Low volume and listless trading marked the first day of the last week of 2015.

Introduction

Low volume and listless markets marked the start of the final week of 2015: As unbelievable as it is another year is coming to a close. Today's action was driven primarily by oil prices, which fell from their one week high, but was without conviction.

International markets were largely mixed. Japan posted gains, just over 0.5%, but those were offset by losses in China greater than -2%. In Europe indices began the day with gains only to have them erased by the close; the DAX ended the day with a loss -0.5%.

Market Statistics

Our markets were indicated lower right from the start. Early futures trading saw declines greater than -0.5% and this held true for most of the morning. At the bell the indices did indeed begin to move to lower with the first bounce occurring within the first ten minutes of trading. The first bounce did not recover initial losses and eventually set the market up to hit a lower low just after 10AM. Another low was hit just before 11AM but that was the low of the day. From that point on bulls marched the indices higher but not quite enough to regain the earlier losses. The indices closed with losses but small ones, all except for the transports.

Economic Calendar

The Economy

There was no economic data released today and only a few bits to be released this week. Tomorrow the Case-Shiller 20 City Index and Consumer Confidence are on the schedule, Wednesday is Pending Home Sales and Thursday wraps up the week with jobless claims and Chicago PMI. There is no data on Friday, also, Friday is a market holiday for New Years Day. Next week will be a huge week for data, it's the end of the month and the start of a new year which means NFP, unemployment and earnings figures.

Moody's Survey Of Business Confidence rose by 1.4% this week from a recent low to hit 33.9. The index may be stabilizing, according to Mark Zandi, Moody's Chief Economist, but remains well off the highs set earlier this year. Readings of present conditions remain the gloomiest while prospects for the future are more positive. The strongest readings are in business investment and credit availability. Although there is no mention of it, the holiday's may have played a roll in this week's rebound.


According to FactSet the expected rate of earnings decline for the S&P 500 in the 4th quarter is now -4.9%. This is down -0.3% from last week and a continuation of declining growth expectation. Since the start of the quarter 9 sectors have been revised lower with materials in the lead. So far, 17 S&P companies have reported with 12 beating on earnings and 6 beating on revenue. There are no S&P companies scheduled to report this week.


Oil continues to be the biggest drag on earnings growth. The energy sector is expected to see earnings declines greater than 66% and is not expected to see growth again until 2017. Full year 2016 estimates continue to fall, due to declining oil prices, and are now sitting at -8.0%.

FactSet also reports that full year earnings growth for the S&P 500 in 2016 is 7.5%, but I think it may be an error. I crunched the numbers provided and come up with 5.9% for the year, 7.5% is the ex-energy figure. Whether 7.5% or 5.9% full year expectations continue to fall, as do those for the first quarter which have been cut in half over the last week. Alcoa officially kicks off the season two weeks from today although there are quite a few significant reports due out next week.

1st Quarter 2016 Earnings Growth Outlook

The Oil Index

Oil prices weighed on the market today. Several headlines highlighted the ongoing supply/demand imbalance and sent WTI falling close to -3.5%. In no particular order headlines include the Saudi budget deficit, Iran setting high priority status on oil exports, EU demand growth turned negative and weak Japanese data. Together these add up to one thing; continued imbalance in supply and demand. WTI and Brent are now trading at parity, near $36.80.

The Oil Index fell roughly -2% in today's session confirming resistance at 1,120. This level is consitent with a 61.8% retracement level, the short term moving average and previous resistance so could keep the index from moving higher. The indicators are pointing higher so resistance could be tested again, a move likely dependent on oil prices moving back to their resistance levels. If oil falls back to its low this index will likely follow with downside target near 1,050. Outlook for the sector is not good, earnings expectations for next year have turned firmly negative, without a rebound in oil prices this index is likely to remain near its recent lows, if not move lower.


The Gold Index

Gold prices drifted lower, losing about -0.5%, to trade below $1070 but volume was very light. Volume is likely to remain light all week with very little in the way of potential catalysts. In my view outlook for gold remain bearish while FOMC policy diverges from the the ECB and BOJ however, now that the FOMC has made their move, the down trend may have paused. Current resistance appears to be near $1080 with support target near $1050. Economic data and Fedspeak will be the driver of this market over the next few weeks and months as a new round of expectations build. Strong data, absent inflation, could push gold back to its lows.

The gold miners fell today as well. The miners ETF GDX lost a little over -3% to fall below the short term moving average with mixed indicators. While technically bullish in light of the long term down trend in gold they are more consistent with consolidation and range bound trading than anything else. Without a catalyst the ETF is likely to remain range bound with a possible move down to support. Support is at the long term low near $13 with $14.75 the top of a near 2 month range. If gold prices continue to decline as expected this ETF will likely set a new low.


