The markets reversed yesterday's gains in a rush for the exits ahead of tomorrow's GDP revision.

Introduction

The market reversed yesterday's gains today, diving for cover as investor weigh a variety of factors. Ongoing geopolitical events, largely out of the news of late, top the list. The standoff in the Ukraine continues to wear on while the international efforts to curb the ISIL threat seem to gain traction. Turkey is still wiffle waffling but other international partners are beginning to step forward to join the fight.

There was some hope that the bounce we saw yesterday would continue today and the early indications were good. Asian markets over 1% higher on hopes of further stimulus in both Japan and China and that euphoria carried into early trading in Europe. European markets were largely higher during the early hours on stim hopes and dovish comments from ECB president Mario Draghi. This did not last long though as fears brought on by the ongoing Russian incursion into the Ukraine sent investors seeking safer havens. The newest twist to the story is rumor of a freshly drafted law allowing Russia to seize foreign assets.

Market Statistics

The futures trade was largely flat in the early hours but that slipped into negative territory ahead of this mornings data. After the data, particularly durable goods, futures trading moved lower indicating an open around -5 on the SPX. The open of trading was weak with roughly half of S&P stocks trading lower. The SPX moved down to -7 or about -0.35% in the first few minutes and steadily extended that gain throughout the morning. Selling at the open was broad and heavy, never letting up all day. The 1990 support level did not hold as the SPX moved down to -9, -12,-16 and down to -26 points by 10:30 or so. At that point an intraday bottom was hit that lasted until the lunch hour. This held until early afternoon when the market began to drift lower, hitting new lows several times and sinking at the close of the day. The SPX lost over -1.60%.

Economic Calendar

The Economy

Mario Draghi was reported saying the ECB was ready to act further with its “unconventional measures” as needed by Reuters. He was quoted saying "We stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation,"

Durable goods orders fell more than expected, by a record setting -18.2%. This is of course from last months record setting advance of 22.5% so a pullback is not surprising. Analysts had been expecting a slightly smaller loss around -17.5%. The drop is due to a much smaller number of orders for new planes, ex-transportation orders for durable goods rose 0.7%. Key metrics within the report, business inventories and core capital goods purchases, both rose.

Initial claims for unemployment rose today, by 12,000 from an upward revision to last weeks number of 1,000 to 293,000. The analysts had expected the number to be higher, closer to 310,000. This keeps the number of first time claims below 300,000 as well as the four week moving average, which is 288,500. Initial claims have been relatively flat over the past two months but remains at low levels consistent with declining unemployment levels. On an not-adjusted basis claims fell by -3,533, less than the -13,000 expected by the seasonal adjustment factors. California led with new claims over 5,000 while Michigan had the biggest decline in claims at -2473.


Continuing claims rose as well, by a mild 7,000 from an upward revision of 3,000 to last weeks data. This is just off the long term low set last week. The four week average of continuing claims fell, counter to the headline number, and is in decline. This is a better gauge of employment conditions and has been trending lower all year. Likewise, the total claims figure fell this week, dropping over -42,000 to reach 2.222 million.

We'll get the next round of ADP/NFP/Unemployment figures next week. New jobs creation may remain low, below 200,000, but based on jobless claims numbers I expect to see overall unemployment decline. If job creation actually regained some of the strength lost last month unemployment could dip significantly.


Tomorrow is the 3rd and final revision to 2nd quarter GDP. The expectation is for an upward revision to above 4.5%. Current estimates for 3rd quarter growth stand near 3.6%, in line with full year growth estimates around 2.25%.

Also on tap tomorrow, Michigan Sentiment. Last month's reading of 84.6 is expected to stand.

Next week data heats up with the end of the month, and the end of the quarter. The usual lineup of monthly macroeconomic data including auto/truck sales, ADP, Challenger Job Cuts, ISM, Chicago PMI, Pending Home Sales and others.

