The market opened strong today but timid buyers soon retreated to support.

Introduction

The market opened strong today, following last week's bounce from support and surprisingly strong non farm payrolls numbers. The bounce that began last Thursday carried through into Friday, over the weekend and into the start of this week. Asian and European market were both higher this morning when I got up although Asian markets were stronger. Asian markets opened, moved higher and closed higher. European markets opened higher but fell throughout the day as did our own.

Futures trading was positive from the earliest part of the day here as well. The SPX was indicated about 5 points higher before 8:30 and then strengthened into the open and the other majors followed suit. At the bell market action was firmly positive with advancers leading decliners by more than 4:1. The market surged higher for the first 15 minutes and then hit resistance. Resistance held and soon the indices were moving lower, testing break even levels and lower. By lunchtime the indices were in the red across the board.

Market Statistics

Aside from last week's positive data there just wasn't much to hold the market up today. There was very little news over the weekend; Geopolitical concerns did not erupt, there was no official economic data, there was very little earnings news and very little business news. Once the initial pop of buyers petered out the market just sank back to break even and lower. Once early support was broken the indices fell further and into the red at which time the Dow Jones Industrials were down as much as 80 points. Afternoon trading remained mixed but the indices were able to regain most of the losses before the close.

Today's action was light and without real direction. There were some bulls eager to get into the market following last week's data but I think most are waiting for the FOMC minutes and Alcoa on Wednesday.

Economic Calendar

The Economy

There was no economic data today. Last week's NFP was enough to keep people talking but surprisingly did not get a lot of mention in the news. We did of course get Moody's weekly Survey Of Business Confidence presented by Mark Zandi. This week's report is unchanged from previous weeks except in that it may be even more positive. Mr. Zandi begins by saying that business confidence is “rock solid”. This is of course a highly subjective term but nonetheless conveys his interpretation that business confidence is strong. According to his summary business sentiment is near record highs in the US, layoffs are notably low, hiring intentions are high and outlook into next year is positive. South American and Europe are less optimistic.

There is not a lot of economic data this week. Tuesday is consumer credit and JOLTS job openings. Consumer credit is expected to decline by 20%. Wednesday is the FOMC minutes, the biggest potential market mover of the week I think. Thursday is the weekly jobless claims and monthly whole sale inventories. Both are expected to rise mildly. Friday is the Treasury Budget and import/export prices.

The Oil Index

Oil traded in a volatile range today. Prices fell after opening near flat to last week's closing prices only to rise into the close. Rising supply levels are still in control although reported tensions between OPEC nations are creeping into the news. On one hand some OPEC nations want to curb supply to boost prices while others are seemingly opposed to such a move. The Saudis are central to this story. They cut output a month or so ago, on their own, and are now part of a group of Arab nations saying it will be months until that decision needs to be made. OPEC is scheduled to hold its final meeting of the year next month. WTI fell by nearly -1% in early trading but moderated to about -0.30% by mid day. Brent fell by more than -0.75%, narrowing the spread between the two, to trade around $91.75. After lunch and going into the close of the US session WTI climbed into positive territory gaining about 0.75% with a comparable gain in Brent Crude.

The Oil Index traded with as much conviction, first down, then up, then flat, creating the third doji candle in a row after testing support at 1,500. The indicators are weak and pointing to further testing of support in the near to short term. MACD momentum is convergent with the recent drop in prices, an indication of market strength, while stochastic remains oversold. The big oil companies report near the middle of the season and are scheduled at the end of October and into the first week of November.


The Gold Index

Gold bounced today after hitting long term lows below $1200 on Friday. The much better than expected Non Farm Payrolls number along with the ADP, Challenger and initial claims report pushed the price back down to levels where it was way back at the beginning of the year,around $1200, before Russia invaded the Crimea and began the flight to safety trade. Today's action added $15, taking gold back above $1200 and my target for possible long term support.

Now that gold prices are more or less back in line with the fundamental picture the current levels are potential levels for support. Of course, there is also the possibility that prices will break through but I think that the data, the Fed, the taper and higher interest rates could be priced in. Gold bounced from $1200 twice in the last 18 months and could do it again. The mover this week in my view will be Fed the minutes on Wednesday.

5 Year Spot Gold:Kitco

The Gold Index also bounced today, moving close to 2% higher and back above $80. Today's action created a Harami candle pattern with last Friday's long black candle; this pattern is one that can sometimes mean reversal. The index has been moving down at a rapid pace over the past month and is now trading at new long term lows. It is extended from the short term moving average and in position for a snap back. The index is divergent from MACD, a divergence that has persisted the entire move and one that I have noted time and again. At the same time stochastic is extremely oversold, flat-lining across the bottom of the range for three weeks, leaving the index ripe for buying. By no means am I saying this is a bottom just pointing out a highly speculative possibility. The indicators are weak and could remain weak, especially if gold prices remain low and hopes of future gold prices remain low. If a bounce were to ensue it would find resistance just above the current level at the Jan '14 low and then at $85, and in the range from $85 to $90 in the near to short term. My caveat is of course that the gold index is tied very tightly to gold prices, if gold prices fall again the index will surely fall as well.


