Introduction

The market churned another day as we enter a very busy three week period. This week; a little data and a lot of earnings. New Home Sales, Pending Home Sales and 3rd quarter GDP are on tap economically speaking; 178 or 35% of the S&P 500 is on the schedule to report earnings. Next week; the much anticipated November FOMC meeting as well as monthly macro-data to include NFP and unemployment, as well as a fair amount of earnings reports. The week after, well that week holds Election Day, a day that will not soon be forgotten.

International markets were largely higher if a bit mixed, particularly in Europe. Asian indices closed primarily in the green, led by China, on news of better than expected trade data from Japan. The country reported a decline in exports but less of one than was expected. In Europe indices closed closer to flat line, some in the red, following a choppy session.

Market Statistics

Futures trading indicated a higher opening for the US indices all morning, about +10 points for the SPX. This held relatively steady for the bulk of the pre-opening session as there was little in the way of economic or earnings news to drive trading. The open was orderly, the broad market opened about 0.4% higher than Friday's close, quickly moved up to hit an early high near +0.5%, and then proceeded to trade in a tight range between +0.4% and +0.5% well into the afternoon portion of the session and into the close of the day.

Economic Calendar

The Economy

Only one economic release today, Markitt's Flash Manufacturing PMI for October. The index made a gain of 1.7% to hit 53.2%, indicating expanding growth within the sector. The data was relatively well received as an indication other, more reliable and closer watched, data will show improvement as well.

Very little data this week, GDP on Friday is probably the big one of the week. Between then and now there is New Homes Sales, Pending Home Sales and the weekly jobless claims to look forward to. Next week as I said will be the big one, monthly macro-data as well as the FOMC meeting. Before the meeting we'll get PCE, Auto Sales and ISM Manufacturing, after the meeting we'll get the employment bundle, Productivity/Labor Costs and Factory Orders.

Several Fed members made speeches or other comments today, the one to make headlines being Bullard. He says that low rates are likely to be with us for the next 2-3 years which I think is no surprise. The one thing that has remained consistent about the FOMC's month to month stance on rate hikes is the timeline, slow and gradual.

Moody's Survey of Business Confidence moved higher for the second week in a row. The index gained 1.5% to hit 29.3, the highest reading since late May. Mr. Zandi says the survey results indicate that the election are still not having a major effect on global sentiment, that the US is still expanding at the high end of its potential and that globally sentiment is less robust. South America remains the weakest but he notes that there are signs of improvement.


Earnings season is indeed unfolding better than expected. Whether it is better-than-expected-enough is yet to be seen but the signs are positive. The third quarter blended rate with only 23% of the index reporting has risen nearly enough to turn positive for the quarter, +2% to -0.3%. If the season continues to unfold as it has the first few weeks then I think it safe to say we'll see the final growth rate for the quarter in the 1-2% range. This week there are another 178 S&P 500 companies reporting so I expect to see some day to day volatility as they roll in.


Looking forward the outlook is still good and, dare I say it, maybe in really good. Next quarter estimates remain steady in the mid-5% range. Assuming that earnings trends can be trusted to hold true the 4th quarter could see growth as high 9.5% to 10%. Full year 2016 earnings growth has already returned to positive growth, +0.1%, and that will likely increase before the end of this cycle, and then again by the end of the 4th quarter cycle. Next year outlook remains robust at 12.4% but I must note, estimates have fallen more than -0.5% in the last two weeks to a one year low.


The Dollar Index

The Dollar Index climbed to a nine month high today as the market prices in a rate hike this year. The CME's fed watch tool is showing only a 9% chance of hike at the meeting next week but a near 75% chance of at least a 25 BPS increase at the December meeting. The risk at next weeks FOMC meeting, or potential catalyst depending on your view point, is that the FOMC will/will not give a clearer indication of their willingness to raise rates. The index gained about 0.15% today, a small move, but was able to close above my $98.65 resistance for the third day in a row. The index is moving up within a longer term range following the break of a shorter term wind up within that range. Next upside target is near $101.50 and means a full retracement of the Dec '15/May '16 bear market in the dollar.


The Oil Index

Oil prices came under pressure again today as new headlines drive volatility. Today, news that Iraq was resistant to the new OPEC deal to cap prices warred with another report that Russia was talking the deal up. In both cases the news is more hot air to drive near term speculation, longer term fundamentals remains skewed to oversupply and lower prices. WTI fell a little over a half percent to trade at $50.50.

