The major indices wrestled with new all-time highs on mixed economic data ahead of tomorrow's general elections.

Introduction

A round of mixed economic data as well as anticipation for tomorrows elections combined to create a day of cautious trading. Not bearish, just weak; the indices held to near break-even levels for most of the day with light volumes. Some were able to move into the green and set new all-time intraday highs while others were not, but all closed off of the day's highs.

Weaker than expected, but still expansionary, data from Asia and Europe helped the market start of on a somber note. Flash PMI reading from both regions were slightly less than expected but still above the expansionary 50 level. In China the reading was 50.4, a three month high, and in Europe the reading was 50.6, flat from the previous month.

Market Statistics

Earnings news ahead of the opening bell was positive but not too exiting. Economic data was more in focus but again was not all that exiting. Auto sales figures were released throughout the morning and were basically in line with expectations. ISM manufacturing was in line with expectations with a positive look forward into the next month. Construction spending was down versus an expected gain but not by a large margin.

The economic data did not spark a rally but it did help the indices hold near Friday's closing prices once the open session began. The indices rose to near break-even ahead of the bell and then held those levels throughout the morning. There was a little bit of churn but trading was held to a fairly tight range all day. The SPX was held to a range of 5 points, between 2015 and 2020 for most of the day but was able to move as high 2024.46 on an intraday basis.

Economic Calendar

The Economy

ISM and Construction Spending figures were both released at 10AM. The ISM gauge of business strength rose to 59, a gain of 2.6%. This is up from last month's reading of 56.6 and matches the August reading, which was a 3 year high. Within the report new orders rose by 5.8% to 65.8. The report highlights an increase in demand for items going into the holiday, employment and production levels.

Construction spending fell unexpectedly by -0.4%. This is versus an expected gain of 0.7%. The previous month was revised higher to -0.5%. On a year over year basis spending in September 2014 is up 2.6% from last year. On a year to date basis spending is up 6.1%. This shows spending is slowing this year, but still above levels seen last year. Most of the decline this month is due to a drop in public building projects.

Moody's Survey Of Business Confidence is still strong. In the highlight Mark Zandi reports that confidence remains strong and firm, with no signs of an impact from market volatility or Ebola. He goes on to say that conditions are a little soft but the outlook going into the end of the year and first part of next year is still strong. Conditions overseas are still weak, especially in Europe and South America.

Auto sales were released throughout the day on a maker by maker basis. GM reported a little lighter than expected, only 0.2%, but for the most part all were inline or slightly ahead. Toyota reported +6.9% versus an expected +6.1%. Chrysler reported a strong +21.7% gains on sales of Jeep and Ram trucks. Ford sales fell-1.7%, weak but not as weak as the -2.7% expected. As a whole the reports put the market on track for an annualized rate of about16.4 million units. The national data, released at 2PM today, revealed that the sales rate topped 16.5 million units on an annualized basis.

The Oil Index

Today WTI fell below $80 to a new low near $78.50. Today's action was largely due to a new price list from Saudi Arabi. The latest price list, which is really a list of price differentials for Saudi costumers, has them raising prices for Asia and Europe while lowering them for the US. A stronger dollar is also putting pressure on oil prices but the Saudi and greater OPEC situation is still an unanswered question that could keep prices from falling to far. The next OPEC meeting is November 27th at which several members are expected to call for a defense of oil prices through production cuts. New evidence shows that OPEC production is already falling even though there has been no official action to do so. The latest Reuters survey shows that production was down more than 120,000 million bpd in Oct.

The Oil Index traded to the downside today. The index moved down from resistance at 1480 and could be moving lower. The indicators are bullish but are peaking at this level and could lead to consolidation or pullback. Caution is definitely warranted here, especially in light of the upcoming OPEC meeting and it's potential influence on oil prices and expectations for profits among oil producers. The oil companies have so far been able to meet street expectations but with prices so low future profit growth is in serious doubt. I am still expecting a retest of support, possibly as low as 1,400 or 1,350, based on the October correction so I will be watching 1480 very closely. Today's move might be confirming this theory but I'm not that bearish on the index either, with potential support close beneath today's closing prices.


The Gold Index

Gold prices held steady today after falling to a new low last Friday. All my theories were completely blown out of the water by the BOJ move to expand its QE programs. This move, along with the FOMC decision/statement and recent moves by the ECB, helped send dollar value soaring and gold prices sinking. Gold is now below the previous support level of $1180 with indicators pointing to lower prices.