In The News, Story Stocks and Earnings

Disney bounced higher today after hitting support targets last week. The move is driven by success in Star Wars, tempered by fears of slowing demand for ESPN. In terms of Star Wars, the company hit a home run, exceeded expectations and set all kinds of records. And has 5 films (Star Wars and related) slated for release over the next few years. The next movie is not going to be Episode VIII but a spin-off story. So far, Episode VII has taken in over $1 billion in box office sales, the fastest to reach that level, and has not even been launched in China yet. As a side note, this year holiday movie sales in general were record setting as well. Today, Disney climbed 3% but does not yet look ready to reverse losses experienced over the past month.


FedEx had a little trouble delivering packages just before Christmas but not as bad as what we saw a year or two ago. The company chalks it up to “unprecedented” on line sales in the last days before Christmas that helped shipping volume exceed all prior records and expectations. Weather was also a factor but did neither the surge in on line sales or record volumes caused UPS to be late. The news, while a negative for FedEx is a sign the holiday shopping season was a good one for retailers. Shares of FedEx fell nearly a full percent in today's action but remain above the $140 support level with bullish indicators.


MasterCard reported that holiday sales jumped a “solid” 7.9%, on line sales a whopping 20%, over levels seen last year. Last year sales grew at a pace of only 5.5% in the same period. Significant gains were made in the furniture and ladies apparel categories but gains were not limited to those. This news backs up FedEx's report of surging online volumes as well as the idea retailers had a decent season. Shares of MasterCard opened lower, just above the short term 30 day moving average, but recovered most of the loss before the close of trading. The indicators are bullish and pointing to a possible test of resistance near the $101 level.


The retail sector was not in favor despite the seemingly positive news coming out of the sector. Today the Retail Sector SPDR lost nearly a full percent before bouncing back to near break even. The ETF closed with a loss of only -0.25% but remains beneath the short term moving average. The indicators are pointing higher and could lead to a test of resistance along the moving average in the near term. Longer term the ETF appears to be bottoming with support along the $42 level.


The Indices

The indices moved lower in today's session but found support and were able to regain most of the losses. The days leader was the Dow Jones Industrial Average with a loss of -0.73%. The index lost more than -2% on an intraday basis and appears to be confirming support along the 7,500 level. Today's action is accompanied by a a fairly strong bullish signal that may be confirming the 7,500 bottom. Stochastic has made two bullish crossovers in the last three days while the index has been bouncing from support, today MACD confirmed with a crossover of its own. This signal could lead to significant upside but requires a break above resistance, resistance is near 7,750 and the short term moving average.


The S&P 500 made the next largest decline in today's session, -0.22%. The broad market created a small doji candle that tested support at the short term moving average and the 2,050 level, just above the long term trend line. The indicators have rolled into a strong trend following signal, confirmed today by MACD, that may add up to a rally into the end of the year. The caveat is resistance; there are several possible resistance targets above today's closing level, the first being 2,075. A break above this level could take the index to 2,100 with next target near the all time high.


The NASDAQ Composite made the third largest decline in today's session, -0.15%. The tech heavy index tested support at the short term moving average and the long term trend line with today's candle and looks like a trend following bounce could ensue. The indicators are mixed but stochastic is bullish after firing a trend following crossover with MACD on the verge of confirming. Resistance is just above today's close, near 5,050 with support just below along the long term trend line. A break above resistance would have a target near 5,100 with next target near the all time high.


The Dow Jones Industrial Average brings up the rear in today's lineup with a loss of only -0.14%. The blue chips tested support at the short term moving average and were able to hold above it at the close. The indicators are very similar to the other indices if on the weaker side; stochastic is firing a trend following signal with MACD on the cusp of confirming. If confirmed, along with a break above resistance, the index could move up to 18,000 with the all-time high next target above that.


Well, the technical picture is starting to brighten up if there are still hurdles to overcome. Today's action, discounting the fact we're in the middle of the Christmas/New Year's holiday, appears to be confirming long term trends with 2 of the 4 major indices firing strong trend following signals. The caveat, you may have guessed, is that we are still in the middle of the holiday's; trading volume is weak, market action is questionable at best and untrustworthy in the extreme. I remain bullish over the long term and looking for at least another try at new all-time highs so am at least optimistic. The next 2 - 4 weeks could tell the tale. We'll have a massive round of economic data next week along with the start of earnings season.

Until then, remember the trend!

Thomas Hughes

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