Dallas Fed Presisdent Fisher may also have spooked the market today. He is one of the more hawkish Fed members and said that interest rates could be hiked as early as the spring of next year, about 3 months ahead of market projections.

Not particularly an economic event but one of importance anyway, Attorney General Eric Holder announced his resignation from the post today.

The Oil Index

Oil prices held steady today following yesterday's climb. WTI traded higher by about a quarter with Brent down about the same amount. Air strikes against ISIL raised some fear for the oil supply infrastructure in the region but high levels of supply are offsetting that trade. US strikes took out some low level refineries being used by ISIL for fuel and income but nothing major was hit. Oil prices may remain at these low levels but will be susceptible to news out of Iraq as well as rising supply and economic outlook.

The Oil Index traded lower today, extending the drop below the long term trend line begun earlier in the week. The index lost about -1.25% in today's action but is still exhibiting some signs of support. The indicators are bearish but divergence persists in the MACD and the stochastic is holding above the lower signal line so just how bearish is still in question. However, now that the index has moved below the trend line new resistance will be at the trend line and possibly below along the 1,600 level. The move below the trend line is yet to be confirmed so this could be an overextended near/short term decline. In any event the index is extended below the trend line with weak indications; a good time to sit back and wait to see what happens next.


The Gold Index

Gold prices were volatile today. Early this morning spot price was down as much as ten dollars or more, trading around $1210 and a new 9 month low. Later in the day that moderated to only down a few dollars and then as the equity market was reaching it's intraday low gold prices moved into the green. This could have been on a flight to safety move but if so was based on rumor (Russia seizing assets). Regardless, this is the 2nd time this week spot price has bounced from the $1210-$1215 region and indicative of support. I'd have though a hawkish comment like what Fed President Fisher said would have sent gold lower so perhaps my thought that rising interest rates are priced or being priced into the market has some weight to it.

The Gold Index traded in similar fashion to the underlying commodity. The index moved lower and then bounced off of long term support and back into the green. Today's candle has a long lower which with the body sitting on support near the $85.50 level. This is the top of an expected range of potential support between $82.50 and $85 that dates back to two previous bounces from this level earlier this year. The indicators are consistent with potential support; MACD is still diverging from price and stochastic indicates the market is oversold. Not to try calling the bottom but the Gold Index has reached a level at which long term buyers have stepped in before and where a near to short term bounce could be expected to form. The index could continue to move down to the $82.50 or $80 level but without another significant drop in gold I think these levels could hold.


In The News, Story Stocks and Earnings

Apple continued to feel the pressure as iPhone Bend Gate sent shares lower by more than 3% today. Sure, the thin phone is a little bendy, but my thing is, why would you put your $600 dollar computer device in your pocket and sit on it and/or try to bend it? Even my iPhone 4 is a little bendy when I tried to bend it. I think that this too will pass as will the iOS 8 snafu and in the end it may lead to more sales as the unwitting phone benders have to go back and buy a new one. Apple's response was that the phones are made to be “beautiful and sturdy”, citing 6000 series aluminum, stainless steel and titanium construction and going on to say that less than 10 people had actually complained about legitimate bends. Today's drop took the stock below the long term previous all time high and the short term 30 day moving average. This stock appears to be in a short term consolidation that has yet to break out.


Ford announced another expansion at its production plants. The company added another 1,200 jobs on top of the 14,000 they have already created since 2011. The new jobs are mainly in the Kansas City plant 2nd shift production of the Transit Van delivery vehicle. Along with the announcement Ford said that this addition puts it ahead of it's plan for new additions and its agreement with the UAW. Shares of the stock dropped over -1% today and are withing a long term support zone. The indicators are consistent with support at this level but not indicative of strength at this time. Ford is next scheduled to report earnings in four weeks.


Micron Technology reported after the bell. The US based chip maker was expected to earn $0.81 per share on rising sales and profits projections. The company reported better than expected revenue and earnings as well as provided strong guidance for Q1 earnings. The stock, which had been under pressure all day along with everything else, reversed in the after hours and surged more than 3.5%.


