The market got off to a tepid start as Greek elections, an FOMC meeting, a wicked winter storm, earnings and an upcoming GDP release wrestle for attention.
This week got off to a tepid start. For starters, elections in Greece put the ultra-left anti-austerity party in control of the government and the bail out at risk. This news would have sent the market plunging a year ago but today was taken in stride and shrugged off with little regard. Why, because it really doesn't matter to us, and maybe not to traders in Europe. EU stocks rose in today's session led by the German DAX 1.4% and new all time high.
Futures were flat to negative for most of the morning as the market digested earnings reports, anticipated other earnings reports as well as the FOMC meeting Wedesday and GDP estimate scheduled for release Friday. There is no expectation for the FOMC to adjust policy at this meeting but as always the statements and outlook will be important. The statement will be scrutinized for signs and indications of when, exactly, the rate hikes will begin and any change to expectations could become a significant market mover. On the GDP front expectations are creeping up. Consensus is now in the 3.5% range.
Futures gained some strength going into the open but remained in negative territory. The open was weak and saw the indices retreat to support within the first few minutes of trading. Bottom was hit by 9:45AM, sending the indices back to break even where they trended for the rest of the day. The daily high, just above break even for most indices, was hit in the early afternoon and the markets closed near those levels at the end of the day.
With all the activity this week trading conditions will be compounded by a looming winter storm. As I write this wrap the flakes are beginning to fall and are expected to total as much as 3 feet in some areas. It is unclear now how much affect it will have on the economy, or damage it may cause, or if trading may be stopped due to weather but rest assured there was a lot of speculation on the matter. New York and other states have already issued major alerts, curfews and other measures to ensure public safety.
There was no economic data released today. This week, however, is another important one as it includes the FOMC and the GDP estimate. Also scheduled for release are the Durable Goods, Consumer Confidence, New Home Sales, jobless claims, Pending Home Sales and Chicago PMI. The big days will be Wednesday (FOMC) and Friday(GDP) but the entire second half of the week is pretty heavy with potentially market moving data. And next week is full of data too, this is the last week of January which means ADP, Challenger, NFP and Unemployment.
Moody's Survey Of Business Confidence is back near record highs. The index ended 2014 at the record high of 41.1, dipped to 38.3 in the first weeks of the year and has now surged by 1.4 points in the most recent week to 39.7. In the summary Mark Zandi, Moody's economist and administrator of the survey, reports that
â€œBusiness sentiment has started 2015 near record highs. U.S. businesses are especially upbeat, consistent with an economy that is expanding well above its potential. Sales and hiring are notably strong, and investment spending intentions has never been as robust. It is also encouraging that pricing is holding firm despite the decline in oil prices, surging value of the dollar, and disinflationary forces overseas. Credit availability has also improved notably in recent weeks.â€
According to data from FactSet 90 S&P 500 companies had reported earnings by last Friday. Of them 79% reported above the mean estimate (above average) while only 54% of them reported earnings above the mean estimate (below average). The current mean estimate for S&P 500 earnings growth is only 0.25%, down from 1.7% last week. This is led primarily by the energy sector but significant downside surprises from the big banks and some others have had an impact as well. With expectations so low it is not surprising that so many have beaten the expectation but so far we are on track for growth below the average growth we have seen over the past couple of years. This week is another heavy one of earnings for the S&P as well.
The Oil Index
Oil prices held steady, near long term lows, as the transition to Saudi Arabia's new king unfolds smoothly and a fast approaching winter storm has some traders betting on higher prices. There was some fear that the new king would diverge from current Saudi policy but so far all indications are that no, he will not. His first public statements support Saudi and OPEC policy and reaffirmed al-Naimi as oil minister. WTI and Brent both settled near break even after a day of mild volatility.
The oil sector was one of today's leaders. The Oil Index rose by more than 1.75% in today' session and is now approaching a potential area of resistance. The index is moving up from the long term trend line, and has broken the near term down trend, but is approaching a possible resistance line near 1,350. This level is consistent with an important Fibonacci Retracement that has provided support or resistance 5 times over the last 4 months. The indicators are bullish and pointing up so it looks like this level will be reached at the least. Whether or not prices will halt is still yet to be seen as Fibonacci is good for targeting places where signals may happen, and not so much as signals themselves.
The Gold Index
Gold prices retreated today as traders took the chance to lock in profits. Gold prices hit a five month high last week, supported by long term outlook and driven by the flight out of currencies. Today saw the metal drop a little over 1% to fall below $1280 as some of the impetus driving the trade petered out. Prices could retreat further over the next few days with $1250 as a likely target for support. FOMC policy/statements and economic data will be important, an indication of higher rates I think would be bullish, an indication that rates may rise sooner than expected I think very bullish.
