The major indices make another round of new highs as 2014 rapidly approaches its end.

Introduction

The year is fast approaching its end and the market is still making new highs. Most of the major indices set new highs today, closing if not intraday. Volume was light, characteristic of the holiday season, resulting in tight daily ranges.

Despite low volume those trading seemed to shrug off early news that sent some ripples through the international markets. Asian indices were mixed as traders attention was split between the missing AirAsia flight and fear of a possible Ebola case in Japan. At last report a Japanese man was being tested for Ebola after visiting Sierra Leone earlier this month. Markets in Europe were also mixed, but more focused on the Greece and the ongoing political situation and state of its bail out. The most recent news is that the vote held over the weekend did not come to a satisfactory conclusion and another vote will be held in January. The fear is that a new coalition that is not in favor of bail-out terms will come to power.

Market Statistics

Futures trading was negative in earliest part of the day. The S&P 500 was indicated to open about 4 points lower, the Dow about -30 but these levels moderated going into the open, firming to levels closer to break even. There was not really much news, aside from the international headlines, to affect the early market. There were no economic announcements and only 3 earnings reports.

The major indices were flat to slightly negative when the opening bell sounded but began to drift higher within the first five minutes. The morning high was reached just after 10:30 at which time the market began a near perfect sideways drift that lasted until early afternoon. Mid afternoon the indices dipped down to test today's opening levels before moving back higher, all except one. The Dow Jones Industrial Average dipped into negative territory, where it remained into the close, while the S&P 500, NASDAQ and Dow Tranpsortation Average all ended the day with a gain if slightly below the daily high.

Economic Calendar

The Economy

There was no economic data released today and there are only a handful due out this week. It's the end of the month, which means a big round of monthly macroeconomic data is due, but it is also the end of the year which means the week is shortened by one day. It also means that the big data such as ADP, NFP and Unemployment Rate will come out next week. This week we get a look at the Case-Shiller Index, Consumer Confidence, Mortgage Index, Jobless Claims, Chicago PMI and Pending Home Sales over the next two days and then ISM and Construction Spending on Friday.

This is the last Moody's Survey Of Business Confidence for the year, and according to Mark Zandi is ending the year at all time highs. The survey, and the four week moving average, are at the highest levels in the 12 years of the survey's run. According to the report sales, hiring and investment spending are all strong, credit availability is improving “notably” and expectations for next year are “especially strong”.

The Oil Index

Oil prices tried to stage a rebound today as renewed violence in Libya is threatening production. The current violence is reported to have destroyed two days supply and is threatening to curb production to around 300-400,000 barrels per day. This is well below the peak reached this fall near 1 million BPD but still at levels contributing to global over supply. The news initially sent WTI and Brent up by more than 1% each, but the gains did not hold long. By mid-morning both were in the red and more than 2% lower; WTI near $53.50 and Brent near $58.

The chart of the USO, oil tracking ETF, is pretty bearish. The ETF has been in a downtrend and it appears to be gaining momentum. The ETF had been consolidating in a flag/pennant pattern over the past two weeks and today broke to a new low. Stochastic is confirming with a bearish trend following crossover occurring below the lower signal line but MACD has yet to follow. Momentum is bullish in the near term but very weak and not showing signs of reversing the short term trend. If momentum shifts back in line with the trend it could carry prices significantly lower.


The Oil Index traded to the downside but is holding up rather well considering that the underlying commodity is reaching new lows. The thing to keep in mind here is that low oil is bad for producer profits, but good for downstream profits from refiners, distributors and retailers which means that the integrated oil companies may not be hurting as much as feared. The index is currently above the short term 30 day moving average and above long term support but in light of the four month downtrend and today's drop in oil prices looks better set to test support rather than continue a bounce. The indicators are bullish, but cresting a peak, while the index itself is trading just above the down trend line and set up for a drop in line with the down trend. If the index does move down potential support exists along the down trend line and just below that along the 23.6% retracement level near 1,335. A break below this level could take the index all the way down to retest long term support near 1,212.


The Gold Index

Gold lost a little over 1% today as firming dollar values pressured it lower. While rising dollar value is keeping gold prices from rising to much, the longer term outlook for interest rates is keeping it from falling too far. Even though the Fed has indicated it will be at least two meetings before they raise rates last week's reading on 3rd quarter GDP indicates that we should expect them to come sooner rather than later. Support may be found just below the current levels, near $1175, with longer term support below that near $1150. Resistance is near $1200 and the $1215-$1225.

Unfortunately the CBOE Gold Index (GOX) that I normally follow is no longer disseminating. Good thing there are other symbols with which to view the gold miners such as the GDX, Market Vectors Gold Miners ETF. This ETF is a broader gauge of the sector, includes twice the number of companies, tracks gold prices like the CBOE index, is a little less volatile and easy to trade.

The ETF traded to the downside today, but like with the CBOE Gold Index and gold itself, is exhibiting signs of a potential bottom near the full retracement of the 2008-2011 bull market in gold. Over the past two months the ETF has bounced from a potential long term support just above the full retracement level, in line with the potential FOMC/Interest rate bottom that is forming in gold. The ETF looks a little stronger than the CBOE index as it found support above the retracement level while the the Gold Index is/was bouncing from support that is below the comparable level on its chart. The indicators are in line with support at this level but have yet to confirm; stochastic is making a weak bullish cross, MACD has yet to crossover. Support is between $16.50 and $17.00 and could be tested in the near term. Resistance and upside targets are along the short term 30 day moving average and then above that near $20 and the top of the two month range.


