The market experienced another wild day of trading while Ebola fears cloud long term economic trends.

Introduction

The market experienced yet another day of wild trading. The major indices dropped over 1% at the open only to bounce of support again. Like yesterday, the wild swing in stock prices was led by the small caps and transportation. Ebola fear has gripped the market, or is being used as an excuse, but long term economic trends remain intact. Today's data reveals that there is some slowing but activity in general remains positive and expansionary.

Early morning trading was likely affected by Europe and Asia. Both of those markets were sharply lower. There weren't any major headlines out of Asia but Greece has emerged as an issue in the EU again. The country may be exiting the bail-out sooner than expected, counter to current plans, in order to stave off a change in governing parties. Other factors at play overseas are rising fear of deflation in Europe.

Market Statistics

Index futures were indicated sharply lower from the earliest. The S&P 500 and Dow Jones Industrials were both more than 1% lower. This moderated somewhat throughout the morning but was largely unaffected by data or earnings. Stocks fell at the first ring of the bell with decliners outpacing advancers by more than 9:1. The negative spin did not last long, the market rose from the first trade and climbed steadily higher throughout the morning. By mid day all the majors indices were in the green. They hit the daily high around 1:45PM then moved lower to test support, bounce and then hover just above break even into the close. Only the Dow was unable to remain positive today. It looks to me like there is some stock picking going on, particularly among the small caps and transports. Based on CSX's projections for double digit growth next year I can understand why.

Economic Calendar

The Economy

There were quite a few economic events today. All were positive although a few showed some decline. The weekly jobless claims was a positive surprise, falling against expectations to a near 15 year low. Claims fell by -23,000 from last week's unrevised number to come at 264,000, analysts had been expecting a gain of about 7,000. This is the lowest since April, 15 2000 and yet another sign that job losses and turnover are slowing. The four week moving average also fell, losing -4,250 and coming in at 283,500, also a near 15 year low. Claims rose on a not adjusted basis, by 5%, but much less than expected. Seasonal factors had been expecting a gain closer to 15%. The biggest gains in new claims occurred in NY, TX and CA for a net increase of 8,554. The biggest declines in new claims were in OK, ID for a total of -314.

Continuing Claims rose by 7,000 this week. This is from an upward revision of 1,000 to 2.389 million. The four week moving average fell, in line with the recent down tick in claims, by -10,000 to 2.403 million and another new low. This low dates back to June of 2006 and will likely be broken in the coming weeks, initial claims are falling and that usually leads to a decline in continuing claims. This will also likely show up as a decline in total claims, which fell in this weeks data. The total number of Americans on unemployment fell by -38,946 to a new low of 2.088 million.


Industrial Production and Capacity Utilization figures were released at 9:15AM. Industrial production rose 1%, more than double the expectations. On a year over year basis production is also up, by 3.2%. The gains were led by mining, manufacturing and utilities. Capacity Utilization also rose more than expected. This figure rose 0.6% to 79.3% versus an expected utilization rate of 79%, 10% higher than last year in the same month.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey declined this month but was better than expected and expansionary. The diffusion index declined by nearly 2 points to 20.7, still positive and showing steady expansion in the region. This decline follows a four year high set last month. The current activity, shipments and employment components all declined this month but new orders rose and the future outlook remains positive.

The National Association Of Home Builders Index of Home Builder Confidence fell 5 points this month, after posting four straight months of gains. The index fell to 54 from 59 and is still indicating expansion. Current conditions and home buyer traffic were both reported lower for the month but according to NAHB chairman Kevin Kelly this dip merely returns us to trends set earlier this summer and is “in line with the gradual pace of the housing recovery.” The dip in this index is also not too surprising as the previous month was a 9 year high.