The gold miners ETF GDX actually gained in today's session. The ETF fell in early trading and opened lower on the decline in gold but during the day lower prices attracted enough bulls to lift prices above break even. Today's action is the first sign of support now that the ETF is pulling back from the recent high and needs to be watched, now that it has broken out to the upside. In the near term the indicators are bullish but retreating from their peaks, in line with the underlying market and test of support. Over the short to long term they are also bullish, and convergent with at least a retest of the recent highs. Support is near $20.50 and the top of the top of the Nov/Dec bottoming pattern with upside targets near the recent high at $23.09.
In The News, Story Stocks and Earnings
Norfolk Southern reported earnings before the bell. The rail carrier met expectations for this year and announced near $2.5 billion dollars in planned expenses. The company reported $1.64 per share for the fourth quarter, down a nickel from last year on revenue slightly shy of expectations. On a full year basis 2014 net income totaled over $2 billion and is up 5% from 2013 and is a record for the company. The planned expenditures are to boost infrastructure, improve safety and otherwise set the company up for future growth. The stock fell in the early pre market session but buyers stepped in after the open to drive prices back up. The stock finished the day with a gain near 1.5%.
Homebuilder DRHorton beat expectations when it released earnings. The builder reported a surge in home sales that led to higher revenue and earnings. The company reported $0.39 per share, $0.04 higher than the $.035 expected by the street. Sales of new homes increased by 29% while the back log of homes not yet built has grown over 21% in the quarter indicating that this may not be a one time result. Shares of the stock rose by more than 1% in early trading and held that level into the open. The stock traded in a near 5% range during the day and closed near the open, forming a doji.
Microsoft reported after the bell. The stock traded right around the short term moving average all day and sank on the news. The company beat on the top and bottom lines but did not do it well enough to support buying. The stock dropped by a full percent and then traded in a wild range around that level after that.
Apple is scheduled to report after the bell tomorrow. The company is expected to report earnings of $2.59 per share, up from the $2.07 reported a year ago. Expectations are high and fueled by two headlines today. The first is that Apple may have sold more iPhones in China than in the US for the first time. The second is that the Pay feature is beginning to gain traction. This will not likely add a huge amount the bottom line but we may get an indication of what to expect in the future. The stock traded up today but created a black candle and a spinning top. The indicators are bullish and pointing higher but earnings could be a bust as well as a boon so Wednesday may be the day to really look at this one.
The market was a little choppy today and it had plenty of reason to be. Not only is there a week of important economic events and earnings reports the snow was getting steadily heavier all day. I myself am out of the storms path but had plenty of opportunity to view it through the eye of the TV. All in all, it looked like another day of jockeying for position while the markets trade near support levels. Today's action was led by the Dow Jones Transportation Average. The transportation sector moved up by 0.65% on earnings and outlook. Today's move tested support along the short term moving average and is supported by rising indicators. Resistance is just above the current level, near 9,250 and the all time highs. It looks like this index could be testing resistance this week coincident with the FOMC and/or the GDP release.
The NASDAQ Composite Index was the next biggest gainer in today's session, posting an increase of 0.29%. The tech heavy index was not hurt by today's news, other than to test last week's closing prices, and closed at the high of the day. The index is moving higher from the short term moving average after making a trend line bounce, supported by rising indicators. The near term outlook is bullish but resistance is just above today's closing price and will likely be hit in the next couple of days. A break above that level, near 4,800 and the 14 year high, would be bullish and could lead the index to 4,900 or higher. Failing to break above resistance would find potential support near 4,700 and 4,600 along the long term up trend line.
The S&P 500 is next in line with a gain of 0.26%. The broad market index tested the short term moving average with this mornings decline and then closed at the day's high. The index is moving higher following a trend line bounce and is now gearing up for a test of resistance. The indicators are bullish and pointing up, indicating that prices are likely to rise, with resistance roughly 30 points higher near the all time high. Right now the only thing standing in the way is outlook and the Fed. We know how things have been, how they are and how they are expected to be, now we need to Fed to give the OK, again, and maybe for GDP to be good. A break above the all time high could lead to targets near 2,150 and 2,200 in the near to short term.
The Dow Jones Industrial Average brings up the rear in today's session. The blue chip index gained only 0.3% and barely closed in the green. The index had been dipping into the red just prior to close but a surge of buying in the final minutes pushed it back above break even. Today's move tested the short term moving average, confirming support, and was itself confirmed by the MACD. Momentum turned bullish today and is now confirming the stochastic crossover which occurred last week. This is pointing to a test of resistance, just above 18,000, that could lead to a break out. If so targets would be as much as 500 points above the all time in the near to short term.
The markets appear to be moving higher, in line with trends, following a test of long term support. Today's action confirmed near term support for many of the indices that could lead to further movement. While poised for a move higher, the indices are also faced with resistance at or near current all-time highs. This resistance needs to be broken for a longer term bull move to ensue and that move, or failure, has a good chance of happening this week. My guess is that Wednesday either before or after the FOMC statement is released, the market will start moving, with the chance for Friday's GDP to move it more.
Until then, remember the trend!