The S&P 500 index crossed 2000 for the first time today, making the 29th new high, without much fanfare or excitement.

Introduction

After a tentative start in Asia and Europe, US bulls geared up for a march to new highs today. Asian indices were mixed after a weekend of questioning how markets would react to last weeks economic data and speeches made by central bank leaders at the Jackson Hole Conference. European indices were mixed as well, at least in the early part of their trading day. The major EU indices were able to power to new one month highs once they got the signal from US markets the bulls were still in charge. Futures trading indicated that the major US indices would open not only higher, but with some at new highs and the S&P 500 facing the much anticipated 2000 mark. There was no economic data and very little earnings to impact early trading.

The early indication was for the SPX to open about 7 or 8 points above last weeks close but that was soon surpassed. After the open the markets drifted higher for the first 30 minutes until today's economic data was released. Housing data in the form of New Home Sales, released at 10AM, helped to propel the market to the intraday high. After lunch the markets tested near term intraday support before bouncing back up to close near the top of the day's range. The SPX didn't close above 2000 but it is really, really close and did make the 29th new high of the year.

Market Statistics

Absent from the market, again, was news from the Russian/Ukraine front. The aid convoy that entered Ukrainian soil last week did not result in escalations of tensions or violence over the weekend. Neither did other potential hot spots such as ISIS. Both remain as possible influencers of market direction so some caution is still warranted. Eyes and attention is focused on events scheduled for later in the week. The economic calendar is not jam packed but has a few important items on it. Tomorrow Durable Goods orders are expected to rise, primarily on transportation. Along with the durables report will be the Case-Shiller index, housing price index and consumer confidence. Wednesday mortgage index data is followed on Thursday with the usual jobless claims data and the 2nd estimate for 2nd quarter GDP. Current estimates have 2nd quarter GDP in line with the previous estimate of 4.0%. Thursday data wraps up with Pending home sales followed up by a full day on Friday. Two regional gauges of the economy, Chicago PMI and Michigan Sentiment, are accompanied by personal income and spending as well as PCE prices.

Economic Calendar

The Economy

New Home Sales fell -2.4% to a seasonally adjusted rate of 412,000. This is down from last month's revised level and below the expected 427,000. Last month's figure was revised up by 16,000 to 422,000. Of course, this figure is very volatile and comes with a margin of error of +/- 12%. Regardless, sales of new homes on a year to date basis are still trending higher than last year at this time.

According to Mark Zandi and Moody's Survery Of Business Confidence confidence amongst US business has never been higher. Sentiment, as measured by the survey, hit a record high since it's inception in 2003. More than half of participants are positive on the economy going forward while less than 10% have a negative outlook.

The Oil Index

Oil prices were mixed today, WTI lost about $0.40 while North Sea Brent crude gained about a quarter. High storage and increasing supply were balanced today by reports violence across the mid east. Hot spots were flaring in Libya, Iraq and else where but as yet have not impacted production or delivery. The Oil Index rose in today trading, buoyed by the rising tide of stocks and economic trends. The index gained a full percent today, moving up from the short term moving average and setting a new one month high. The index has been consolidating along long term support for over a month and now looks to be moving in line with long term trends. The indicators are bullish and consitent with a rising market with support between 1625 and 1650. There is resistance around 1,700 which could keep the index contained in the near term.


The Gold Index

Gold prices hovered within a dollar or two of last weeks closing prices but fell below $1280. Positive economics and statements from central bank leaders last week have helped to boost the dollar which in turn is putting pressure on gold. This is now the third day that gold prices have traded between $1275 and $1280 with $1275 emerging as near term support. There is still a chance of near term fears to drive prices back up in a knee jerk reaction but long term fundamentals are in support of low, if not lower, gold prices.

The Gold Index fell today as well, dropping below the short term 30 day moving average. The index lost over 1% in today's action and is now testing support along the lower boundary of the support/resistance “zone” the index has been trapped inside the last two months. The current trend, and trend following signal, is down so it looks like a drop below the zone is likely. However, the long term 150 day moving average is just below the zone and could provide some support and there is some evidence of that in the charts over the past 12 months.

I think it will come down as always to gold prices and expectations of gold production. On one hand prices are below levels where I would expect gold companies to be able to increase earnings (based on last quarters average realized prices) based on simple price increases. On the other, if production or sales of reserves from gold companies ramp up in an effort to make more revenue that would depresses gold prices and earnings potential even further. But yet another factor is low oil prices, which will lower all in sustained costs per ounce and increase profit margins.


In The News, Story Stocks and Earnings

Burger King hit the news this morning. Not for earnings but for merger and specifically a potential tax inversion. Burger King Worldwide has put in an offer for Canada based Tim Horton, a chain of coffee and donut restaurants. The deal would effectively lower the tax rate for US based BKW but is not the only reason for the offer. One sign of this is a lack of clause giving BKW an out if anti-inversion legislation were to move forward. Analysts see good for both companies in the deal as it would give Burger King a better position in the breakfast/coffee niche and open Tim Hortons up to a whole new level of business. Shares of both companies shot up by more than 20% on an intraday basis.

Burger King

Tim Horton's

Earnings season is just about over for this cycle but there are still 10 S&P 500 companies left to report. As an example of the earnings doldrums we are in today there were only 12 reports and less than 75 for the entire week. According to FactSet out of the 490 S&P companies that have reported so far 74% of them have increased EPS and 66% have increased sales. This is an improvement over last week for both figures. So far for the quarter earnings growth is 7.7%, nearly 3% higher than the 4.9% expected at the end of last quarter. Leading sectors for earnings growth include telecom, health care, consumer discretionary and materials with telecoms and financials at the top of the expected list for the current quarter. Also looking forward to the current quarter NVIDIA has the greatest upward change in expectation for Q3 based on a trailing 10 week time frame.

