Introduction

Yesterday's market action was as I should have expected, not as I actually did. I thought volume would be high. Volume was about average and trading was subdued, not feverish. Volume on the DJI was only slightly above average. I'm sure, in hindsight, that many were waiting and watching to see what would happen, just like I was. The end of the month came and went out like a lamb, now the new month has started and so far things are roaring. At least a little.


Today is the first of the month and the first of the fiscal year for many funds. Today should be a peek at what we should expect for the next quarter or two so far as money managers are concerned. Futures were positive going into today's trading, same as yesterday, but carried through into actual trading. Most of the this weeks data releases were saved for today and were reported throughout the morning. The slew of economic data reported today supports a stabilized economy and one that is still growing. This, I think has been expected and helps support the Q3 economic and earnings bottom theory.

The Economic Data Onslaught

The day started off with unemployment and job creation data from the Labor Department and ADP. ADP announced, along with their figures, that they had changed the way they gather and report the data so I question if this months figure is even relevant. Anyway, the number they pegged job growth to was 158,000. In the press release there was a quote from Mark Zandi, economist with Moody's. He say's that “businesses are consistently adding to payrolls” and that they have not changed their “hiring and firing practices”. Taken with the historic data last month was inline with the previous and well off two year lows.


Challenger job cuts data shows a 41% jump in planned layoffs this month from the previous. Last month was the second lowest level of planned job cuts since 2008; this month is 12% higher than last October. On a year-to-date basis planned job cuts are fully 17% lower than last year. Based on this data it looks like the labor market still has headwinds but is making significant improvements over time. It will be interesting to see how Challenger and ADP figures play out in the coming months. Tomorrow the ever important US non-farm payroll data comes out and will help round-out the labor picture for this month.

Initial jobless claims fell this week and are not yet showing any claims from Sandy. I do expect to see some volatility in the initial claims over the next few weeks. Initial claims fell 9,000 from an upwardly revised figure of 372,000 to 363,000 for the week ending 10/27. This is slightly lower than the expected 365,000 but not really significant. Initial claims have been holding steady in a range all year and are about in the middle of that range now. Last year at this time initial claims were about 400,000 making this figure about 10% lower on a Y-O-Y basis. Not quite as good as planned job cuts but still trending down. The average of initial claims fell 1,500 to 367,250.


Continuing claims fell by 4,000 and total claims gained 112,000. Both of these figures are basically in-line with the previous week and near multi-year lows. We should see a drop in this figure if Sandy really sparks enough job growth to offset all the ones we lost. Over the next 2-3 weeks expect volatility in initial claims and watch continuing/total claims for pass through. Not only did we lose jobs we also lost the possibility of any new jobs those businesses were planning on creating. Hopefully folks will be able to get their businesses operational quickly and get everyone back to work.



The job and employment data is enough by itself to fill a days calendar but because of the storm we had more, much more. The rates on 30 year mortgages rose to 3.99% from last weeks 3.42%. This suggests that people have been buying those super low mortgages and could be adding more support to the housing market. Data and commentary over the last month has already been very supportive of improvements in housing. Now the northeast has had some inventory removed and some older, outdated buildings will get replaced or renovated, further improving the market.

Consumer confidence, construction spending and ISM data were all released simultaneously. Upon the release the major markets extended their opening gains to reach the mornings high levels. Consumer confidence gained more than expected hitting the 72.2 mark. This is up from last months 68.4 and the highest level of consumer confidence since February 2008. Construction spending increased 0.6% and last months figures were revised up from -0.6% to -0.1%. And finally, the ISM index reading came in at 51.7, still weak but showing a pick up in economic activity. And finally, somewhere in there productivity estimates for the third quarter was also release, surprising economist with a larger than expected increase of 1.9%.

All this data continues to lead me down the road of third quarter GDP bottom and the possibility of upside earnings surprises in the fourth quarter. I know that there are very many corporations putting out warnings for fourth quarter earnings expectations but I think they are too conservative. However, I can't blame them for being that way, the executives are paid to be fiscally responsible for their companies and protect shareholder value, speculation does not fall into that category. The last two quarters have shown them declining growth and revenue, they can't expect more growth based on the numbers reported in their past earnings statements.

The International Scene

I'm only going to touch lightly on international markets due to the amount events today. Chinese PMI swung into expansion territory, reading 50.2 in the current month. The news sent Chinese stocks higher by more than 1% and other indexes in the region followed suit.

In Europe our own economic data and earnings from hear and the Eurozone helped to send their markets higher as well. The major European exchanges all gained more than 1%. Greece was the only bad spot on the European stage. The country is expected to need money very soon, no word yet on what they are going to use to swat the can down the road this time.

Oil And Gas

IEA supply data for crude, gas and nat gas were all reported today over a 30 minute stagger. Natural gas supplies rose less than expected and coupled with an expectation of cooler temperatures helped to inflate that price. Meanwhile crude inventories fell by 2.05 million barrels and gas rose by 965,000 barrels in the most recent reporting period. The data was basically taken as bullish by traders, elevating prices. The Oil Index traded up today in tandem with the general markets but is still below the short term moving average and a down trending resistance line. A break above 1240-1250 would be bullish for this index.

Oil Index, daily

Meanwhile in the oil industry Exxon reported earnings today. The company posted $2.09 per share versus the expected (and this is conflicting ) $2.13 (MarketWatch) or $1.96 (Reuters). Regardless, earnings are down 7%, mostly on lower production. This could impact Exxon earnings into the next quarter as well as the amount of oil available on the market. Shares dropped at open, traded up for the day and closed basically flat from yesterday, just over the short term EMA.

