Introduction

The FOMC meeting began today. Judging by the market activity a delay to tapering may already be priced into the market. Expectations are high that there will be no tapering this year at all and that expectation has driven the markets higher. Economic data, though stable in terms of the underlying trend of slow growth, has not met the threshold set by the committee reinforcing this idea. Today's releases were in line with the idea of no-taper and helped to lift futures trading this morning. European and Asian markets were mixed. Attention overseas appears to be divided between a cloudy earnings picture and uncertainty over FOMC actions. U.S. futures were flat ahead of the 8:30 release of Retail Sales and PPI figures. After the release the major indices moved into positive territory. The 9:00AM release of the Case-Shiller Home Price Index helped to support the markets.


The indices opened to the plus side and moved marginally higher during the first 15 minutes of trading. Earnings and guidance were in focus alongside the data. Earnings growth for the fourth quarter is still in question although there are just as many predictions for a robust holiday season as there are for a lack luster one. It just depends on who you are listening to. The indices tread water throughout the morning. The S&P traded in a range between +2 to +6, between +0.25 and +0.35%. After lunch the indexes extended the daily gains with the S&P reaching a new all time high. At the same time another issue with the Nasdaq quote system plagued the markets. Quotes for the Nasdaq Composite and the Nasdaq 100 quit updating at 11:55AM. The problem was not resolved until about an hour later. The incident was blamed on a global data feed and did not affect individual stock trading.

Afternoon trading saw the indices reach an intraday high, retreat and retest that high before gearing up for a final push higher going into the close. The S&P made another new high and the Dow broke out of its trading range to make a new high as well.

Nasdaq One Day

The Data

The first bits of data released today fall into the category of last months data delayed by the government shut down. Retail Sales fell in September by -0.1%, in line with expectations. Ex-Items sales climbed by 0.4%, above expectations and an improvement over the previous month.

PPI fell in the same period by -0.1%. This figure is also a delayed released. In fact, all the data released today except the consumer confidence is at least one month old, if not two. This data is more of a confirmation that things were not worse than we expected before the shut down, now we need to get some more current information so we can assess any lingering effects. The problem for now is that any data we get is expected to affected by the shut down and may not be completely reliable. It may December before there is any data that was not impacted by the the Government shut down in some way. Just in time for the next Debt Ceiling debate.

The Case-Shiller 20 City Housing Price Index rose to a new high, for August. This is a 1.31% gain over the previous month. Since that time there have been other indications that home prices may have peaked. Rising prices may curb buying, an idea reinforced by weak pending home sales figures yesterday. Pending sales dropped by over -5%, expectations were for a -1.5% drop.

Business Inventories fell by a tenth from the previous month, a tenth above expectations. Inventories climbed by 0.3%, two months ago in August. This may add a boost to 3rd quarter GDP, provided they did not fall in September. The first estimates for 3rd quarter GDP are due out next week.

Consumer Confidence was the only economic gauge released today that was for the current time period. Confidence fell more than expected to 71.2. The expectation was for 75, September confidence was 79.7, a long term high.

The rest of the week is full of economic events. The FOMC announcement is tomorrow, along with CPI, ADP and Challenger job figures. Thursday brings the regular release of jobless claims and Chicago PMI followed by auto and truck sales on Friday. The normal release of NFP and Unemployment figures has been pushed back one week, it will come next Friday.

The Oil Index

Oil prices fell today, hanging around the $98 level, on rising supply issues. Also affecting prices, the Fed and earnings expectations. Low oil prices will likely affect earnings in this sector for the fourth quarter but expectations are high for the current quarter. Oil traded at long term highs for most of the calendar third quarter. Today BP and Occidental reported earnings, later in the week expect to hear from Conoco, Exxon and others. Longer term the Oil Index looks bullish. MACD and stochastic are both rising on the weekly charts while the index is breaking out to new highs. On the daily charts the index is also bullish but the indicators suggest it may have reached a near term peak. Today's candle formation also implies there may be some weakness in the near term.

XOI

BP reported earnings well above the expectation and sent shares of its stock nearly 5% higher. BP announced a decline in profits from the comparable time period last year but it was much smaller than the analysts had expected. At the same the company announced that it would divest $10 billion in assets, more than the previously announced $2 billion, and that it increased the dividend by 5.6%. The stock surged on high volume to reach an 18 month high, above a long term resistance level but still below the pre-Gulf spill levels.

