Economic data and central bank policy lift the market.

Introduction

The indices drifted higher today, led by a surge in the Dow Transports.Futures indicated a flat to negative open from the start of early trading but slowly improved throughout the morning. Economic data and earnings both helping to lift prices. This week's round of labor data is positive and once again shows underlying strength in the economy. The only weak spot was the jump in planned layoffs which was not unexpected, just a little shocking when you first read the headlines. After the 8:30AM data release index futures rose to break even just before the opening bell. After the open trading was mixed, hovering around flat for the first half hour before quickly dipping down to test near term support. By 10:30AM the market was bouncing higher and setting new all-time highs.

Market Statistics

Dovish policy from the ECB added some support today as well. The monthly meeting of the ECB ended this morning with the announcement it would leave key rates unchanged. This was more or less as expected; Mario Draghi has been blowing wind about “further measures” for many, many quarters and has yet to really do anything. Today was no different, in the statement and press conference Draghi stated the central banks commitment to increasing the balance sheet and even made a few more hints at increasing stimulus measures. Mr. Draghi also addressed the possibility that there was division amongst ECB council members by saying “it's normal to disagree”. The European markets at first responded well to the news, driving index prices up by more than 1% before falling when the reality of “weak growth momentum” and “downside risk” to the EU economy set in.

Economic Calendar

The Economy

First released today was the Challenger Gray&Christmas report on planned layoffs. According to their data the rate of planned layoffs surged by 68% in October, lead by retail and computers. The total number of layoffs planned in October rose to 51,183, the second highest level this year. Last month's figure was a 14 year low, one reason the snap-back this month is not too surprising. Another reason is that October and November are historically months in which layoffs accelerate due to end of the year business restructuring. According to data within the report restructuring was listed as the reason behind 33,000(64%) of this month's layoffs. This month the gains were led by Hewlett Packard and Sears, both of which are in the midst of planned restructuring. On a year-to-date basis layoffs are down -4.3% for the year. An additional tidbit I found near the bottom of the report was a tally of planned hiring showing a month-to-month and year-over-year increase.

Initial claims for unemployment fell by -10,000, reversing three weeks of gains. Last week was revised up by 1,000. This week's number of initial claims is 278,000, extending the dip below 300,000 to 8 weeks. The four week moving average also fell, shedding -2250 and setting a new 14 year low. On an unadjusted basis claims fell by -1.9%, just ahead of the expected -1.7% projected by the seasonal factors and down -20% from last year. Initial claims are off of their lows but trending at long term low levels. These levels are consistent with the current rebound in the labor market and economic recovery.

Continuing claims also fell this week. The number of claims fell by -39,000 to 2.348 million. This is a new 14 year low not seen since December, 2000. The previous week was revised up but even with that the 4 week moving average was able to set a new low as well. Continuing claims are still trending lower and could be leading the way to another decline in the unemployment rate. The total number of claims for unemployment for all levels rose by 77,119. This is just off the recently set long term low.


It looks to me like the labor market is still chugging along. There is no sign of a booming market, but no signs of a weak market either. Just the same steady market that has been building for the last two years. All the data supports it. The ADP figure yesterday was just right, smack in between 200K and 250K. Challenger is up this month and down for the year. Jobless claims are trending lower at levels that have already contributed to a decline in unemployment. Based on these factors I am expecting to see tomorrow's NFP in the same range as ADP with a possible decline in unemployment.

Productivity increased in the 3rd quarter by +2.0%. This is below the +2.7% increase in the 2nd quarter but still a decent number. This was matched by a 4.4% increase in output and a 2.3% increase in hours worked. On a year-to-date basis productivity is up just shy of 1.0% with a 3% increase in output and 2.1% increase in hours worked. Compensation also increased, by 1.2%. This isn't a massive increase in hours, productivity or wage growth but it is growth and shows there is some upward pressure on wages.

The Oil Index

Volatility persisted in the oil pit. Ongoing perception issues with OPEC and pricing issues with Saudi Arabia were compounded today when OPEC released its annual report on oil, lowering its outlook on demand and prices. Along with the lower outlook OPEC also sees a danger of oversupply, more fuel for the ongoing price way. Additionally there is a growing possibility that Iran and the West will come to terms over it nuclear program and opening up even more supply to the market. Brent fell by about a percent when the OPEC report hit the wire but was able to regain its losses by the end of the day. WTI fell as well but was not able to reclaim yesterday's settlement prices.

The Oil Index traded to the upside. The index gained about 0.80% in a move that began below yesterday's close and a potential support. While it looks like oil could move lower the Oil Index appears to be undecided. I could make an argument for a potential move higher, or a retest of long term support down around 1,350 but I think it is going to come down to where oil prices go and for now that is the million dollar question. Current resistance is 1,490 with support around 1,430 and 1,400.


The Gold Index

Gold prices held steady around $1145 today but may only be pausing for breath. The rapid increase in dollar strength over the past two weeks has pushed gold down to 4 year lows and is not showing sign of letting up. The ECB is still a year or more behind the FOMC in its recovery and policy cycle and the BOJ is actively printing yen as we speak. At the same time the US economy is gaining momentum while EU and Asian economies continue to flounder, all adding up to a strong dollar and weak gold.