Exxon, daily

Gold And Debt

Gold has traded flattish for the last two days as the markets get themselves reestablished. That, plus all the data has given gold trader reason to pause. Even though we have lingering debt issues in Europe and a growing deficit at home signs are good enough to take more QE off the table (Japan being a recent and notable exception). Now we'll have to wait and see how what's already been done ripples through system. Gold has likely entered a trading range but gold miners should still be able to make good profits. The gold index traded down today but is still above the short term moving average as it bounces upward from support.

The Gold Index, daily

Rates on the ten and thirty year US Treasuries traded up from yesterday's close and relatively in line with their short term moving averages. The treasuries appear to trading in a narrowing range, one that is centered on the election. Many sources I have heard and read think that Obama is good for bonds and Romney is good for stocks so I guess we'll see next week. 3% seems to be the magic resistance number on the thirty year bond, a break above would be significant at this time.

Thirty Year Bond Rates

Automobiles

US auto sales data was yet another of many events happening today. Sales in the industry are on the rise still but the rate of increase is slowing. Perhaps Sandy will change that in the near to mid term. Ford, amidst a management shuffle, posted a 0.4% gain in monthly sales, much slower than the 3.5% predicted. However, sales of many of Fords vehicles, like the F-Series Trucks, reached multi-year highs. This is just after Ford released record earnings. The news has helped shares of Ford to reach a new support level in the march up to the top of it's trading range.

Ford, daily

GM beat expectations by 0.1%. GM's October sales increased 4.8%, and also follows an expectation beating earnings report. Shares of GM regained a recently breached resistance level on high volume yesterday and is trading above that level today. Shares of GM may be advancing toward the next resistance of $27.50.

General Motors, daily

Retailers Report

The retailers, at least the few who give up the numbers, reported comparable store sales today. The data is hard to take as a measure of the industry due to the small number of participating retailers. The data was generally good though, showing particular strength among teen-retailers. Some stores saw a pre-Sandy boost and others, like Costco and Wal-Mart, were not worried about lingering effects. In general all stores reporting were up beat and positive about the upcoming holiday shopping season. The Retail Sector Spyder (XRT) traded up today, moving up above the short term EMA and approaching long term resistance at $65.

Retail Spyder, daily

Earnings Still Rolling In

Earnings are still rolling in. Today there were at about 300 companies reporting today. The one I have picked for today's wrap is Starbucks. The company reported after the bell today and surprised investors with a record breaking 4th quarter. The company went on in the statements to say that 2013 would be a strong year and earnings would continue to grow, especially in Asia. Shares jumped in after hours trading, climbing more than $3 in after hours trading.

Starbucks, daily

The Markets Are Getting Ready For Election Day

Future were positive this morning going into trading. The start of the month, the good economic data and positive spin on retail sales and the consumer sent stocks up into the open. Advancing stocks outpaced declining stocks by 2 : 1 at the open and extended that lead into the morning hours. The simultaneous release of consumer confidence/ISM/construction spending further boosted the indexes to near short term resistance. On the 30 minute charts of the S&P 500 we can see that the morning high of 1428.35 falls short of resistance around 1430.

S&P 500, 30 minute closing bars

Pulling back to the chart of daily closings we can see that the S&P 500 is trading, and has been for the last 6 trading days, in a narrow range between 1400 and 1430. These are both significant levels and may both get breached before its all said and done. 1400 has emerged as a new potential support level. This is the level the markets worked themselves up to during the summer's “most hated rally”. It is also the level from which the bullish candle continuation signal I have mentioned before started from. Now, the S&P 500 has retreated back to that line and is so far showing support.

S&P 500, daily bars

The Dow Jones Index is also in a trading range and sitting just above support. It is very near the bottom of the range, and like the S&P, near oversold. The bottom of the range, like the bottom of the range on the S&P, is coincident with the 150 day moving average, adding weight to the support zone.

Dow Jones Index, daily bars

The NASDAQ's retreat from recent highs looks a lot more like a down trend the Dow or the S&P but it is also sitting on a potential support level. This level is also coincident with the 150 day moving average. This index is showing a head & shoulders divergence from MACD which adds weight to this potential support.

Nasdaq Composite, daily bars

The VIX is retreating from the top of it's range. It is still inside the “calm” zone and is now below its long term EMA. Short term fear is subsiding reducing option based resistance in the markets.

The VIX, daily bars

I don't find it surprising that the major indexes are finding support around the 1st of the month. Which is also the first of the fiscal year for many major institutional investing houses. Which are the long term investors who are represented by the 150 day EMA. Which is currently coincident with support levels across the indexes.

I believe there are no coincidences, only things you do or do not recognize. What I recognize now is that the major markets have returned to the long term moving average as the long term institutional accounts repositioned for the next fiscal year. What also seems to be apparent is that these same institutional investors are now buying, getting new positions for the new year. I do not think it is mere coincidence that all three indexes have reached support and the long term EMA at the close of the fiscal year with precision. I also don't think that it is coincidence that this has all happened in conjunction with the development of the third-quarter-earnings -trough/fourth-quarter upside-surprise theory of mine. I still think there is upside in the markets and that the S&P 500 will retest recent and all time highs.

However, there is still resistance ahead. The S&P will have to break above 1430 and then get back up to recent highs around 1466 and then break through that level as well. There is also the possibility of negative news to hit the markets as well. Most importantly there is the election next week and I don't think anything is really going to happen in the stock market until then. Tomorrow the job report has a lot of potential to move the market but I expect it to be within the range of what we have been seeing, somewhere between 90,000 and 160,000, nothing shocking or surprising, but enough to maintain stability.

Until the election.

Thomas Hughes