The markets fell today as growing global fears continue to weigh on the market, and then bounced from support.

Introduction

The market began today hovering around break even. Soon after the open mounting global fears sent the indices into near free fall. Unrest in China along with the recent weak data, a lack of detail from the ECB and ongoing issues with ISIS, Russia and the spreading Ebola crisis overwhelmed today's positive labor data during the early part of today's trading to sent the indices more than 1% lower.

The good news is that the markets hit support near mid-day, a level on the SPX coincident with my long term trend line, and bounced back. This doesn't mean the selling is over, just that bargain hunters and buy-on-the-dippers are still in the market. The SPX fell more than 20 points today but regained nearly 100% of that by 1:30PM. The mid-day bounce held and was improved upon during the afternoon, taking most of the indices into the green by the close of trading.

Market Statistics

Asian and EU indices were both in the red this morning following yesterday's massive sell off in equities. Asian indices closed lower while EU indices initially tried to rally back from their early lows. Expectations for the ECB to up the ante in terms of QE and stimulus had the DAX and other EU indices trading into the green until those expectations were dashed. The ECB made no moves today and provided very little in the way of details concerning any hopes for QE or what “additional measures” might mean. The bank will be making some purchases along the lines of previously announced actions but nothing new was revealed. According to the release the ECB sees a “moderate recovery still in place” although risks to the downside are present.

The protests in Hong Kong are heating up a little but the impact on overall Chinese economics and the US are slim. Protester's are calling for the current leadership to step down, a demand that has not been accepted. Expect to hear more about this in the coming days.

Economic Calendar

The Economy

Futures trading was flat this morning but turned slightly negative moving into the open. The data released today, good in my view, was not enough to hold up the market in the face of all the negative global headlines. First up on the list was the Challenger, Grey&Christmas report on planned lay offs. The number of lay off's planned in September fell -24% on a month to month basis to the lowest level in 14 years. This is following last month's drop that was also a long term low. This month's number of 30,477 puts us on pace for the lowest number of layoffs on an annual basis since 1997. This drop brings the year-to-date decline down to -6.2% and -24% compared to the same month last year. Entertainment and Leisure topped the list this month with significant losses associated with the gaming industry and Atlantic City. Year-to-date computer/technology still tops the list due to major lay offs by Microsoft and Hewlett Packard. This is great news for the labor market as it means that even less jobs are being lost, so long as jobs creation remains steady overall unemployment should go down.

Jobless claims also fell this week, across the board. Initial claims fell -8,000 to 287,000 on a revised and adjusted basis. This is just off of the long term lows set in the early part of September. Last weeks figure was revised higher by 2,000 but remained below the heavily watched 300K line. The four week moving average also fell, from a mild upward revision, by -4,250 to 294,750. The decline is above expectations and keeps first time claims near historic low levels. This also jibes with the low Challenger numbers as a sign of decreasing job turnover and an increasingly stable labor market. On a not-adjusted basis claims fell by -5.4%, seasonal factors had expected a decline of only -2.9%.


Longer term gauges of labor trends, continuing and total claims, both fell as well. Continuing claims fell by -45,000 to 2.398 million and a new 8 year low, total claims fell by -49,493, also a new long term low. Total claims is nearly 50% lower than at this same time last year, mostly due to the unemployment benefits extension which expired at the start of the year. Regardless, both continuing and total claims are in long term down trends and moving lower. This supports the idea that jobs creation is at least steady while at the same time job losses are in decline.

The ADP report yesterday also supports a steady if not strong-ish labor market. Tomorrow's NFP will put the speculation to rest, at last for this month. The vast majority of economists and analysts are looking for the number to be above 200,000 with a significant revision to last month.


Factory Orders was the one negative report in today's bundle of data. Orders fell more than expected, -10.1%, posting the largest drop on record. This is of course following last month's largest increase on record, also over 10%. The swing in month to month factory orders is due primarily to the $100 billion contract announced by Boeing in late August. The orders for 100 jetliners accounts for nearly the entire 10% swing and was largely expected with the consensus estimated for September orders around -9.5%. Stripping the volatile transportation sector factory orders fell a more modest -0.1%.

Tomorrow is of course a big day for data. The NFP, unemployment rate, hourly earnings, average work week and ISM services index are all on tap. Next week things are a lot quieter on the economic front with only the FOMC meeting minutes standing out at this time.

