Introduction

The Fed's Beige Book says that economic expansion is modest to moderately paced . . .but failed to move the market significantly. Even with these new revelations Fed uncertainty remains and is a major hurdle for the equity markets. Today's action was to the upside but without much enthusiasm and left the indices within their recent trading ranges, tomorrow's meeting of the ECB and their policy decision helping to hold them in check. The bank is not expected to enact further easing but you never know what Draghi might say to spin sentiment and move the markets.

Trading in Asia was flat in the overnight session, GDP from China dominating the news. The headline figure matched expectations, 6.7% year over year and 1.8% quarter to quarter, while other data was mixed. Retail sales were strong at 10.7% but Industrial Production missed forecasts for 6.4%. European indices ended the day in positive territory after spending most of the morning hours in the red. China's news did not inspire buying, it was the US open that helped lift stocks to their closing levels.

Market Statistics

Futures trading indicated a flat open all morning. Economic data released at 8AM sent a ripple through the market but nothing major, permits and starts data sending mixed signals about the housing market. The open was relatively orderly, the broad market opened with small gains and then spent the next hour sidewinding just above break even level. By 11AM sideways action had stopped in favor of a small rally, supported by rising oil prices, that took the indices up to an early high (about +0.25% for the SPX). This level held for the next two hours until a new intraday high was set just after 1PM (about +0.33% for the SPX). The final high of the day was hit shortly after 2PM and the release of the Beige Book. After that the indices meandered to the side until the close of the day.

Economic Calendar

The Economy

Not much economic data today and what we did get was mixed. Housing starts, permits and completions data shows an uptick in forward looking building permits but some serious red flags have popped up in other areas. Permits rose by 6.3% from last month and are up 8.5% year over year. Housing starts fell -9% month to month and is now down -11.9% from last year. Completions fell -8.4% month to month and are now down -5.8% from last year. The mitigating factor, if it can be considered one, is that all of this data comes with incredibly large margins for error, in excess of +/-15% in some cases. The declines are due mostly to multi-family construction, single family starts are up 8.1% this month while permits rose 1.6%.

The Fed's Biege Book was released at 2PM and little impact on the market. The report shows that economic activity continues to expand at a modest to moderate pace in most districts. Labor market conditions are tight; modest wage and employment growth was noted for the period, staffing firms report an increase in demand. Manufacturing was mixed, exports hurt by the stronger dollar. Most regions saw an increase in retail spending with positive forward outlook for continued growth. Demand for consumer loans increased, credit quality remains good. Overall, the report is good but shows no major change in economic conditions, just more of the same slow spotty growth.

The Dollar Index

The Dollar Index held steady today. The Beige Book did not have the oompf needed to move the needle, traders eyeing tomorrow's ECB announcement holding pat. Today's candle is small and has some lower shadow but is a spinning to nonetheless. Today's action and that of the last week or a consolidation following the rally we saw during the first half of this month. The index has begun to look quite interesting, the bulls appear to be waving a flag, and bullish in the near term. If this pattern confirms with an upside break out there is potential for movement of $2.50 or more, the height of the flagpole, which would put it just below the December 2015 high of $100.51. Tomorrow's ECB meeting is the most likely catalyst. Dovishness from them, or at least a notable lack of hawkishness, could tank the euro and send the dollar moving higher.


The Oil Index

Oil prices surged to a 1 year high today. WTI gained more than 2.65% to close above $51.50 for the first time since July on a surprise draw of US inventory. The EIA says that crude inventories fell by 5.2 million barrels in the last week versus an expectations for a build. The news is however balanced by last weeks rise in US rig counts and high levels of global production but is bullish in the near term. Next resistance is just above $52.

The Oil Index managed to make some gains today as well, moving up about 1.5% to once again test resistance at the top of a 7+ month trading range. The indicators remain mixed and consistent with range bound trading but if oil prices remain at today's levels a break above resistance is very likely. If broken upside targets at 1,200 and 1,250. The risk of course is lingering oversupply and overproduction, when that reality comes back into focus oil prices will come back under pressure.


The Gold Index

Gold prices rose again today, gaining about 1% intraday, to close with a gain near 0.5%. Despite today's rebound gold prices remain near recent lows and in a consolidation pattern driven by wavering FOMC expectations. Today's move was supported by a slightly softer dollar and likely to be affected by tomorrow's ECB decision. A dovish sounding ECB is euro negative, would make the stronger dollar and send gold back to seek support. My support target is $1,250 should prices reverse today's gains.

The gold miners got a lift from rising gold prices. The miners ETF GDX rising nearly 3% to hit an almost 3 week high. Despite the gains there are some red flags popping up that could indicate this move higher is merely a rebound within the 2.5 month down trend. Primarily, today's move was capped by resistance at the short term moving average, this resistance level consistent with the gap which formed at the first of the month, near the $25 level. A break above this level would be bullish, but would also face additional resistance at the $27.50 level. Failure to move above resistance would be bearish, confirming the gap, and could lead to a continuation of the near term trend.