In The News, Story Stocks and Earnings

The big story of the day was the split of Hewlett Packard into two smaller companies. Relatively small that is, the two new companies will both still have a market cap over $30 billion. The move however, is another one not seen coming and a surprise to the market. CEO Meg Whitman has said time and again they were committed to the 5 year plan and not looking to split. Today she said the split was only possible because of the improvements and current strength of the business. The split is scheduled to be complete by the end of next year. The market seems to think it is a good idea because the stock moved up by 5% on more than 5 times average daily volume. It is trading just below long term support with earnings scheduled 11/25.


There were reports this morning that FaceBook had created its own payments app. The app is supposedly for the mobile version and would, I guess, be similar to Apple's Pay. Upon investigation the source is very dubious and a possible set up. Some hacker, using a jailbrake iPhone, somehow came up on some pictures while accessing some other information on Facebook and then blogged it. The story was then picked up by MarketWatch and others. In any event the stock was unmoved by the news and traded near flat to last weeks close.


Hilton International announced today the sale of the landmark Waldorf-Astoria hotel. The deal includes them operating the property for next century but moves ownership to a Chinese Insurance company. The hotel was valued at nearly $2 billion dollars. Shares of Hilton fell in today's session, dropping -0.45% from the short term moving average. The stock has been trending sideways all year and looks like it is set to test support near the mid point of the range at $24.


The Indices

The indices moved higher at the open but could not hold the gains. Despite the NFP the market is still playing the waiting game, apparently. Today's action created a variety of different sized candles among the indices but all basically traded between long term support and near term resistance following last weeks long term trend/support bounce. Losses ranged from -0.10% down to -1.15% with the Dow Transports leading the losses. The transports fell from resistance at 8,500, the July all-time high, breaking the short term moving average but remaining above the long term trend line. The indicators remain weak but are beginning to rollover. The MACD peak is in decline and stochastic is giving the early trend following signal. It looks like the index is finding support and beginning to move in line with the trend.


The NASDAQ Composite was runner up, losing -0.47%. The tech heavy index fell from resistance, also consistent with the July highs, breaking the short term 30 day moving average. While below near term resistance, the index is still above long term support with about 60 points between today's close and that support. The indicators are bearish and convergent with a test of support but also indicative of the underlying trend, MACD has peaked and stochastic has fired the early trend following signal. Caution is still due as we await more concrete signs of direction but it still looks like the long term trend is intact.


The S&P 500 fell a more modest -0.16% in today's action. The broad market shed only 3 points after trading in a range of nearly 20 points. The index is trapped between near term support and resistance, above the long term trend line, in a range coincident with the congestion band of July. The indicators are bearish but like the others, in line with a trend following bounce. MACD is peaking and stochastic is giving the early signal. There are reasons for caution but with earnings eve upon us I see no reason to doubt the bounce at this time.


The Dow Jones Industrial Average lost the least today. The blue chips fell only a tenth. Despite the small loss the index traded in a large range, like the others. Today's action had the index up by 90 and down by 80 at different times of the day. In the end buyers and sellers balanced out to create a doji just below resistance consistent with the July high, no surprise there. The indicators are likewise bearish in the near term and consistent with support in the long term suggesting that the bounce is good but resistance is persistant. In the near term the index faces resistance at 16,900 and 17,000 but provided earnings aren't surprisingly negative this should fall.


Here we are once again on the brink of earnings season. The indices look set to move higher and I don't see any reason why they shouldn't. Geopolitical fear is still present but diminished and earnings growth is still expected. Present fears I see include several things. Ebola is a growing fear but still far from creating panic and global weakness is still present in Europe, Asia and the emerging market.

We are still strong. There are risks, and our partners aren't as strong as they could be but the US economy is firmly growing without them. Economic trends are up and based on last week's labor data maybe gaining strength into the end of the year. With that in mind third quarter earnings could easily beat expectations that have fallen from over 6.5% average earnings growth among S&P companies to down near 4.5%. Wednesday we'll get earnings from Alcoa and maybe a sign of how things are going to be this time around. As always, earnings are important but future out look is more important. Don't forget, Wednesday is also the release of FOMC minutes. FOMC minutes are released at 2PM, Alcoa reports after the bell.

Until then, remember the trend!

Thomas Hughes