Shares of NVIDIA traded up today but not significantly. The price action today was tame and over the past 6 months choppy/sideways at best. Pulling out to a longer term chart of weekly prices we can see that the stock is trading beneath a long term resistance after trending up the past 18 months (Nov '12 to the present). The stock is showing support along the long term 150 day EMA which is coincident with several areas of bullish activity over the past 18 months. The chart doesn't look particularly bullish right now but long term buyers could keep pushing the stock up against resistance and if earnings play out as expected or better could produce a break out. The company reported EPS of $0.25 for the past quarter and is expected to report again November 11th. NVIDIA is a computer technology firm focusing on a full suite of 3D technologies for home, business and industry.

NVIDIA Weekly Prices

Goldman Sachs reported late Friday that it had reached an agreement with the FHFA on soured mortgages it had sold to Fannie Mae and Freddie Mac. The agreement has Goldman repurchasing the residential mortgage backed securities for $3.15 billion with reserves set aside for such a purpose. Shares of the stock gained close to 2% in today's session, the first since the announcement, but was halted at resistance set this past February. The indicators are bullish and pointing higher at this time but are not yet strong enough to suggest a break to new highs is developing.


The VIX

The VIX has been trending lower since hitting its Russian induced peak three weeks ago. The volatility index traded down today but formed a spinning top, neither bullish or bearish, as traders await the rest of what the week will bring. The index is now below the 12.50 level and the range of the “new normal” in volatility. While being the new now, I will point out that these are the levels at which the VIX traded years before the housing bubble built up and burst, and that was back when the market was still in the secular bear range. The indicators now are bearish although momentum may be waning. Based on past performance I am expecting the VIX to drift lower, or at least below 12.50, unless and until the next brick in the wall of worry emerges, which very well may be Russia again.


The Indices

Trading was light and basically uneventful today even as the SPX flirted with 2000. At the open the rally was very broad, about 95% of S&P companies were in the green. By the end of the day that had tamed a little to about 80% but there were still more advancing stocks that declining. The SPX gained 0.48% in today's session, about 10 points, closing just shy of 2000 after trading above it for a few hours this morning. The index is still drifting higher following the long term trend bounce and trend following signals but the volume has yet to return to the market. The light volume is a concern but should return sooner rather than later. The indicators are still bullish though momentum gains may have stalled. Near term support is just below the current level in the range from 1950 up to 2000 with the long term trend line down around 1,900. Near term risks include geopolitics and economic data but the trends are still up so I am not expecting any negative surprises right now. Geopolitics are harder to predict. Without any bearish catalysts the market could continue to drift higher, even without increased volume. And, now that the index looks set to cross 2,000 it could bring some traders back into the market. In the end 2,000 is nothing more than a psychological round number; the trend is up and the signal is up, now it's time to wait and see what everybody else is going to do.


The Dow Jones Industrial Average led today's rally, closing with a gain of 0.49%. The blue chip average gained just over 75 points today, coming just short of a new all time intraday high. This index is also moving higher following a long term signal and is currently indicated higher. The momentum is bullish and increased with today's candle stick while stochastic continues to trend higher. Stochastic is closing in on the upper signal line, where a crossover would indicate underlying strength in the index. Both indicators are in line with the underlying bull trend in the index and pointing to higher prices. A failure to break above the current all time high could result in the index trading within the current range between 16,500 and 17,100 until further evidence is revealed.


The NASDAQ Composite drifted higher in today's trade, gaining 0.41%. The tech heavy index climbed 18.80 points to create another spinning top and another new 14.5 year high. Today's candle, and those of the last few trading days, looks to me like a market that is moving higher on the underlying trend but just not sure it is going up. The indicators are both bullish, the momentum is strong and stochastic has crossed the upper signal line. If this break out to new highs is valid and holds up it could take the index up to 5000 based on the height of the March-April correction and ensuing consolidation. Current support exists just below the current level at the previous 14.5 year high just below 4,500.


The Dow Jones Transportation Average was today's laggard. The transports gained only 0.29% compared to the near half percent gained by the others. The transports gained just over 24 points today, creating the fifth in a series of spinning tops forming just under the resistance of current all time highs set last month. The index is in mid bounce, from a long term trend line, and is accompanied by bullish indicators. Momentum has tapered off a bit while the index has been in indecision but remains strong while stochastic is also confirming strength. There is still the resistance of the current all time high but it looks like the transports could push to a new high. Low oil prices will surely help this index.


Today was very uneventful when you consider what has been going on in the world and the markets of late. In the nearest terms Russia, Ukraine and Iraq have been playing tug of war with better than expected earnings while rising but uncertain economic trends dominate the long term. Today nearly none of the near term strife was present in the market. The Ukraine/Russia conflict was absent from headlines and Iraq barely had a mention. Earnings season is basically over leaving the economic trends to hold sway.

There wasn't a lot of data released today either but that really isn't a bad thing. The market had time to take a breather and while doing so drifted up and touched all time high levels. There are still near term risks, geopolitics number one in my book, but until they rear their ugly heads the market is drifting up on the tide. Tomorrow the week will heat up with the release of durable goods orders and consumer confidence so be on the lookout. Until then, remember the trend!

Thomas Hughes