The Oil Index

Oil added it's own spin to the market today. The roiling issues plaguing the oil market persist and sent prices first down by over -1.5% and then up by over 1.5%. During the early part of the session prices fell below $80, for about 15 minutes, when buyers stepped into the market. It is not clear if this was physical buying, short covering or speculation but the move carried oil back to $85 where it met resistance. I don't know where oil is going from here but someone thinks $80 oil is a good price.

The Oil Index has been suffering from the decline in oil prices and today bounced from a long term support. The index climbed more than 2.25% after initially opening sharply lower. The index moved up from a long term support line, broke above resistance and held that level into the close. The indicators remain bearish but are retreating from a peak. This could be a bottom, maybe even the bottom, but the indicators are convergent with the decline so I would expect to see prices retest support before moving higher.


The Gold Index

Gold traded in a range today, but not quite as wildly as oil. Prices hovered in a $10 range around $1240 and closed even with the open, creating a spinning top. Near term momentum is up and may increase in the near future but there is some resistance around $1250, as evidenced by yesterday's action.

St. Louis Fed President Jim Bullard suggested today the Fed could, or should, continue QE past October. This could be done by not tapering the final $15 billion or even by increasing purchases. His reasoning was the Fed should continue to taper while the market is selling off in order to see how it would affect economic conditions. He of course said the decision was data dependent which from my view, is still improving and not indicative of a Fed that will be adding to QE anytime soon.

The Gold Index traded in similar fashion, creating a doji-like spinning top with noticeable wicks at both ends. This is the smallest candle formed by the index since dropping below the $80 support level. The index has been consolidating and appears to be nearing a point of possible equilibrium. The indicators are bullish but could be setting up for another bearish signal. At this point the index is still below long term support within a long term downtrend so it looks more likely for the index to continue lower than it does to move up. However, the index is tied to gold prices. If conditions develop to lift gold back above $1250 then the index could break above resistance. Most of the senior miners are scheduled to start reporting the week after next. Resistance is at $80 with a downside target near $65 if resistance holds.


In The News, Story Stocks and Earnings

Apple was in the news again, surprise surprise. The held another product launch and made some announcements that will surely impact earnings in the current quarter. They launched the iPad air. It is super thin and super cool looking but still just another iPad. They announced that developers would be able to start working on apps for the iWatch next month which will give them a few months lead in order to create the apps that will power the device. Most importantly and why I saved it for last Tim Cook announced that Pay would start working on Monday. Alongside this is the news that 500 banks are now supporting the service. This will be a cash cow for Apple as they are projected to receive $0.15 of every $100 spent using Pay. Shares opened lower along with the broader market this morning, traded higher but were not able to hold it. Prices fell back to close just above $95.


United Health Care reported that revenue and earnings both grew more than 20% on a year over year basis. This resulted in a 7% increase in earnings over the same period last year. The results and current performance caused the company to raise full year guidance to just above previous guidance. Shares of the stock jumped more than 4% today, breaking the $85 level. The indicators are line with a move toward resistance but not very strong, it could be range bound with $85 as a potential pivot point. Resistance is around $87.50 with support near $80.50 and the bottom of yesterday's candle.


Delta Airlines reported this morning as well. The air carrier reported better than expected top and bottom line results on a number of factors including increased passenger and cargo revenues and higher gross margins. The company reported $1.20 per share, 2 cents ahead of the projections. The company expects passenger and cargo trends to continue into the next quarter and is expecting to see more growth in 2015. Shares of the stock moved more than 2.5% higher in today's action coming to a one week high. The indicators are bearish in the near term but momentum has peaked and may be turning. Stochastic is showing support along the $30 level with $35 potential resistance. It looks like this one wants to move higher, and low oil is helping it, but the Ebola issue could hold it back in the near to short term.


BB&T reported $0.71 per share this morning, in line with estimates. The company reported strong loan and core deposit growth and primary drivers of the result. Fee income and improvements to credit quality are also mentioned in the report. Improvements to business and traffic are going to be aided in the coming quarters by an expansion into new territories such as Texas and Kentucky. Shares of the stock fell on the news before the open, in line with the broader market, moved lower after the open and bounced from support just beneath $35. The bounce was strong but not strong enough to regain yesterday's closing price. Resistance is now at $36 with increasing bearish momentum and stochastic setting up for a potential bearish signal, a combination pointing to a test of support.