BP

Occidental Petroleum had a good report but was not able to boost share prices. The company reported that year on year and quarter on quarter results were better than the previous period. Operating costs were reduced and margins were increased. The companies realized price for oil liquids rose by nearly 8%. Similar improvements were made in downstream segments of the business as well. Future earnings are being clouded by the new lower prices for oil, about 4% lower than third quarter realized earnings. The stock lost about a half percent in today's trading but held above long term support and the short term moving average.

OXY

The Gold Index

Gold held steady around the $1350 level after an initial move lower. Gold prices are being inflated by expectations for a no-taper situation. I am still bearish on gold longer term so I think this may be a case of buy the expectations and sell the news. We'll know for sure tomorrow at 2PM. Regardless of direction, I expect the FOMC announcement to be a big mover of this metal. In the meantime the Gold Index is still moving higher into the consolidation range I have been tracking. Today the index held steady around yesterday's closing price but indicators point to higher near term prices. While gold prices are elevated expectations for gold miners to profit will be elevated as well. Barrick Gold reports earnings on Thursday and could provide an additional catalyst for this index. The long term downtrend is still in place while in the near to short term the index is still trapped in the pennant formation and indicated higher.

GOX

Earnings Front

Aetna reported that profits rose but missed the consensus estimates. Despite the miss the company was able to increase memberships by over 20% and operating revenue over the comparable quarter by more than 40%. Additionally, the company was able to reaffirm prior guidance for full year earnings. The stock responded by falling more than 1.5%. Indicators are bearish over the short term and indicate that prices may continue lower. First support exists just below the current levels around $60 per share. The impact of the ACA may also be hurting expectations for this and other insurance providers.

Aetna

Jetblue reported earnings that missed by a penny and sent its share value down by roughly 3%. The discount airliner was expected to report earnings of $0.22. Net income and operating margins both expanded in the quarter over last years results. Income grew by 34%, margins expanded from 8.6% to 10.5%. This marks the largest quarterly earnings for the company and over 12 months of sustained profitability. One driver of the improvements is ancillary fees being charged to consumers such as for extra checked bags. The stock has been trending up for the past two months but today may have put an end to that, at least for the near to short term. Bullish momentum before today's drop was not that strong but convergent with the two month rally, suggesting a retest of the high is possible. Currently support targets exist at the $7 level and the 30 day moving average.

Jetblue

Linkedin reported after the bell. The company reported earnings that beat expectations but guidance disappointed the market and sent the stock lower in the after hours trading session. Leading up to the release the stock had been trading about even with yesterday's closing prices. The stock appears to have a strong support base between $213 and $243. The indicators are bullish but weak at this time but could easily lead to an extended rally. Failure to hold at $243 could result in a drop to the lower end of the support range.

LinkedIn

The Indices

It looks like the markets want to rally and the Fed doesn't matter. The S&P moved to a new high and the Dow is closing in on one too. The Dow moved up into the upper resistance zone of it's 6 month trading range today with a long white candle. The move brought the index up to a new all time high along with bullish indicators. Momentum is weak but on the rise and could build after the FOMC meeting. Of course, the meeting could also provide a brick wall for the bulls to break their horns on. There is still technical resistance just above the current level at the all time intra-day (not closing) high.

Dow Daily

The SPX moved up and made a new all time high. Indicators are bullish but momentum has peaked for now and stochastic indicates the index is overbought in the near and short term. The FOMC could provide the catalyst to send another bullish wave higher but it could also be the point at which profit taking sets in. The index is currently 4% above the long term trend line and more than 6.5% above the 150 day EMA. A correction from this point has support targets at the 1700 and 1650 level, coincident with the trend line and the aforesaid EMA. We're really just waiting for the Fed. If tapering gets pushed back like the markets expect it could be taken as a green light to rally on....until the next time tapering arises which will be in a month or so. There is also a lot of data to consider. This week is full with more than just the Fed, next week may be even more important because of the NFP.

SPX Daily

No matter what, the Fed is in focus. The news media may not have been talking about it very much today but tomorrows announcement is going to be a market mover. The FOMC may tell the market what it wants to hear, it may give the market a surprise or a shock. For now, the trends remain up and the markets are making new highs. The Dow appears as if it wants to break out of it's 6 month trading range and if it does, based on a similar move in the Transportation Average, it could go another 3% higher and touch 16,000. However, the FOMC could also cause a decline in the market. News as expected may not be enough to keep the rally moving ahead in the near to short terms. We just have to wait until after the announcement and see how the market reacts.

Until then, remember the trend!

Thomas Hughes