A quiet day for news, earnings and data opened the door to new highs.

Introduction

Today was pretty quiet in terms of news, data and earnings. The early morning hours were dominated by positive export data from China but even that was not too exiting. Chinese exports rose by 11.6%, less than the previous month but more than expected. Asian stocks were mixed on the news but it set the stage for a rally in Europe. European indices traded slightly above last week's closing prices for most of the day but rallied into their close aided by new all time highs on our indices.

There were some earnings reports this morning but nothing really exiting. Most of the S&P 500 has reported by this stage of the game with only about 30 left to go. Also missing today was US economic data. It's the second week of the November and the lightest data week of the monthly cycle. The NFP and unemployment data from last week helped to support the market today but were largely ignored by the media. There are a few reports later this week but nothing that I consider to have market reversing potential. Another noticeable item missing today was bad news. There just aren't any attention grabbing bad news stories for the market to worry about.

Market Statistics

Our own indices were indicated higher from the earliest part of the trading day but only marginally so. Futures trading held positive throughout the morning and into the open. At the bell the indices opened flat to last week's closing prices and hovered there for the first hour of trading. Around 10:35 the markets began to lift and then broke out to new all time highs. The intraday highs were reached around 12:30 and held through to the end of the day. There was a little churn in afternoon trading but only a few points, leaving the indices at or near the intraday high at the close of trading.

Economic Calendar

The Economy

There was no economic data released today. This week is also fairly light on releases, Thursday and Friday being the focus. Thursday is weekly jobless claims as well as monthly JOLTS job opening figures. Friday is Michigan Sentiment, National Retail Sales figures, Business Inventories and import/export prices.

There was not much mention of the NFP or unemployment numbers today but I am going to bring them up. The NFP was right in line with my estimates and consistent with the long term trends in labor we have been experiencing. Job creation remains steady while turnover is low, hiring intentions are high and the pace of layoffs is in a long term decline. These all add up to lower unemployment, evidenced by the -0.10% drop to 5.8% also reported Friday. While the quality of jobs may not be what some would like there are jobs and people are going to work.

Moody's Survey of Business Confidence, compiled and presented by Mark Zandi remains upbeat. This week's report is even a little more upbeat than it has been over the past few months. Aside from further notation of weak confidence in South American and Europe the report shows that “Businesses remain very upbeat in the U.S. Hiring intentions in the U.S. are especially strong, rising to a new record high in recent weeks. Hiring is robust and layoffs are very low. Confidence in the U.S. is consistent with an economy expanding well above its potential. Sentiment is slumping in South America and Europe, consistent with economies that are growing below their potential.”

The Oil Index

Oil prices experienced another wild day as yet another new twist in the ongoing oil price war unfolds. Prices for WTI first climbed by a full percent during the morning hours on disruption news until price news from Iraw sent them plunging later in the day.

Today Iraq joined with Saudi Arabia in offering a discount on prices to US based customers. Iraq also emulated the Saudis by raising prices for Europe and Asia in an attempt to offset losses. The announcement helped to send prices for WTI and Brent lower by nearly a full percent despite supply issues coming out of Libya.

The recently reopened Sharara oil field is reportedly taken over by rebel gunmen while the Hariga oil port is subject to a strike. While both news bits are important to oil prices I still think the upcoming OPEC meeting is more important in terms of long term direction. According to current speculation a production cut is not expected from OPEC despite many calls for such from some members. Until then oil prices could remain trapped in a range between the long term low and $80 with day to day direction driven by headlines.

Something I was reminded of today is that we are entering the cold winter period for the northern hemisphere. Oil and natural gas use will go up simply because of heating and it could be a cold one this year, the polar vortex is coming back. Cold snaps like the one forecast for this week will have some bearing on supply/demand level and energy prices, particularly if the season is colder/longer than estimated.

The Oil Index fell today, dropping from the 1885 resistance line. The index has now tested resistance at this level three times without breaking through. The indicators are bullish but in retreat and showing divergences which confirm resistance along this level. The divergence could lead to a retest of long term support as foreshadowed by the previous bearsish peak in MACD, the peak which is convergent with the October correction. Resistance is at 1,485 with potential support at 1430, 1400 and 1350.


The Gold Index

Gold prices fell -1.5% today after the impressive snap back rally last Friday. Economic trends and the labor data helped the market to see that inflation was a little closer than it might have thought, leading to what may have been a knee-jerk rally gold.

The steady NFP, lower unemployment rate and slight uptick in wages helps confirm that the economy and consumer is recovering and on the path to inflation but as of yet there is very little real evidence of it. Any inflationary worries there are were overshadowed by dollar strength which ultimately led to the decline in gold prices. Today's drop halted just above $1150 which may prove important over the next few days or week.

