Trading got off to a quiet start this holiday shortened week. Volume was low and attention is focused on a deluge of economic data slated to begin tomorrow.

Introduction

The market opened quietly at the beginning of a holiday shortened week. Thanksgiving is here once again which means no trading on Thursday and a shortened day on Friday. It also means lighter than usual trading volumes and whatever economic reports that are on the schedule are crammed into the next two days, a recipe for knee-jerk reactions and potentially wild market swings. Earning are also on tap; the list is light compared to recent weeks but includes 18 S&P 500 companies.

Global trading was light as well. Asian indices closed largely flat; the Nikkei made a gain of 0.10% while the Chinese indices posted losses near -0.5%. European indices also closed flat after a choppy day of trading driven in part by wild swings in oil prices.

Market Statistics

Futures trading indicated a similarly flat to negative open for the US indices. There was little market moving news before the opening bell. Futures trading was relatively flat all morning until some news from Saudi Arabi came out, the cabinet says it is willing to help support the oil market. Needless to say the news caused a spike in oil prices that helped to lift index futures, but only marginally.

The indices opened with small gains, less than a point for the SPX, and made a quick dip to test last week's closing prices within the first 10 minutes of trading. The dip quickly found support which resulted in a small bounce, followed by another dip to support and another bounce. The second bounce was a little stronger and took the indices up to the highs of the day, near .25% for the SPX.

The indices held near their highs for an hour or so before beginning to fall back. By 2PM they had retreated back to the low of the day and lower, hitting bottom and bouncing by 2:45. The bounce was not strong but was able to regain most of the days losses leaving the 3 of the 4 major indices flat on the day.

Economic Calendar

The Economy

Existing Home sales was today's only bit of official economic data. The number of existing homes sold in October fell by -3.4% to 5.36 million, slightly worse than expected. Analysts had been projecting a decline to only 5.45 million. Despite the drop home sales are up year over year by 3.9%. All four major regions saw declines, led by the west, with higher prices and low inventory are cited as problems. Prices are up 5.8% over last year, inventory is down -4.5%. Lawrence Yun, NAR economist, sees labor markets supporting the housing market and sales pace into the end of the year at least.

Moody's Survey of Business Confidence gained 0.3% this week, the first gain in nearly 3 months. Weak global growth and and volatility in financial markets are the two main reasons Mr. Zandi cites as reasons for the decline in sentiment. Within the data current conditions have declined the most while forward outlook remains upbeat. This week's uptick could signal a bottom in declining sentiment but one piece of data doesn't change a trend. Global hurdles to business remain, let's wait and see how this data progresses over the next month and following the upcoming ECB and FOMC meetings.


According to FactSet 481 of the 500 S&P 500 companies have reported earnings so far this season with 13 more scheduled for this week. Of those that have reported the blended rate of earnings growth is now -1.6%. This is a 0.2% increase over last week and pretty close to what the final rate is going to be, barring a major surprise from the remainder of those to report. Energy continues to be the laggard, posting a -56.8% decline in year over year quarterly earnings. Ex-energy the blended rates goes up to 5.2%. Headwinds cited include currency conversions and higher wages. Positive trends include lower fuel costs.

Fourth quarter earnings estimates continue to decline. The expected rate of growth for the whole S&P 500 is now -4%, a decline of -0.35% and a new low. Energy is still expected to lead declines with estimates sitting near -65%. Ex-energy 4th quarter earnings growth should be near 1.6%. Based on the four year average we can expect to see the final rate of growth in the 4th quarter come in about 4% above the expected rate at the beginning of the quarter. This week's downward revision puts the all-index growth rate in position to remain negative even if the final rate does rise as expected. If so, it will be a third quarter of negative earnings growth.

Earnings and revenue growth is still expected to return in the first quarter of 2016 and remain strong through the end of next year. Full year 2016 earnings growth is expected to come in near 8.1%. This is a decline of -0.1% from last week but still strong, especially compared with negative growth expected for this year.

The Oil Index

Oil prices had a wild ride today. In early trading, before 7AM, WTI had been down near -3% on high supply/low demand outlook. Then, around 6:45 or so, a report from the Saudi Press Agency stating the Saudi cabinet's willingness to help the global oil community support prices sent WTI and Brent shooting higher. WTI reversed its losses and then added 3% before falling back to break even by the close of the day's session.

The Saudi news is a positive for the bulls but it is only words; no deals to support prices are in place, they did not cut production. They have indicated a "willingness" to support prices before but have yet to follow through on it. Until then supply is still high, production is still high and demand is tepid which leaves little reason to get bullish on oil; WTI may not break below $40 but there is little to no reason for it to rise significantly either.

The Oil Index opened lower but was able to rise during the day, the pop in oil prices no doubt helping. The index closed with a gain near 0.25% but was not able to cross back above the short term moving average. The indicators remain weak and pointing to lower prices so a bounce from here does not look likely without bullish catalyst. It looks like support is building in a narrow range just below the current level between 1,1150 and 1,170, a level likely to be tested again.


The Gold Index

Gold prices fell in today's session on rising dollar value and FOMC speculation. Spot price for the metal fell nearly -$10 and set a new almost 6 year closing low. Gold prices are now sitting on support with negative outlook. The FOMC is expected to raise rates in December, the ECB is expected to increase its QE in December, moves that could easily cause the Dollar Index to break resistance, move to new all-time highs and pressure gold to new lows. Support is near $1062, only five dollars below today's settlement price.