In The News, Story Stocks and Earnings

The Big Banks have just about all reported and the reports are good. The group has managed to beat Wall Street's low expectations and deliver earnings and revenue growth on the quarter to quarter and year over year comparison. Today BB&T and Morgan Stanley reported before the bell. Both banks were able to grow earnings by double digits, +22% for BB&T and +62% for MS, and helped to send the entire sector moving higher in today's action. The Banking Index gained 1.7% on the news and looks poised to test resistance at $73.50. The indicators are not looking strong so a break above this level is questionable, however, if one comes, upside potential is limited by resistance at the $75 level coincident with a past congestion band/bearish reversal.


A look at Morgan Stanley and BB&T charts show similarly challenged stocks. Both rose in today' session to challenge resistance, both look weak in their attempts. The MS chart shows a stock calmly trading in a long term range and at the top of that range without sign of break out. The indicators show no signs of strength and are consistent with range bound trading. A break above resistance, near $33, could go up as high as $35 but long term resistance dating back to the December '15 reversal will be met and has potential for strength.


Medical products maker Abbot Labs reported before the bell as well. The company reported a GAAP unrealized net loss of -$0.24 due to investment exposure to Mylan and its woes but other metrics are more positive. Global sales are up 2.9% in the quarter on strong sales of devices and Established Pharmaceuticals led gains resulting in non-GAAP earnings of $0.59, slightly above expectations. Forward guidance has been maintained and narrowed to a range bracketing the consensus estimate. Shares of the stock were volatile in today's action, first opening lower and then later surging higher only to fall back and set new lows by the end of the day. Shares closed at a 3 month low but above potential support at the $40 level.


Reports after the bell; Mattel reported a top and bottom line beat. Stock moved higher by 1%. American Express also delivered top and bottom line beats, EPS by more than 20%, and sent the stock higher by nearly 4%. Ebay reported a beat on revenue with EPS beating by a penny, however, traders weren't impressed with what they saw in the report and sent the stock tanking -8% in after hours trading.

The Indices

The market continue to churn. Today's action nothing more than another day spent spinning its wheels while we wait on whatever the next 3 weeks will bring us. Today's move was led by the Dow Jones Transportation Average which posted a gain near 0.70%. The transports created a smallish white candle, moving up from the support of the short term moving average and just below resistance at the top of the 8 month trading range. The index looks like it will retest the top of the range, near 8,150, although it does not look like it will be broken at this time. The indicators remain weak and consistent with range bound trading. If resistance is broken, next resistance is just above at 8,250.


The runner up in todays' action is the Dow Jones Industrial Average with a gain near 0.23%. The blue chips also created a smallish white bodied candle although on this chart it is capped by the short term moving average near the middle of the September/October trading range. The indicators remain consistent with range bound trading, trending near the middle of their respective ranges, although bias at this time is to the upside. A move up to test resistance is possible, target is near 18,450.


The S&P 500 is third in today's line up with a gain near 0.20%. The broad market remains range bound without indication of breaking the range. Today's candle is small and white bodied with a small amount of upper shadow. The upper shadow reveals some resistance to today's move higher, found at the short term moving average. The indicators remain weak and consistent with range bound trading but like with the blue chips there is some upside bias present. A move up to test the top of the range may be forthcoming, target is near 2,180. A break above resistance would be bullish and could take the index higher over the next few months.


The NASDAQ Composite made the smallest gains today, only about 0.05%. Today's candle is very small, a doji, and occurs almost exactly at the short term moving average. By itself the candle is indicative of a lack of direction, coupled with the moving average is a real sign of indecision. The indicators are mixed but generally bearish so I am not expecting too much in the way of upside at this time. A move lower may find support near the recent low, near 5,165.


The market continues to churn. The Beige Book was a potential catalyst but it did not ignite the market. Tomorrow's ECB meeting could do it but I'm not holding my breath. Earnings are coming in better than expected and they might break the market into a new rally but even that is overshadowed by two things; the FOMC meeting and the elections, both scheduled for the first week or so of next month, about 3 weeks away. The Fed is likely not going to change rates at the next meeting, they might give strong indication that December is on, so that isn't really a likely catalyst either, not with how this election cycle is playing out.

Mr. Zandi keeps saying in his weekly Business Sentimenet Survey summary that the election is not affecting sentiment but I beg to differ, it looks to me like the market is winding up on a lot of negative sentiment and focused on who the next president will be. I remain cautious in the near term, expecting to see the indices trade within recent ranges, bullish for the long, looking for the signal that long term rally is back on.

Until then, remember the trend!

Thomas Hughes