The Gold Index fell today, losing over -6%. The index is in a long term down trend and is trading below the 100% Fibonacci Retracement of the 2008-2011 uptrend. Today's move is a confirmation of resistance at previous long term support as represented by the 100% FR line, located at $66.59. The indicators are weak, in line with the down trend and setting up for another trend following signal. Using Fibonacci to project a downside target I come up with $50.80 with current support right around $60. Gold prices are driving poor earnings expectations in this sector and need to rise significantly to change that. Until then the down trend in the gold sector is likely to continue. <


In The News, Story Stocks and Earnings

Earnings season is still rolling on. According to FactSet as of Friday 446 of the 500 S&P 500 companies have reported. Out of those 77% of them have reported earnings above the estimated mean and 60% of them have reported revenue above the estimated mean. Both of these figures rose from last weeks data and have been on the rise since the reporting season began. The average earnings growth of those who have reported is 7.6%, also higher than last week and above the sub-5% growth expected at the end of the previous quarter. The Telecom sector is leading, as expected, and the Consumer Discretionary is lagging, as expected. Surprises from the Financial and Materials sectors are leading in terms of positive surprises and a big cause for the increase in mean earnings and revenue growth.

Dean Foods reported this morning. Dean Foods is the leading producer of dairy and dairy products in the US and reported a loss much smaller than expected. The company has been plagued by what it calls the “most difficult operating conditions it has ever experienced” but seems to be faring OK. Quarterly results are due to improvements to operations which may help spring board it to profit in the coming quarter. Executives were able to raise guidance from a slight loss to a range of $0.05-$0.15. Shares of the stock rallied on the news and gained more than 13% and climbed above the mid-point of the 12 month trading range. The indicators are bullish, strong and suggestive of higher prices. Support is now around $16 with next potential resistance near $17.


McDonald's reported October sales figures today. The global fast food chain reported slowing sales, but not as slow as some had feared. Corporate-wide sales fell by only -0.5%, versus an estimated -2.5%. This was aided by the US and Europe which both posted much smaller than expected gains of -1% and -0.7% respectively. China was the only region to experience significant decline, matching estimates at -4.2%. Shares jumped during the premarket session, gapped a little at the open and then fell back to close just above break even to last week. McDonald's is basically flat for the year, up for the past three weeks and trading above long term support.


The transportation and shipping sector was the leading sector today. Among them the rail carriers were particularly strong and among them CSX. The stock climbed more than 3% today driven on strong underlying fundamentals. The company reported earnings a few weeks ago and informed us that earnings are up, traffic is up and they expect next quarter and next year to be up. Current company estimates have earnings growth in the double digits for 2014 and 2015. Today's move takes the stock above resistance and set a new all time high. The indicators are turning bullish after a brief pull back last week and in line with a trending market.


Obama reiterated his position on net neutrality today. In his statement he called on the FCC to enact the toughest laws possible to protect net neutrality. He also put forward the idea that the internet should be regulated as a public utility. The internet and cable providers did not respond well to the news. Shares of Time Warner Cable and other lost over 5%. Time Warner issued a statement opposing the Presidents view. They say that changing the classification will lead to years of litigation and stunt the growth of the industry.


The Indices

The rally continued today. The bulls came out the gate, gathered themselves together and took a step forward. It was not a big step but an important one. The market is at all time highs and making new all time highs. As I mentioned before the transportation section was very strong today and led the market higher.

The Dow Jones Transportation Average gained more than 1.25% creating another long white candle. Today's move extends the break-out from the quick consolidation pattern I highlighted last week. This pattern and break out is supported by a trend following signal on MACD and stochastic. Bullish MACD momentum is back on the rise after a decline and stochastic is showing a bullish crossover high in the upper signal range. This break out has a target as high as 700 points above the current levels.


The NASDAQ Composite was the next best gainer today but only climbed by 0.41%. The tech heavy index was able to set a new 14 year intra-day and closing high. Today's action set a new high but the index is still basically trading sideways in a consolidation band akin to the one observed in the transportation average. The indicators are still in decline but beginning to rollover, in line with a trend following signal that could lead to a more pronounced break out. If so, this one would have an upside target around 5,300, about 700 points above today's close. Current support is at the 4,600 level and the September highs.


The S&P 500 gained 0.31% today, also setting a new all time high, both intraday and closing. The broad market gained just over 6 points and extended the bounce from 2,000 begun last week. The index is moving higher with bullish indicators but as of yet momentum is still in decline. Stochastic is showing a bullish crossover but is so high in the signal zone it is flat lining against the top of the range. This is a sign of overbought conditions but not necessarily a bearish sign or signal. The market could, theoretically, remain overbought indefinitely, or until the rally runs it course.


The Dow Jones Industrial Average was today's laggard but still made a gain of 0.23%. The blue chip index was also able to set a new all time high. Price action created a small bodied white candle indicative of slow and steady buying, a good sign I think for a Monday morning mid rally. The indicators are bullish and leading to higher prices but momentum is in decline. The current MACD peak is a +5 year extreme and as such an indication of strength in the market. The decline in MACD is suggestive of slowing and/or pause bot not overly bearish. Stochastic is still quite high in the range and supportive of trend continuation at this time. This index may consolidate or pull back a bit but such a move will more likely be an opportunity for bullish entry rather than a sign of impending reversal.


The indices are marching higher and led by the transports as they have been all year. Today's action is yet another example of many. The broad market moved slightly higher, along with the blue chips and the techs but it was the transports that led they way. The broad market and blue chips may be looking a little sluggish, the techs may still be in a consolidation band but if history repeats itself, and that is what technical analysis is all about, the transports are leading them all higher.

Current economic trends are up and expectations from the market are positive. So long as this continues the rally is on. Without bad news, and with earnings season on the way out the only thing standing in the bulls way is economic data and the holiday season.

Until then, remember the trend!

Thomas Hughes