The Oil Index

Oil prices were volatile once again. Today prices for WTI dropped more than -1.25% in early trading only to reverse and move into the green by the close of the session. Brent crude remained under pressure, primarily on news from the Saudis, losing more than a half percent. According to reports the Saudis may begin to discount oil prices for China in order to maintain market share, a move that could cause oil prices to fall further. This is counter to the idea they would restrict production in order to raise prices. When Art Cashin was talking about it on TV he suggested there may be an element of “James Bond” about it, referencing ISIS and Russia's use of oil to finance their respective agendas and how low oil prices would hurt their plans.

The Oil Index fell along with WTI in the early part of the day, and along with WTI and the rest of the market bounced from long term support. The index fell over 1.5% in early trading, touching the 1,500 long term support line, and then bouncing back to regain most of the day's losses. The index has been in decline for over a month now and has broken the long term trend. Today's action is suggestive of a bottom but one that is untested or confirmed. The indicators are bearish and convergent with lower prices so I would expect to see the index trade lower and at least retest support in the near to short term.


The Gold Index

Gold traded flat today, hovering around the $1215 level, as economics, central banks, global unrest and flight to safety competed for dominance. The rising number of global hot spots, all small and near term in and of themselves, are beginning to add up and are helping to support gold prices. Gold has been trading between $1200 and $1220 for two weeks now and may be at a pivotal juncture. Falling below $1200 could lead to more selling and another significant drop. The fundamental picture of economic improvement and upcoming rising interest rates are behind golds fall to the current levels and unless there is some sign that rates will rise much sooner than expected the move may already be priced in. The labor data tomorrow and the FOMC minutes next week are the biggest potential movers of gold on my radar at this time and may provide some more clues. Until then I think caution is due and a tightening of stops on bearish plays in this sector wise.

The Gold Index fell today, inline with equities but not so much with gold, and then bounced from a long term support line. The index fell below support at $82.35 before hitting intra day bottom and bouncing into the green. The index was able to move higher by nearly 1% but was unable to move above the long term support line. It is however above near term support with indicators that lead me to believe a snap back is possible. Not only is the index trading along long term support levels it is oversold in the near and short terms with increasingly divergent momentum. The index has bounced from this level under these conditions twice in the last 12 months with significant gains.


The $82.35 level will be very important over the next few days while data is being released and up until the FOMC meeting. Gold prices are the number one driving influence on the gold sector and how they react to the data, the minutes and the global headlines will indicative of longer term direction. Should the index fall below this level and confirm it could be headed down to next lower support around $66 and full retracement of the 2008-2012 bull market in gold.

In The News, Story Stocks and Earnings

Warren Buffet made two headlines today. The first was that Berkshire Hathaway was buying The Van Tuyl Group, the nations 5th largest operator of car dealerships spanning the country. The deal was not discussed in detail but he did say he saw value in the highly fragmented market. This could be telling in light of yesterday's better than expected car/truck sales data. The other headline was that he bought stocks during yesterday's sell off, a positive sign for the bulls.

The IMF lowered it's growth forecast for the fourth quarter and 2014 citing “clouds on the horizon”. They say the global economy is not where they thought it would be 6 months ago. On top of geopolitical concerns there is the specter of normalizing monetary to be concerned with along with the threat of Ebola.

Today Tesla announced the upcoming release of “D”. They didn't say what “D” is, just that it would be here next week. The announcement sparked a lot of conjecture, much of it humorous, and a 4% spike in shares of the stock. This announcement is a bit of grandstanding by Elon Musk and could lead to a drop in share price next week once “D” is unveiled. Of course, it is Tesla and Elon Musk so I have a little faith in whatever it is. Shares of Tesla are still below the long term trend line and in danger of reversing, at least into a sideways pattern. If “D” doesn't do it for investors shares of TSLA could retreat to $225.


Exxon Mobil announced that Ebola is affecting their business in West Africa. It is impacting current operations as well as plans for drilling off-shore of Liberia. The company is banning travel to affected areas by its employees while the epidemic is still unchecked. This is in the wake of the first US case, confirmed yesterday. The man in question is reported to have helped a woman who later died from the disease. Liberian officials are reportedly in the process of bringing charges against the man for lying on his exit questionnaire. Shares of Exxon fell on the news but bounced from a long term support line.


