A round of mixed economic data and the onset of earnings season supported the market today.

Introduction

A round of mixed economic data and the onset of earnings season helped support the market today. Weak data has pushed back rate hike expectations, alleviating fears and allowing the market to focus on earnings. Earnings are generally positive relative to expectations, nothing to brag about but leading to growth later this year and next.

International markets were positive. Asian indices gained 1% to 2% in a session largely devoid of market moving news, European indices gained a little over 1% driven primarily by earnings. The early pre-market session was busy for us here at home. Th economic calendar was relatively heavy today and complimented by an equally heavy dose of earnings. Futures trading indicated a positive open all morning but early strength faded after the release of 8:30AM data, cutting indicated gains by early half. At the open the market was indicated higher by a little more than a half percent and that gain was made within the first few minutes of open trading.

Market Statistics

The first half of the day saw a mild rally to an early high and then steady retreat back to the day's opening levels. The market hit bottom just above today's opening prices and then began another, slightly more decisive, rally which took the indices back to today's highs and higher. By 2PM the broad market was approaching the 2 month highs set earlier this week and looking ready to test resistance. By 3PM the S&P 500 was breaking resistance and moving up to set another daily high, a high that held into the close of the day.

Economic Calendar

The Economy

Lot's of data today. First up, Initial Jobless Claims. Claims by -7,000 from a downward revision of -1,000 to hit 255,000 and match the lowest level of claims in over a decade. The 4 week moving average of claims also fell, losing -2,250, to hit 265,000. This is the lowest level for the average since December of 1973. On a not adjusted basis claims rose by 12.3% versus an expected 15.6% but remain down for the year. On a year-over-year basis not adjusted claims are down -6.8% from the comparable period. Pennsylvania and California had the largest gains in claims, 2,548 and 2,351. Michigan and New York had the largest declines in claims, -2,436 and -1,614.


Continuing Claims also fell, -50,000, to hit 2.158 million. This is a new low and the lowest level since November of 2000. Last week's figure was revised up by 4,000. The four week moving average fell by -21,500 and also hit a new low not seen since November of 2,000.

The total number of Americans receiving unemployment benefits also fell, shedding -7,496. This is another new low in total claims and the 10th week of decline for this number. The NFP number may have been weak last month but so far none of the other employment data supports weakening in the labor market. Based on the jobless claims numbers it looks like less people with jobs are finding themselves without a job, less people who lose a job can't find a new one within a week and the total number of people without work is declining.


The Consumer Price Index declined by -0.2% in September, in line with expectations and furthering expectations for a delayed rate hike. The drop is primarily due to a decline in gasoline prices but all components of the energy index posted declines. The energy index fell -4.7% off setting gains in other areas such as food, and all-items less food and energy. Food inflation ran at 0.4% while ex-food and energy is running at 0.2%. On a trailing 12 month basis CPI remains flat.


The Empire State Manufacturing Survey came in at -11.4, 3 points higher than last months reading. Despite the gain it remains negative and lower than the expected -8.0 consensus. Within the report new orders, shipments, unfilled orders and employment all declined. The labor component shows declining employment levels and less hours worked, concerning and contrary to the claims data. The forward looking portion of the survey remains positive but was described as tepid within the report.

The Philadelphia Federal Reserve Manufacturing and Business Outlook Survey shows that conditions declined for a second month in that region. The index came in at -4.5%, an improvement from last month's -6% but below expectations for -2.5%. New orders, shipments and employment all declined and fell below zero. Firms reported declines in the number of hours worked as well as employment levels. The forward looking component of this survey also declined but remains positive and optimistic at 36.7.

On the one hand labor data shows a healthy labor market. On the other manufacturing data shows signs of a weakening labor market, as well as possible economic contraction. The question is, which will lead which moving forward? Will labor conditions lead to ongoing improvement in the economy, or will declining manufacturing output hurt the labor market, the housing market and the economy in general? Based on outlook for earnings and economic growth into next year I tend to believe the former rather than the latter.

The Oil Index

Oil trading was volatile in today's session. Early gains were wiped out by a surprise build in inventory, double the expected 3.5 million barrels, and then a late day rally recouped losses suffered on the inventory data. Price for WTI settled near $46.50 for the day and remain under pressure. A new report shows that there is a .5 billion barrel supply glut year-to-date and this situation is not getting any better as global production remain high.

The Oil Index gained nearly 1.5% in today's session. Despite oil fall from its recently set three month high prices are above the low set last month and helping to support earnings outlook. The index has now touched back to support following a strong rally and is bouncing higher with initial upside target near the August high (1235) and the 50% retracement level. Momentum is strong, although MACD shows it has retreated from a peak, and could be enough to carry the index up to test resistance. Stochastic is also strong, %D has crossed the upper signal line and %K is confirming strength as well. A break above resistance could carry this index up to next resistance at the bottom of the previously broken long term up trend line near 1,325. The caveat is oil prices. It looks like the sector is ready to make a run despite low oil prices so I am cautious. A drop in oil, or a break through support near $45, could help solidify resistance


The Gold Index

Low inflation and weak manufacturing data are helping to weaken the dollar and have sent gold up to levels not seen since late June. Today gold gained about $5 and traded around $1185 and approaching resistance targets near $1200. The move is driven on data and fed expectations and could reverse as quickly as it has rallied. However, despite my over all bearish view on gold, it is obvious the current move is up and that for now there is little sign of resistance, it's doubtful data will alter outlook in the near term. If today's inflation data is any indication an October rate hike is probably off the table leaving December the last chance for this year. The next FOMC meeting is in two week, October 27th and 28th, and offers a possible catalyst for the metal.