The Indices

As today's title implies, the market went on another wild ride. First, early sellers brought them down by more than -1%, then later buyers sent them right back up with overall movement on many of them over 2% for the day. I'll start with the Dow Jones Industrial Average. This is the only major index to close in the red. The blue chips lost -0.15% after trading in a range close to 3% of index value. Today's action created a nice doji that appears to be confirming support at 16,000. This is the second day of trading in which price action crossed this level, bounced and created a long lower shadow. Bearish momentum is still on the rise so further testing of support could occur but for now it looks like support is there. Stochastic has yet to fall below the signal line and in fact has been trending flat just above it for a few days, another indication of support. The question is what kind of support is it and what kind of news will emerge to help or hinder it? This could be a bounce but I would like to see the index get above 16,250 before making any bets. Resistance is 16,250 with support at 16,000.


The SPX closed just about as close to break even with being break even as it can get. The index finished higher by just over 1 point, or 0.01%. The broad market traded in a range over 2% today, creating a small bodied candle with long upper and lower shadows. This is very similar to market action in the Dow Jones and likewise, is confirming an area of support near 1850. The index is below some potentially important resistance levels but creating a nice looking entry point for the near term. Momentum has just peaked from a long term extreme while stochastic is making a bullish crossover. Additionally, stochastic never fell below the lower signal line indicating some underlying strength. If support holds the index could move as much as 40 points higher in the near term, with 1900 as likely resistance.


The NASAQ Composite also closed just above break even. The tech heavy index gained only 0.05% in today's session. Unlike the first two indices, this one opened at support and moved higher all day, closing just shy of the top of the candle. Total movement for the day: over 2.75%. This index is finding support along the 4,100 level after breaching 10% correction yesterday and today. The indicators are bearish, below resistance and the recently broken trend line, but at very extreme levels. Well, momentum at least. It is at an extreme bearish peak and convergent with a retest of support but stochastic is like the others and showing longer term support. Prices could very easily snap back from here and move up to the 4,400 level in the near term. Risks are Ebola headlines and earnings, which could lead all the indices lower.


Now, on to the transports. The Dow Jones Transportation Average gained 1.12% today, more than a full percent ahead of the others. Today's move is a follow up to a test of support that occurred with yesterday's candle. Yesterday's action in the transports is very similar to today's action in the SPX, DJI and COMP which makes today's action look pretty good. The index is moving up from support at 7,750 with indicators consistent with a trend following bounce, assuming the correction is over or near over. Based on the report from CSX yesterday I think that the long term trend will take over eventually, once the Ebola fears calm down.


I don't typically do the Russell 2000 but today I will. The small cap index gained 1.25% today, after trading in a 3% range, to break above resistance. The indicators are in line with a trend following signal and are about to fire with strength. MACD is about to cross the zero line and stochastic is about to make a strong bullish crossover, one in which %K crosses %D when %D crosses above the lower signal line. Out of all five this index looks the most bullish and in line with prevailing trends. The Russell led us into this correction and this chart looks like it is leading us out of it too. An added positive, and maybe I'm grasping at straws, is that the correction in this index, based on the indicators, was not very strong.


Price action today looks pretty positive. The correction may not be over, there could be some more downside, but it looks like we have found some solid support. It's not likely we're going to see the market bounce straight up but a bounce is brewing. The number one near term risk is Ebola. The wrong headline at the wrong time could send the market back into a tailspin. However, keep in mind that despite Ebola fears and sluggish, slow growth in the rest of the world America is still growing. The economic trends are up, expansionary and gaining traction.

Until then, remember the trend!

Thomas Hughes