The Gold Index gained over 5% today, creating a long white candle and a possible bullish engulfing pattern. The index opened higher than yesterday's close and then powered higher all day, completely making up all of yesterday's loss and more. Of course, this is probably a very short term indication of direction as the index is in a long term downtrend, below long term support and showing weak indicators. Possible bullish signs exist in the indicators as well as in the price action but without a move above $66.50 I see them as portents of possible bearish entry. The MACD is peaking, stochastic is forming a very weak bullish crossover and both indicators are divergent from the two month down trend. These could lead to a snap back or relief rally but there is a significant resistance level at $66.50 that must be overcome and I think it will take a significant improvement in gold prices for that to happen. Without that I will be looking for bearish activity in this sector.


In The News, Story Stocks and Earnings

Earnings are still flowing but we are getting near the end of the season. RandGold resources, a senior miner with operation throughout Africa, reported earnings today. The miner reported EPS of $0.63, 11% better than the previous quarter but less than the $0.76 expected. The gains were made on an 8% increase in production for the quarter, attributable to operations at a new mine called Kibali in western Africa. There was no mention of Ebola affecting operations but the company did say it was taking steps to protect the miners and communities where they are operating. On a year to date basis production is up more than 37% and is expected to increase as operations in Kibali come fully on line. Shares of the stock rose more than 10% in today's session, it is not a part of the Gold Index.


CBS reported earnings above estimate. EPS of $3.03 was aided by positive charges related to the spin off of CBS Outdoors earlier this year. The company also reported favorable earnings surprises from syndicated programming offered on cable and streaming channels. Shares of the stock moved higher in the premarket session and gapped 2% higher at the open. Then sellers stepped in and drove prices back down to retest support near $50. This one has been trading more or less sideways to down over the past 12 months and could be forming a bottom. Today's action appears to be confirming support set last month. If not, a drop below here could lead to a more pronounced downtrend in this stock.


Disney reported after the bell and matched estimates for earnings on slightly heavy revenue. The results are an improvement over the previous quarter and a company record. Unfortunately they are a little shy of expectations and sent shares lower in after hours trading. Disney also announced the title of the latest Star Wars movie, “The Force Awakens”, as well as a handful of Marvel titles.


The Indices

The bulls came out of the gate a little timidly today but quickly regrouped to rally higher. There was some resistance early on but most indices were able to set a new all time high. The Dow Jones Transportation average led the way with a gain of nearly 1.25%. The transportation sector was bolstered by a new report from the postal service that shows volume this holiday season will be at a record. This is only one of many indications that volumes, and revenues, for shippers and transporters will be robust over this season. Today's action extends the breakout from a short term consolidation I highlighted earlier this week. The indicators are bullish and setting up for a follow up trend following signal. MACD has retreated from an extreme peak and has started to rollover to a second peak while stochastic is making a bullish crossover high in the upper signal zone. My upside targets are now around 9,250 and 9,750 in the near to short term.


The Dow Jones Industrial Average was also fairly strong today. The blue chip index gained 0.40% and set a new all time high. Today's move is an extension of a near straight line advance in the index that has so far taken it over 9.5% in less than a month. The sharpness of the advance may be a sign of investors and traders chasing prices, it also could (will) lead to a pullback of some variety, at some time in the future. At this time the index is moving higher and with some strength. MACD shows momentum is strong and slowing slowly, stochastic is high in the range and pointing higher in both the near and short term.


The SPX also managed to make a move of near 0.40%. The broad market had a little more trouble breaking to a new high than the Dow indices but made it there eventually. Today's move extends the bounce/test of support from the 2,000 level and looks like it is going to keep moving higher. Momentum and stochastic are both strong, stochastic forming a bullish crossover high in the upper signal zone. I'm using the 2,000 as the basis for my near/short term projection with a target of 2,150. This is assuming the bounce from the October low until the test of support at 2,000 this week is only the first half of the move. If so, the second leg will likely not be as strong and could run until the end of the year.


The NASDAQ Composite also traded to the upside today. The tech heavy index was not able to set an new intraday high but it did make a new closing high. The index has been trading sideways since reaching this level last Friday and is creating a series of spinning tops. These spinning tops are forming a nice little congestion band that may lead to new highs, if the rest of the market is any indication. This congestion band is comparable to the near term consolidation I highlighted on the Dow Transports chart and the possible mid-point of a larger move. 4,600 and 4,500 is support with a near to short term target near 5,100.


The market is moving higher. Slowly, steadily, on the back of earnings and economic data higher. The trends are up, the labor market is improving and the expectations for the holiday season are strong. Some companies will not perform as well as others but as a whole business is doing well and expected to do well. Basically it's a stock pickers market just like always.

The NFP numbers are released tomorrow and could provide catalyst for the market. Unless it is so bad there is absolutely no hope for the economy any downside move will likely be small compared to the October correction.

Until then, remember the trend!

Thomas Hughes

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