The gold miners are being supported by gold prices. The Gold Miners ETF GDX made nominal losses in today's session but was able to create a white bodied candle. The ETF opened with a loss but moved up from recently broken resistance, possibly turning to support, and closed just below yesterday's closing prices. The indicators are bullish and pointing higher but momentum remains weak and I am skeptical of the rally in gold so I am concerned of whipsaw/false-break out. If gold prices drift higher to test resistance this ETF could follow with upside target near $18.


In The News, Story Stocks and Earnings

The big banks, and quite a few smaller banks, have been reporting this week and the results are largely positive. Wells Fargo reported a solid quarter as did Bank of America. A few weak spots have emerged, such as negative impact from low trading volumes, but it is isolated. The sector as whole is looking sound with positive forward outlook and was one of the leaders in today's session. The XLF Financial SPDR gained more than 2.3% in a strong move up from support levels and breaking above the short term moving average. The ETF is accompanied by bullish indicators and appears to be moving back toward the top of the 12 month range. First target is near $24, with additional targets near $25 and $25.50.


BB&T reported before the bell. The North Carolina based bank reported $0.70 adjusted earnings on a 4.5% increase in revenue. Earnings are 4 cents ahead of expectations although still down 1 cent from last year in the comparable quarter. Results include the addition of Susqhehanna Bancshares which increased total assets held by the bank to more than $200 billion. Shares of the stock responded positively, gaining more than 3% and breaking above the short term moving average.


Wynn Resorts reported after the bell. The company produced EPS of $0.86, in line with estimates, on lighter than expected revenue. Both Macau and Las Vegas produced weaker than expected results but Macau was the real loser, revenue in that region fell nearly 40%. Despite the miss the board approved a cash dividend of $0.50. The news was not met with approval and sent shares down more than -2.5% in after hours trading.


Mattel reported after the bell and did not meet expectations. The company reported global sales fell by -4% in constant currency led by declines in over seas markets. EPS came in at $0.71 per share, short of the $0.77 projected by analysts. Despite the miss execs reiterated full year guidance and said they were comfortable with performance at this stage of the companies turn-around.


The Indices

Price action was bullish from the earliest part of the day but I did not expect the rally to advance quite as far as it did. Early action was lack luster with little indication of big moves on the way but late day activity pushed the indices higher, and then higher again. Today's session was led by the NASDAQ Composite which gained 1.82%. The tech heavy index created a long white candle moving up from support levels and the short term moving average with bullish indicators. MACD is bullish and has ticked higher with today's data and stochastic is moving higher and about the cross the upper signal line. The index looks like it will keep moving higher now that it has set a new one month high with next target near 4,950.


The S&P 500 made the next largest gain, nearly 1.5%. The broad market also created a long white candle and looks a little stronger than the NASDAQ. Today's action confirmed support along the previously broken up-trend line and is supported by rising indicators. Both MACD and stochastic ticked higher with stochastic showing additional strength with a cross above the upper signal line. The index has also set a new two month high adding additional evidence of bullish intent. Next target is near 2,050 with a chance for a move up to retest the current all time high.


The Dow Jones Transportation Average made the third largest gain, 1.44%. The transports did not set a new high in today's session but look set to try. Today's action created a long white candle moving up from the short term moving average, supported by the indicators. The indicators are both bullish with MACD ticking higher and stochastic approaching the upper signal line. The index may find resistance near 8,275 but it looks very likely it will be tested at least. A break above this level could take the index as high as 8,500.


The Dow Jones Industrial Average made the smallest gain in today's session, only 1.28%. The blue chips also did not set a new high with today's action, but also look set to try. The indicators are bullish and declining momentum has leveled off and could easily carry the index up to resistance near 17,250. A break above this level could carry the index up to 17,500 in the near term with a run at the all time high a possibility, should earnings season not leave us wanting.


It looks like the rally is on, although there is still a lot of earnings season left to go. The indices made a nice move today, if on mediocre volume, and are set to continue moving higher. Weak data is a concern, we don't want to see a trend develop, but for now it is helping to reduce FOMC fear and allowing the market to focus on earnings. Earnings are OK, not stellar by any means, but generally better than expected with continued expectations for improvement into the next quarter and next year. So long as this season holds to trend and the economy doesn't deteriorate the rally should continue with a real chance for the market to reach the current all time highs.

Tomorrow is another big day for data, 5 reports including Michigan Sentiment, JOLTs and Industrial Production. It won't be huge day for earnings but there will be a few reports from regional banks, as well as General Electric. It's also options expiration day so there could be some volatility associated with that.

Until then, remember the trend!

Thomas Hughes