Nike also reported after the bell. The shoe and fitness giant was expected to report about $0.88 per shre although that estimate was called into question based on dollar strength, currency conversion and the companies exposure to foreign markets. The reported $1.09 per share was well above estimates and came on higher than expected sales and future orders. The stock surged to a new all time high in the after hours market and could be an indication of how earnings season will be when they start next month.


The Indices

The market began to fall at the open of trading today and kept falling. There were several temporary bottoms but no real effort at trying to rally. The NASDAQ Composite was today's leader in the decline, dropping just shy of -2%. The tech heavy index broke short term support and looks as if it is now headed down to longer term support around the 4,400 level. The indicators are weak and confirm the move, stochastic is moving lower and MACD is convergent with the new low set today. However, the longer term still shows support so I am still not overly bearish just yet. In the near term, unless the index snaps back up above support tomorrow, there will be resistance above 4,500.


The S&P 500 was next in line in terms of losses today. The broad market index fell -1.62% in today's action, the biggest negative move it has made in several months. Looking back over the charts, each time before this move has preceded a pull back to trend that lasted a week or two, and provided highly profitable entry points. The index broke near and short term supports in the forms of my support lines and the 30 day moving average but remains above more substantial longer term support. The indicators here are also weak and pointing to further downside in the near term. Short to long term support is still indicated but where it will step in exactly is yet to be seen. My targets are between 1960-1965 or below that along the long term trend line.


The Dow Jones Industrial Average fell -1.39%. The blue chip index fell below support at the previous all time high and the short term 30 day moving average just below that. The indicators have just turned bearish and point to a move down toward next support in the region of 16,750. The long term trend is still up and we are well above the trend line so there is a chance of correction with a drop to trend equaling roughly 5.5% below the current level. That being said support around 16,750 looks like it could be strong.


The Dow Jones Transportation Average fell the least today, only -1.39%, dropping from resistance and the short term moving average. The indicators are bearish and point to further near term weakness, but like the other charts, are also indicative of longer term support. The index looks set to head down to the 8,250 level where it will find the combined support of a previous all time high and the long term trend line. The next few days could be important as the index tests the trend.


I have to say that I did not see this sell off coming and I really don't see a reason for it now, other than profit taking. But I have come up with a variety of ideas that likely all have something to do with it. First up is the start of Rash Hashanah, a holiday affecting the markets that is not widely known. I admit that I didn't realize it, or remember it, no disrespect intended. It is the Jewish New Year and could be impacting trading by keeping observers out of the market until Yom Kippur, 9 days from now. I heard a new adage today “sell on Rash Hashanah, buy on Yom Kippur” and this fits the idea the markets could correct for a week or so before bouncing from trend.

Another possibility for the selling is that it is the end of the quarter, or approaching the end of the quarter. This could lead institutional investors and money managers to take profits and lock in gains realized over the summer.

Adding to the selling was the reaction to the supposed Russian law that would allow them to seize foreign assets. As of yet this is still just a rumor and largely unsubstantiated but that never stopped the market from selling off before.

The hawkish comments from Dallas Fed president Fisher probably didn't help either. They raise fear of rising rates, but also reinforce that the economy is back on solid footing.

On top of everything else tomorrow is the GDP revision, a big event even if it is the third estimate, and there is a wave of data next week. In an ordinary month the data bundle due out next week would be enough to keep the market in check. This month end of quarter portfolio reshuffling, the Rash Hashanah holiday and geopolitical knee jerk selling combined to send the market down to a level in which selling led to more selling and this may continue tomorrow. Tomorrow and next week could be rough but the trend is still up and I expect this to be another opportunity to buy on the dip ahead of the upcoming earnings season. Expectations for the current quarter are mixed but future expectations remain high.

Until then, remember the trend!

Thomas Hughes