Introduction

Amid economic earnings uncertainity the first, and maybe only, presidential debate between Donald Trump and Hillary Clinton dominated today's market. Many analysts are saying that the results could clinch the election and the odds seem to be in Trumps favor, providing he can hold himself together and not go "off-script". The broad market sold off, perhaps in a defensive gesture, but not hard and remains well within recent ranges. Volatility is also still will us, the VIX retreat to test support last week and has begun this week with a move higher.

International markets seemed to be just as interested in the debate as we. Indices around the globe pulled back by at least a full percent. Also on the radar is the Algiers OPEC meeting, happening as we speak, at which production caps and other supply limiting actions are expected to be discussed. Asian indices fell by roughly -1.5%, those in Europe in a little more. European indices were furthered impacted by news the EU would not be aiding Deutsche Bank in its negotiations with the DOJ.

Market Statistics

Futures indicated a negative opening all morning, the SPX set for a loss near -0.5%. These levels held all morning although there was choppiness to trading. The SPX opened with a loss near -8 points and quickly moved down to a morning low slightly more than -15 points. After an hour or so of sidewinding above the early low another intraday low was set just before noon, about -17 points for the SPX. Sidewinding resumed from that point and persisted for the next several hours. Afternoon trading was much the same, sideways drift with downward bias that resulted in several new intraday lows. By end of day the indices had lost nearly a full percent and closed near the lows of the day.

Economic Calendar

The Economy

No economic data was released before the opening bell. After the bell, at 10AM, we received the latest read on New Home Sales. New Homes Sales fell -7.6% from the previous month, a little less than expected, but remain up by more than 20% year over year. This month's data shows a slow down in growth of sales in the near term but ongoing strength in sales longer term. The current inventory of new homes remains low at only 4.5 months and a major factor hindering sales growth.

Moody's Survey Of Business Confidence fell -0.5% to 25.1. This is the lowest level in 4 weeks but relatively stable over the past 4 months. Looking at the charts it has taken a long time, almost a year exactly, but sentiment appears to have bottomed since falling from its peak. According to Mr. Zandi sentiment is stable and consistent with global economic growth. Caution remains in the near term, the longer term outlook remains positive. Of course, outlook was positive 6 months ago too and nothing has really changed since then.


Earnings season is slowly progressing. According to FactSet 9 S&P 500 companies have reported so far, 8 more are expected to report this week. Of those that have reported 6 have beaten earnings estimates and 4 have beaten revenue estimates, both below average. The blended rate for the 3rd quarter has fallen again, dipping to -2.3% and the lowest level for the series. At this level the index is still in position for the final earnings growth rate to turn positive, based on the averages, but could fall to levels, sub -4%, where that may not be possible. Of the 10, now 11, sectors of the S&P 500 all of them have been revised lower since the start of the quarter with 79 (15.8%) offering negative guidance.


Looking out to the end of the year and next year outlook remains positive but took another hit this week. Full year 2016 fell a tenth to -0.3% while full year 2017 fell three tenths to the lowest level since mid February, 13.1%. Fourth quarter 2016 also fell a tenth, to 5.7%. Based on these figures we are coming out of the earnings recession, even if 3rd quarter earnings come in net negative, so it looks like conditions are setting up for earnings driven rally.


The only economic release on the calendar for tomorrow is the Case Shiller 20 City Index, a non-mover for sure. Wednesday's data is a little better, Durable Goods. Thursday is weekly jobless claims, the 3rd estimate for 2nd quarter GDP and Pending Homes Sales. Friday caps the week with Personal Income and Spending, PCE Prices (an important Fed watched metric) and Chicago PMI. Next week is my favorite week of the month, economically, chock full of labor data (ADP, NFP) and more.

The Dollar Index

The Dollar Index fell today, shedding about -0.25%, but remains range bound and without direction. The index is trading just below the mid-point of the 3 month range with no indication of breaking out. The indicators are pointing lower at this time the index may drift that direction but without a change in fundamentals or at least some really game changing data it is most likely going to remain range bound. Next week could move the needle some, labor data is an important Fed metric, after that ECB, BOJ and FOMC meetings are the next potential catalysts. Kuroda at the BOJ said today they were ready to do what it takes to spur inflation but the market is not impressed with their currency weakening ability and the yen gained strength.


The Oil Index

Oil prices surged higher on hopes that OPEC would do something to support prices. The problem is that even if OPEC were to suspend production increases, production levels are already to high. Expect to see plenty of headline tomorrow and perhaps a little volatility. Today prices gained more than 3.5% to trade above $46. The move higher may continue if rumor and headline support it but resistance remains near $48.50 and $50. Looking back over oil prices over the past 2 months it appears they are winding up around the $45-$46 level into a narrowing range that may center on this OPEC meeting.