The Gold Miners ETF GDX fell -0.52% in today's session. The miners ETF is retreating back to long term support following last week's options expiration driven bounce from said support. The indicators are rolling into what could become a bullish signal but with my outlook on gold prices I view any rally derived from such a signal as a selling opportunity. Support is still along the $13 level, $14 and/or the short term moving average is first target for resistance.


In The News, Story Stocks and Earnings

Business and earnings news was largely positive this morning. The biggest headline was Pfizer's purchase of Allergan for $1.6 billion which was announced over the weekend. The move is an effective tax inversion for Pfizer but corporate execs say that is not the reason for the merger. The deal is expected to drive sales and earnings for Pfizer while setting it up for a strategic split some time down the road. The company will be structured under Allergan but carry the name Pfizer PLC. Shares of both companies fell more than -3%.


Tyson Foods reported before the bell, inline with expectations and guiding above estimates. Although EPS was slightly below consensus the food giant reported a record year driven by a 31% increase in fourth quarter operating income. The company has been pushing the integration of recently acquired Hillshire Brands and the moves are paying off. Company execs were able to raise guidance for next year to range above current consensus. The news was well taken and helped to drive the stock up by more than 10% to trade at a new all time high.


Alcoa got a vote of confidence today. Hedge fund Elliot Associates says the stock is dramatically undervalued and took a 6.4% stake in the company. They believe the company's plan to split in two will unlock value substantially above current share value and they want in. Of course, they want to have a talk with the board to discuss other avenues of unlocking value as well. Shares of the stock rose on the news gaining more than 4.25% by the end of the day.


The Dollar Index reached its highest level since March in today's session. The index is creeping up toward the all time high, driven by FOMC and ECB expectations. This move has been strong but has also lost momentum over the past week or two. The indicators are still bullish but both have retreated and showing some weakness as the index gets closer to resistance. Economic data could drive the index up to resistance, near $100.25, an actual rate hike from the FOMC, or even QE from the ECB, could send it higher.


The Indices

Trading volume and market action was very light today. Except for the Dow Jones Transportation Average, which lost nearly a full percent, losses were light. Today's leader was the NASDAQ Composite which lost only -0.05%. The tech heavy index range was much bigger though, nearly a full percent, and created a small doji candle. Today's candle is a sign of indecision but not too alarming in the light of holiday affected trading, low volume often leads to directionless, range bound trading. The indicators remain mixed but continue to roll into what could develop into a strong trend following entry so I remain optimistic. This week could see the index move in either direction due to light holiday volume mixed with a ton of economic data but I remain bullish so a dip to support would be a buying opportunity. First target for support is near 5,000 with the short term moving average below that, and the long term trend line below that.


The S&P 500 made the next largest decline, -0.12%. The broad market created a small bodied candle, not quite a doji, but one with significant upper and lower shadows. This candle also shows indecision and/or a lack of direction in the market and not too surprising given the holiday week. The index appears to be moving higher, today's action a pause in mid-rally, with a target near the all time high. The indicators continue to strengthen although momentum remains bearish so this move could end soon without a catalyst to drive it higher. A shift in momentum to the upside could break resistance and take the index up to 2,150-2,220 in the near term. Strong support is along the long term up trend line near 2,000 with interim targets near 2,070 and 2,050 should a pull back occur.


The Dow Jones Industrial Average made the third largest decline, -0.17%. The blue chips created a small, spinning top type candle in today's action but still looks like it will continue higher. The index is bouncing from the long term trend line with indicators that, while mixed, are rolling into what could become a strong signal. Stochastic is already pointing higher but MACD remains bearish although it is close to crossing the zero line. First target for resistance is 18,000, next target is near the all time high, either of which could keep the index contained in the near term to short term. Long term trends remain bullish so any dips that ensue are buying opportunities in my opinion.


The Dow Jones Transportation Index made the largest decline today, -0.90%. Today's move confirms, again, resistance at the 8,250 level and the top of the 3 month range. The transports have been lagging all year and look like they will continue to do so into next year. Despite the drop the short term moving average and indicators continue to show support in the 8,000 range so downside from here is likely to be minimal at best. Both MACD and stochastic are pointing higher so it is possible that resistance could be tested and broken, if so upside target is near 8,500. Downside target is the short term moving average and then 8,000.


The indices are trying to figure out where they want to go and a low volume week such as this is not likely to help clear the picture. Near term factors such as weak earnings and tepid economic data weigh while longer term factors such as earnings and GDP growth outlook help lift. With earnings expectations the way they are I would not be surprised to see the indices return to longer term strong support levels before the start of next earnings season, with a chance at testing the all time highs or even setting new ones between now and then.

This weeks action could get wild. Its a holiday shortened week, volume is low and there is a lot of economic data to influence outlook and rate hike speculation. This combination could result in knee-jerk market reactions and increased market volatility so I'm already leery of whatever may come. Next week is the first of December, volume should return, we'll get another big round of economic data and possibly the start of a Santa Rally so it may be wise to wait before opening any new positions, bullish or bearish.

Tomorrow there are four economic reports, all of which are fairly important; Consumer Confidence, Case-Shiller 20 City Index and the 2nd estimate for 3rd quarter GDP. GDP is expected to be revised higher from 1.5% to 2%, an important revision but not as important as forward outlook which grows to 3% in the 4th quarter.

Until then, remember the trend!

Thomas Hughes