The Oil Index was able to hold its ground today, closing with a small gain, although it is still capped by resistance at the top of the 7 month trading range. It seems to me as if the market has literally not bought into the idea that oil prices may move higher. The indicators are bearish and continue to retreat following the recent peak and whipsaw to multi-month highs, consistent with a range bound asset. A break above resistance would be bullish but would, I think, require a more substantial indication of supply/demand rebalancing than what we've gotten so far, or at least some decent earnings outlook from the producers themselves. The second scenario we might get later this week as the big integrated oil companies report.


The Gold Index

Gold prices held steady today near $1,265. The rising dollar is holding the metal near four month lows and may push it lower in the near term. Support firm support is currently near $1,250 and will likely be tested as the dollar moves up to retest its high. A break below $1,250 would be bearish and could take the metal down to $1,220 or lower in less than a session.

The Gold Miners ETF GDX is moving lower on gold/FOMC outlook. The ETF dropped a little over -2.5% in today's action, falling from resistance at the short term moving average, and has confirmed the near term down trend. Next target is near $22.50 and may be reached in the next week or so. The caveat, $22.50 also looks like a potential support target as indicated by MACD divergence so the depth of the move may not be too great. This target is also the 50% retracement level of the 2016 bull market in the sector which may provide additional support. A break below this level would be bearish and could lead to a full retracement of said bull market, first target however would be $19.75.


In The News, Story Stocks and Earnings

Last week rumors that AOL and Time Warner were in talks to merge, again, only 6 years after they split apart. This past weekend those rumors were confirmed and my only response is. . . what?!?!?!?!?!? The last merger did not end well, labeled "the Marriage from Hell" by online news sources, which begs the question, just exactly what is different now? Whether or not the deal will go through is highly questionable, regulators in Washington already giving push-back. Shares of Time Warner are down on the day but up about 8% since the news began to break. Verizon, parent company of AOL is flat on the day but down about 6% the news broke and looks like it is heading south from here.


T-Mobile reported before the bell and delivered. The company reported strong earnings, strong customer growth and raised forward guidance a quarter billion dollars above the previous range. Driving the results are customer counts, up more than 2 million in the third quarter alone, which drove a 17% increase in revenue and a 165% increase in net earnings. Shares of the stock jumped nearly 10% on the news to trade a 9 year high.


Visa reported fiscal Q4 earnings after the bell. The credit and bank card processing company reported adjusted quarterly earnings of $0.78 per share, above analysts estimates and a 28% increase over the same period last year. Full year revenue was also strong, up 5% over last year, and driven by positive company performance and the "abatement" of headwinds that is expected to continue into next year. Shares of the stock were little changed in after hours trading.


The Indices

For the most part the indices made small gains in today's session, trading well within and near the mid-point of their respective near term trading ranges. The one bucking the trend is the NASDAQ Composite which gained nearly a full percent in today's session, about 0.99%. Despite this the tech heavy index failed to set a new high, although it is getting close. The indicators remain weak but they are rolling into a potential trend following buy signal which needs to be monitored. A move up to resistance at the all time high, with a break to new highs, would be bullish with a first upside target near 5,500.


The next biggest gainer in today's session was the S&P 500 which posted a rise of only 0.48%. The broad market created a very small spinning top candle smack in the middle of the September/October trading range, right at the short term moving average. The indicators remain consistent with range bound trading, trending near the middle of their respective ranges, and are not even giving an indication of direction within the range. The upper boundary is near 2,180, the lower boundary is near 2,120 and both look as if they will hold prices in check, into the near term.


The Dow Jones Industrial Average closed with a gain near 0.43%. The blue chip index created a small spinning top candle near the middle of the September/October trading range and below the resistance of a previous all time high. The indicators remain weak and consistent with a trading range, and are pointing lower suggesting a test of the bottom of that range but little else. The sidewinding action within the range is bringing us closer and closer to a long term up trend line, the intersection of which should happen the 2nd week of November.


The Dow Jones Transportation Average brings up the rear in today's session with a gain of only 0.37%. The index created a small doji type spinning top wedged between the support of the short term moving average and the top of the nearly 8 month trading range. The indicator continue to show weakness, indicating a pull back from the top of the range, which could result in a move down to test for support. First target for support would be 8,000, next target should that one fail is near 7,750. A break above resistance, 8,150, would be bullish but would require confirmation before entering a trade as next resistance target would be 8,250.


The indices continue to churn. The signs are shaping up for a nice rally but the fact remains, we have a very busy three weeks to get through and two major hurdles to get over, either of which could easily trip the market up; the FOMC meeting and the elections. The good news, I think, is that the FOMC meeting is next week, the elections the week after so we don't have long to wait. This week may be another dud, another week of slowly sidewinding within recent trading ranges, but a volatile one as earnings reports are released. I remain cautious, hopeful, optimistic and patiently awaiting the signal that all is clear, it's rally time.

Until then, remember the trend!

Thomas Hughes