The energy sector was not moved by oil prices, perhaps seeing the move as one without legs to stand on. In any event, the Oil Index closed the day with nearly no movement to speak of after creating a small doji candle. The index is still trading below resistance at the middle of its range with indicators showing increasing weakness. Momentum is almost absent but stochastic continues to drift lower and has fallen below the lower signal line and suggest a weakness in the market and possible move down to test the lower boundary of the range, near 1,080. Resistance is the mid-point of the range, near 1,120, and the short term moving average.


The Gold Index

Gold prices held firm on a weakening dollar but is likewise range bound. Spot prices gained about a quarter percent intraday to trade near $1,344. Prices are likely to remain range bound while Fed uncertainty persists, and in the vacuum of other fundamental movers. Resistance is near the mid-point of the 3 month range. Near term it looks like prices are moving higher so a test of resistance is likely. A break above $1,350 would be bullish and could take prices up to test the top of the range near $1,385.

The gold miners held steady today as well. The Gold Miners ETF GDX fell but only about -0.04%. The ETF is sitting on top of the $26.70 level, a support level confirmed by last Wednesday's long white candle and the indicators. The ETF is also capped by resistance at the short term moving average. Of the two support looks stronger, it is located at a Fibonacci Retracement level of long term significance, so a break above the moving average could be imminent. If so the ETF could return to test resistance at the current long term high, near $32.


In The News, Story Stocks and Earnings

Shares of Twitter jumped for the second day in a row as new bidders enter the arena. Today's arrival, according to some sketchy reports, is Disney. Why Disney would want Twitter is beyond many analysts comprehension some see a benefit. Meanwhile, Twitter is getting downgraded based on low user growth and revenue outlook. Shares of the stock opened with a loss but moved sharply higher during the day to close with a gain near 0.75%.


Cal-Maine, one of the largest shippers of eggs in the country, reported earnings this morning before the bell. Results are not good and reflect a drastic correction in the prices of eggs following the recovery of chicken flocks post avian-flu outbreak. According to the report the company's average selling price for the quarter is down nearly 60% from its peak set a year ago. Quarterly revenue fell 60.7% resulting in a net loss of -$0.67 per share. Last year at this time the company was reporting a profit of $2.95. Shares of CALM fell more than -3% to trade just above support at the long term low.


Carnival cruise line reported earnings this morning described in the statement as best quarterly earnings in the company's history. Earnings beat expectations, revenue did not, and guidance was reaffirmed in-line with consensus. Sales were strong in the US and Europe with a good showing in all major sailing regions. Looking forward, the company has commissioned three new ships that should be on the seas in the next couple of years. Shares of the stock opened with a gain but fell hard during the day to close with a loss greater than -1.25%.


The Indices

Today's action was light considering the downward tilt to prices. The indices really only drift lower, slow sidewinding throughout the day and not really moving lower with confidence. The day's leader is a tie between the NASDAQ Composite and Dow Jones Industrial Average which both lost -0.91%. The tech heavy index created only a small black bodied candle but a bearish candle it is, moving lower extending the pull back from freshly set all time highs. The index is approaching potential support at the short term moving average, near 5,240, and may break through. The indicators are a bit mixed, bullish in the nearer term yet divergent and showing weakness in the longer, so support and its strength are questionable. A break below 5,240 could take the index down to 5,050 or lower.


The blue chips created a medium bodied black candle, moving down from recently broken support at the short term moving average. The index appears to be moving lower with near term target at 18,000. Despite the downward bias the index remains range bound over the short to long term. The indicators are a bit mixed on this chart too, consistent with range bound trading. A break below support would be bearish and could take this index down to 17,750 and a long term up trend line, well within the long term trading range.


The S&P 500 came in runner up today with a loss of -0.86%. The broad market created a medium bodied black candle moving down from the short term moving average and appears to be heading for support at 2,120. The indicators are mixed, consistent with range bound trading, so a break below support does not look likely.


Today's laggard is the Dow Jones Transportation Average with a loss of only -0.28%. The transports created a small doji candle sitting on the short term moving average, in the middle of the 3 month trading range. The index is firmly range bound, confirmed by the indicators, and appears to be going nowhere but sidways. Bottom of the range is 7,750, top of the range near 8,200. A break below the lower range limit would be bearish in the near to short term and could result in a pull back to 7,500 or lower.


The indices remain range bound, range bound and waiting for something to happen. That something may be tonight's debate, or the results of the debate but I don't think so. Politics are important and they will help direct market direction long term but nearer term we're still waiting on a questionable season of earnings, we're still waiting on the FOMC to greenlight the economy and we're still waiting on the actual election... all of which happen to coincide the first two weeks of November. Withg so much uncertainty I remain cautious in the near term, waiting for my long term signal for bullish entries.

Until then, remember the trend!

Thomas Hughes