effort the TRAN's performance and that of other indices finally managed to tug the SOX higher in the last hour of trading, although the SOX remains below its next breakout zone.
Annotated Daily Chart of the SOX:
The SOX may not be playing the leadership role in tech gains that it has in the past, however, and tech traders might look to the GHA and GSO, two sectors performing more strongly of late, for leadership either to the upside or downside. They posted 1.35 and 1.25 percent gains, respectively, in Wednesday's trading. With their help and the reluctant help of the SOX, the Nasdaq pushed above its 200-sma in late-day trading, although it remains below 1975 potential resistance.
Annotated Daily Chart of the Nasdaq:
Those currently in bullish positions should make plans to protect profits near 1975 and again near 2000. Those seeking new bullish positions should watch for retests and bounces from the 200-sma and that 19.1 percent retracement level or wait for a breakout over 2000. Those seeking new bearish positions should watch for a rollover beneath this week's low or wait for a potential rollover beneath 2000.
Despite the TRAN's best efforts, it could not produce much of a breakout on its sister index, the Dow. Although the Dow did break out of a bull flag on the 30-minute chart, it couldn't break above Monday's high.
Annotated Daily Chart of the Dow:
The SPX did break above Monday's high.
Annotated Daily Chart of the SPX:
The day's economic numbers began as usual with information released by the Mortgage Bankers' Association at 7:00 EST. Last week's figures showed a 7.7 percent rise in refinancing activity, with refinancing activity up a more modest 2.7 percent for this reporting week. New applications for home loans remained flat, while the purchase index rose 2.2 percent. The DJUSHB rose from its 50-dma, closing 1.66 percent higher, but some consider that a bounce was due after the recent drubbing this index received.
While the TRAN didn't wait around for the release of crude inventories, the American Petroleum Institute was delayed in releasing its figures, releasing them more than thirty minutes later than the Department of Energy due to a glitch in the new system the API has adopted to report those inventories. The API's figures differed as usual from the Department of Energy's. The API reported that crude stocks rose by 268,000 barrels, far less than the DOE's report of a rise by 1.1 million barrels. Both came in well below the expectation for a rise of 2.75 million barrels. Some thought that Hurricane Ivan's effect was still being felt. The hurricane damaged several oil rigs in the Gulf of Mexico, and they may not be able to ramp up production to meet the shortfall some anticipate.
Crude hit the morning's $50.70 low as the release of the DOE's figures approached, and then quickly soared to new record highs. Some also blamed worries about Nigeria and winter demand for the higher prices. Previous to the DOE's inventories announcement, the Department of Energy had noted that U.S. petroleum demand was expected to rise 1.9 percent this year. The department anticipated home heating oil prices would rise 29 percent this winter. The department also noted that an anticipated 1.5 percent increase in demand for natural gas would help drive residential prices higher by an expected 11 percent, although natural gas stocks were expected to reach a 14-year-high when announced Thursday. Electricity demand was expected to rise by 1.7 percent.
The Dow Jones Transportation Index, the TRAN, often a fair barometer of the market's reaction to rising crude costs, had been driving higher before the release, but took a blow as the inventories numbers were released. That blow proved to be only temporary, however, with the TRAN eventually closing 1.59 percent higher, at levels not seen since the summer of 1999.
The API reported distillate inventories falling by 286,000 barrels, with the DOE reporting a drop of 2.1 million barrels. API reported gasoline stocks declining 337,000 barrels with the DOE reporting those inventories climbing by 600,000 barrels.
The U.S. House Panel Meeting on Fannie Mae's (FNM) accounting issues opened today, adding to the ill winds as Armando Falcon Jr., Director of the Office of Federal Housing Enterprise Oversight, FNM's government regulator, testified that FNM chose not to follow accounting rules. FNM's CEO Raines denied that the company managed earnings, and the CFO testified that generally accepted accounting principles were met "at all times."
After the close, retailers began announcing September's same- store sales reports, with those reports to continue Thursday morning before the bell. Hurricane winds impacted those reports, at least according to MW, Men's Wearhouse. Others avoided the easy hurricane excuse. Analysts in the sector commented that retailers in regions impacted by the hurricanes showed the same pattern as those elsewhere. SBUX same-store sales disappointed. Big Lots Inc. (BLI) warned that Q3 losses would be much wider than previously expected, with September's sales disappointing. Some retail analysts began trimming estimates of same-store sales for the sector, with Thomson First call lowering estimates of gains to 2.4 percent from its previous estimate of a 2.8 percent gain.
Property and casualty insurance company United National Group (UNGL) was impacted by those hurricane winds, however, saying that Frances' impact would hurt earnings by 4-5 cents per share. Companies warning included WMAR, SPN and LAVA, with SPN saying that hurricanes caused ten days of downtime.
Genentech (DNA) reported earnings after the bell and beat eps estimates. In after-hours trading, DNA traded at $51.15, up from the closing level of $50.25. SBC was also to report earnings, but no report had appeared at the time of this report.
Indices appear to be holding a hurricane party. Watch futures' developments overnight to make sure the party continues. If it does, gains might continue into tomorrow morning, but watch carefully tomorrow afternoon for possible profit-taking ahead of Friday's jobs numbers and second presidential debate. Those currently in bullish plays should protect profits as the SPX approaches 1144-1146; the Dow, its 200-sma; the Nasdaq, 1975 and then 2000; and the TRAN, the top of its ascending regression channel. The TRAN approaches that channel's resistance now.
Crude continues to charge higher, but travels a greater distance away from its 50-dma than it usually does. Markets may already be discounting an expected pullback or sideways consolidation to retest the 50-dma's support. So far, crude's upward trend remains intact, with each pullback honoring the previous swing high's support. If crude continues its upward pattern without violating the support of its 100-sma or previous swing highs, those long equities should perhaps retain some skepticism of gains. Earnings season is upon the markets now, and some companies might begin reporting the anticipated future effect of crude's rise. It's the outlook statements market participants should watch.
Thursday's economic releases begin with the usual 8:30 release of jobless claims and continue with the 10:30 release of natural gas inventories and the 3:00 release of August's Consumer Credit.