The Gold Index traded higher today, gaining 3.5% from the long term low set last week, a low dating back more than 10 years. Last weeks drop in gold helped the index to complete a full retracement of its prior bull market and then drop below the 100% line. The index is trading below potential support with bearish indicators and an underlying commodity under serious pressure. The indicators are bearish on the daily charts, pointing to lower prices, and confirmed by complimentary indications on the weekly chart. The long term trend in the index is down and I don't see that changing now, so long as gold prices remain so low. On a contrarian note, the indicators are still showing fairly substantial divergence from the current lows, a sign of weakening trend.


In The News, Story Stocks and Earnings

Earnings are still in focus. As of Friday more than 74%, 362, S&P 500 companies have reported. 78% of those have reported earnings above the projected average and 59% have reported sales above the projected average. As of now average earnings growth is 7.3%, up from last weeks average 5.6% and the 4.5% projected at the beginning of the quarter.

Sysco, one of the nations largest food suppliers, reported earnings this morning. The purveyor reported 6% increases in revenue and profits despite a decline in margins. Along with the good news the company reported that ongoing issues with the FTC anti-trust review of its purchase of US foods will prevent the merger from going forward until after the holidays at the earliest. Shares of the stock traded lower on the news, coming to rest just above $37.50. This level was established as potential support/resistance just about a year ago when the purchase of US Foods was first announced.


Ryanair, discount air carrier, reported an increase in earnings above expectations and lifted its full year guidance. The company was able to increase traffic volumes and revenue per customer and is only the latest airline to report similar results. Shares of the stock moved higher by more than 6.5% after gapping up at the open to trade just below long term resistance near $60. The indicators are bullish and gaining strength so I would expect to see resistance tested again.


Sprint move pretty fast after the bell, lower, on a poor earnings report. Shares of the telecom giant fell more the -7.5% after reporting a shortfall on revenue and earnings. The shortfall is due in part to a decline in revenue from post-paid users and has resulted in a downsizing of the company. Sprint reported it was cutting 2,000 jobs to reduce costs and streamline operations.


AIG also reported after the bell. The insurance giant reported earnings and revenue above expectations and sent shares higher. The company reported EPS of $1.21 versus the consensus estimate of $1.09 on revenue of $8.6 billion. Share gained about 1% after the announcement and look like they will move higher in the near term. The indicators are bullish and on the rise with resistance 2.5-5-5% above current levels.


The Indices

The market more or less traded flat today. The SPX closest to flat line than any, with a loss of only -0.01%. The index traded in a very tight range, at current all time highs, setting a new intra-day all time high with bullish indicators. Momentum is very strong but may have peaked or be at a peak while stochastic is very high in the range. The index is moving up and looks good to keep moving higher. I still think a retest of support is due, maybe not down to last month's lows, but maybe down to 2,000 or to the long term trend line around 1,950 if at all. So far there is no real sign it is coming, other than previous divergence, so until then I'm holding my position with tight stops.


The Dow Jones Industrial Average was the other major index to close in the red. The blue chips lost 0.14% after briefly moving into the green and setting a new intra-day high. The index created a spinning top around Friday's all-time closing high while traders wait to see what happens with the elections. The indicators are bullish, but unlike the SPX which is showing a possible peak in momentum, the Dow Jones is still gaining momentum. MACD is at an extreme bullish peak, a sign of strength, and stochastic is crossing the upper signal line. Based on the indicators I would expect to see higher prices in this index over the next few weeks and months.


The Dow Jones Transportation Average was able to close with a small gain, 0.15%. The trannies made a new all time closing high, but not a new all time intraday high. Regardless, the index is making new highs and is beginning to for what looks like a near term consolidation. This is because the index has traded sideways over the past five days, with bullish indicators, at all time high levels during a strong bullish move just ahead of major elections and a round of macro-economic data. MACD and stochastic both indicate strength in the previous move as well. MACD is at an extreme peak and stochastic is high in the range. Both indicators are showing some near term weakening of the move but this is also possibly a good sign. Weakening indicators while the market continues to trade at or near all time highs allows market to cool off and set up for another leg higher. Of course, this theory requires a break above resistance which is currently right around 1,870. If this plays out, and the index does make a break to the upside, targets are as high as 1,000 points above the current all time high. I know that may sound a little ridiculous but the index has already made a move of that extent, we may be only be at the midpoint of a larger move.


The NASDAQ Composite made the largest gain at 0.18%. The tech heavy index set a new all time closing and intraday high with bullish and rising indicators. Momentum is on the rise and stochastic is moving higher in the upper signal zone. The index is moving higher in the near term, in line with the long term trend and looking strong.


The indices tread water today. The underlying reasons they are at current levels have not disappeared but tomorrow's elections and the upcoming round of macro-economic data has provided reason to pause. Once the smoke clears underlying fundamentals will remain. The trends are up, the indices are breaking out to new highs and the indications are strong. The elections or the data could put an end to that but until then I remain bullish.

Until then, remember the trend!

Thomas Hughes