A report from the New York times said there were reports that JP Morgan had experienced another data breach but the reports were unconfirmed. An unnamed source was cited in the article but follow up paragraphs suggested it may have merely been fall out from the first breach. A JPM spokesperson was quoted denying the charge in the article and then later the company issued a statement denying as well. Shares of the stock fell in today's session and were not able to regain the loss, as was the broader market. JPM closed with a loss around -0.75% with bearish indicators. The stock is below resistance and indicated lower to support near $57.50.


Earnings seasons starts next week, officially, with the release from Alcoa on Wednesday. The company is expected to improve earnings by 16% over the previous quarter, largely driven by the deal with Boeing announced over the summer. The company has been on a tear over the last year as the economy slowly regained its footing, more than doubling in value. The uptrend ended this summer when the stock hit long term resistance and subsequently broke the long term trend line. Today Alcoa fell another 2% below trend on fear of global slow down and bounced from short term support. This support is right around $15 and confirmed by the indicators with a wicked MACD divergence and bullish stochastic crossover. Alcoa may trade sideways into next week until earnings at which time EPS and future projections will play an important role.


The Indices

After making a big move to the downside the markets were able to bounce back. All the major indices were able to power into positive territory and most were able to stay there into the close. The leader today was the Dow Jones Transportation Average. The trannies closed with a gain of 0.81% after falling more than 1% this morning. Today's action brought the index down below the long term trend line and support coincident before the bounce began. By the close the index was back above trend but still looking a little bearish in the near term. The index appears to bouncing from the trend line, in line with expectations, but is yet to be confirmed by the indicators. Momentum and stochastic are still moving lower in the near term but also still consistent with support in the short term. Based on market action over the past two years I expect this to follow through but would still like to see the NFP report, and maybe even the FOMC minutes next week before committing to that stance.


The NASDAQ Composite also finished in the green, posting a gain of 0.18%. The tech heavy index also fell to support and then bounced, although it did not break its trend line. Today's candle formed a long legged doji/hammer that helps support the idea of support and an end to the current correction.The long term trend is up and this is looking like a correction to trend. The indicators are still bearish and convergent with lower prices so I would expect at least a test of support that may take the index below 4,400 in the near term. The last correction to this trend line, during the April-May period this year, the index bounced along the line in consolidation for 4-5 weeks, a time span would put us well into earnings season now and a reasonable target for a bounce providing the market holds to trend.


The S&P 500 and Dow Jones Industrial Average both ended the day flat. The SPX up by a hundredth, the DJI down by two. Both forming hammer dojis on support after falling more than 1% on an intraday basis. The broad market S&P 500 bouncing precisely from the long term trend line with indications similar to the NASDAQ and transports. The indicators are bearish in the near term, pointing to a test of support, but also indicative of support over the short term.

The SPX is now trading along long term, secular support, and under near to short term resistance based on global events, not local ones. If the trend holds and the bulls come back, as it looks like they want to, the SPX could get squeezed between support and resistance until it pops out in one direction or another. Based on the data and my own long term view I think the bulls will win.


The Dow Jones Industrial Average is well above its trend line but long term support was tested none the less. The index broke below 16,800, the top of the range I have described as strong support in earlier wraps, and then bounced back. The indicators are still bearish here as well, but are also still the weakest and indicative of short to long term support. 16,800 will likely be important tomorrow, and maybe into next week, but it looks like support is still there.


I am a long term bull and I can't help it. I have this view of changing demographics that I can't shake and can only see the economy improving into the long term. That being said there have been a lot, a copious amount if you will, of reason to be fearful in the near and short term. I could list them all here but why beat a dead horse, or pick apart the wall of worry, and that's what I think this has been. A correction built on a wall of worry and today the indices touched long term trend lines and bounced. I don't know if this means the market will reverse tomorrow but I do take it as a sign that I am not 100% wrong in my analysis and that the long term trend is intact.

Tomorrow the NFP may be the trigger to spark another rally and it may not but I do expect to see it confirm the labor trends we have been witnessing. It doesn't have to be strong, it just has to be steady. Steady is what we have had and that is what we need. If the economy gets too hot then the Fed will have to act, if it stalls they will have to act, but if it stays steady they can hold off on interest rate hikes until …..

Until then, remember the trend!

Thomas Hughes