GoldCorp is the name I like to follow within the sector. It is a senior miner, operates in North America, is not hedged and pays a dividend over 3.3% at current levels. The stock has been trending sideways for the past 12 months, at the tail end of a long term downtrend, and is now at the low end of that range. The stock is currently trading near the bottom of that range and testing support while gold prices are also testing support levels. The indicators are consistent with support at this level and mildly bullish. MACD has retreated from a bearish peak and about to cross the zero line with stochastic showing an almost strong bullish crossover. I say almost strong because both %K and %D are pointing up but %D is still below the lower signal line and MACD has not confirmed. Support is near $16.75 with upside target should it hold near $20.


In The News, Story Stocks and Earnings

Earnings season starts in just two weeks on Monday, January 12th 2015 with Alcoa. The company is expected to earn slightly less than the previous quarter, due in part to declining aluminum prices. Aluminum has fallen more than 10% in the last month and is now trading below the 6 month range. Today Alcoa traded in a tight range, just below the short term 30 day moving average. The stock has been consolidating below this level since just before Christmas week and a test of support earlier this month. The stock has been range bound near long term resistance the past 6 months, following a near 1 year up trend that lasted part of 2013 and most of 2014. The indicators are bullish in the short to near term and in line with support in the longer term, together suggesting that the stock could move up to test the December high near the top of the range. This could happen ahead of earnings but the short term moving average, near $16, needs to be broken. A failure could bring the stock back down to test support along the $14.50 level.


Manitowoc got a nice little boost from Carl Icahn today. Mr. Icahn now owns over 8% of the industrial crane and restaurant refrigerator maker. Icahn thinks, and many analysts agree with him, that the company should split its two halves to better serve shareholders. It makes sense, what do cranes and reach-in refrigerators have in common with each other and how do you manage a business like that? Regardless, the move was enough to spark a rally in shares of the company that carried it nearly 10% higher. Today's move broke above resistance and closed a gap opened earlier this year.


The Indices

The indices drifted today, mostly to the upside, but drift is what they did. Volumes were light and catalysts were not to be had but even still some of the indices were able to set new highs. Today's action was led by the Dow Jones Transportation Average which set a new closing high. The transports moved 0.19% higher in today's session and are approaching the all time intra day high set at the end of November. The index is moving higher following the trend following bounce earlier this month and supported by the indicators. Stochastic is moving higher following a bullish cross but momentum is still weak and there could be resistance just above the current level, near 9,250. The trend is up and it looks like the index is moving in line with trend, but with possible resistance so close and this a holiday week I am cautious. There could be a pull back to support, which is about 200 points lower along the short term moving average, that would present a much more attractive entry point.


The S&P 500 also made a gain today, and set a new high. The broad market set a new all time closing and intraday high in today's session, creating a small bodied white candle. Price action is without real direction, although it is drifting higher in line with the underlying trend. Today's action is most likely a spinning top, although a bullish spinning top, consistent with my expectations for the week. The indicators are bullish but momentum is very weak and stochastic is overbought near term. The trend is up and I remain bullish long term but I am not rushing into any new positions right now and stops on open trades remain tight. First target for support on a pullback is at the previous all time high near 2,075 and then below that along the short term moving average near 2,050.


Both the Dow Jones Industrial Average and the NASDAQ Composite traded as near to break even as makes no difference. Although the Comp did trade a hair to the plus side while the blue chips were a hair in the negative. The tech heavy index gained 0.0011% today, creating a very small bodied candle and setting, barely, a new closing high. The index is moving higher, in line with the underlying trend following a bounce from the long term trend line. The indicators are bullish and consistent with higher prices although momentum is weak and there is a possible divergence showing. If not for the holiday I would say that this index is in rally mode and about to move higher but until volume returns and it is officially 2015 I remain cautious. Support, on a pull back, is about 100 points lower along the short term moving average and then another 100 below that between the long term trend line and the September high near 4,600.


The Dow Jones Industrial Average brings up the rear today with a slight loss, only -15.48 points or -0.09%. The index had been leading today's gains until falling back late in the day. The blue chip index created the third of three small spinning tops today, just above the all time high set earlier this month. The indicators are bullish and in line with higher prices but there is a chance a pull back or test of support could happen. First support is the December high, just a few points below today's close, with next target about 300 points below that along the short term moving average. The past three days looks a little like it could be a bullish continuation/consolidation pattern but as with the others, the holiday and light volume environment give me reason to sit back and wait-n-see.


The indices are drifting higher in line with the trend, accompanied by bullish indicators and assisted by economic tail wind. In normal trading circumstances that is a good thing but this is the holiday's, not normal conditions. Today's move is not a bad thing, just not as good as it would be if the market were fully present. Because we have drifted higher on light volume I see a real possibility the market could move lower before moving higher, once the New Year has begun. The trend is up, I am bullish long term and looking to buy on the dips and right now I think a dip could happen. It might not happen but I'd rather err on the side of caution. Next week the rally will get another dose of big data and another chance to move on, or correct, if that is what its going to do.

Until then, remember the trend!

Thomas Hughes

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