Introduction

Despite a raft of positive earnings reports the indices continue to tread water. Early morning action included a number of earnings beats along with positive economic data that helped to support the market but support it is about all that it did. Today's action was yet another day of listless, directionless, sideways consolidation within the recent ranges and it doesn't look like tomorrow will be any different. There was a fair amount of after hours action though, earnings from Google and others, so I do expect to see some big moves in individual stocks if not in the indices themselves.

International markets were a bit mixed as well. Asian indices fell for the most part, about -0.50% on average, as weakness in oil prices pressured the market lower. European indices were just as choppy by closed mixed with indices hovering around the break-even line.

Market Statistics

Early morning action saw futures rise, indicating a slightly positive open for the US market. These levels held throughout the morning as earnings and economic data was released. The indices opened with small gains across the board but, also across the board, began to fall within the first 5 minutes of trading. By 10:15 most had fallen below break even, led by the SPX -0.25% decline, and proceeded to move sideways from there. A small rally was able to form, just before noon, and drove the indices back to just above break-even but not much higher. These levels held for about a half hour until they fell back to just below break even. Sidewinding continued for most of the afternoon until about 3:15 when the indices (most of them) fell back to the low of the day.

Economic Calendar

The Economy

Economic data leads off with initial jobless claims which fell -3,000, better than expected, to hit 258,000. The previous week's figure was revised up by 1,000, the four week moving average came in at 253,000, a gain of 1,000 from last week's revised number. This makes the 86th week of claims below 300,000, the longest streak since 1970. On a not adjusted basis claims rose by 1% versus an expected rise of 2.2% and are down -3.7% year over year. In terms of labor trends, this data remains consistent with ongoing labor market health.


Continuing claims fell by -15,000 to hit 2.039 million, the lowest level for this metric since June of 2000. The four week moving average of continuing claims also fell, by -6,250, to hit 2.051 million, the lowest level for this metric since July of 2000. Continuing claims is a long term down trend and making new lows, consistent with ongoing labor market health and improvements.

The total number of Americans claiming unemployment benefits fell by -3,202 to hit 1.744 million, a new long term low. The decline is as expected, consistent with long term labor market improvements and seasonal trends. The rate of decline has slowed noticeably this week, there may be only another week if that until this metric bottoms out. The next seasonal move here will likely be an uptick in claims that lasts into the first part of next year, the key to watch for will be the peak which should top out in the 2.667 million range.


Durable Goods orders data was released at 8:30AM as well. The headline decline of -0.1%, the first decline in 3 months, offset by more positive internal data. Ex-transportation orders climbed +0.2%, ex-defense up +0.7%. Shipments gained 0.8%, driven by transportation, the 5 month of increase in the last 6. Unfilled orders fell however, clearing some of the back log, led again by transportation and the 5th month of decline. Inventories are up 0.1% on increases in machinery. Capital goods orders are up also, 1.5%, with a 2.2% increase in shipments. August data was revised higher.

Pending Home Sales data was released at 10AM and came in more than double the expectation, up 1.5%. The index came in at 110 and is up 2.4% year over year, the 22nd out of 25 months of year over year increases. Sales were strongest in the west, followed by the south, driven by strong demand. Lawrence Yun, NAR economist, says low inventory persists and may continue to drag on sales and lift prices.

The Dollar Index

The Dollar Index firmed on today's data, rising near 0.3% to close at a new 9 month high. Today's action is a move up from the $98.65 support level, tested over the past few days, and signals a likely continuation of the near term up trend. The indicators have weakened somewhat, consistent with a possible top or consolidation, but have not yet signaled reversal. Positive GDP data tomorrow, strong data next week, and FOMC outlook could easily spark another wave of upside momentum. Next upside target is near the $100.50 level, a full retracement of the first-half-2016 bear market. If support fails, at the $98.65 level, the index may find support at $98.


The Oil Index

Oil prices were choppy in the early part of the day, up to and until a new rumor hit the market. The latest news, cited as coming only from a "source", alleges that OPEC told Russia it is willing to cut its production levels as much as 4% from the cap imposed last month. If true it could help alleviate over supply conditions but more than likely not as 4% only brings the target OPEC output to 31.25 million barrels a month, the level at which OPEC first proposed to freeze production. WTI gained a little more than 1.5% to trade up to and test resistance at the $50 level. In the near term rumors, hopes and news may help support prices, longer term the supply/demand situation remains skewed toward supply.

The Oil Index rose about 0.75% in today's action but remains constrained by resistance. The index is trading at/near the top of a 7 month trading range and does not look like it wants to break out. This may change by tomorrow however as reports from Exxon, Phillips 66 and Chevron are on tap. If today's report from ConnocoPhillips is any indication the reports should be good. The caveat is that Connoco reported an increase in production that doesn't bode well for forward oil prices.


The Gold Index

Gold prices held steady in today's session despite a rising dollar. Physical demand driven by festival demand in India is helping to support prices. Spot gold held near the flat line in a choppy session, just above $1,265, and may remain trapped in a narrow range for the next 4 trading days, until next Wednesday and the FOMC meeting.

The gold miners came under pressure again today as low gold prices hurts forward outlook. Some of the miners have reported, decently, but with spot prices off their most recent highs by 5% next quarter and next year earnings growth is questionable. The miners ETF GDX fell nearly -2% in today's session, moving down from the short term moving average, and set a new 2 week low beneath the 38.2% retracement level and support target. The indicators are retreating from a peak, consistent with a test of resistance within the near term down trend, and may lead the ETF down to retest support near $22.50. A break below this level would be bearish and could take the index down to $20 or lower.


In The News, Story Stocks and Earnings

Today was the busiest day of the Q3 earnings cycle with dozens of reports before and after the bell. Early morning news was dominated by reports by ConnocoPhillips, Tesla and Twitter among others. ConnocoPhillips reported an adjusted net loss of -$0.66, slightly better than expected and better than last year. Results were driven by cost efficiencies, a reduction in capex and the rebound in oil prices. Full year guidance is positive, production outlook was raised while capex was lowered, which helped lift the stock nearly 6.5%. In terms of forward earnings outlook the energy sector is expected to lead the market next year with YOY growth in excess of 300%.


Tesla reported earnings after the bell yesterday and was the subject of much discussion today. The company reported what looked to be a decent report, they posted a profit, but details within have left many analysts less than bullish. There is concern over the Model 3 launch slated for next year as well as the efficacy of the Solar City merger. Another concern is that this quarters results are due more to balance sheet manipulation than true strength in sales. Shares gapped up in the overnight session, opening this morning with a gain of 5%, only to sell off during the session on 5X average daily volume.


Twitter reported before the bell and beat by a penny. The bad news is that the company still posted a loss. CEO Jack Dorsey says the product is "revolutionary" but I and most of the market says, so what? They still haven't found a way to really monetize their traffic and the user base is just too small. Shares of the stock did more higher on the news, about 3%, but sold off during the day leaving them flat for the day and the week. At best I think Twitter a takeover target but based on recent activity it looks like nobody really wants to buy it.


After hours earnings action was quite busy and delivered a mixed bag of results.

Amazon missed earnings expectations by a large margin on revenue slightly above forecast. The company announced that sales were up 29% along with more than 3 dozen new product features launched during the quarter. Forward guidance is calling for a 17% to 27% increase in the next quarter, slightly below expectations. Shares of the stock fell -5% on the news.

ABC, parent of Google, beat on the top and bottom lines, barely, and announced a $7 billion stock buy back plan.

Expedia missed on the bottom line but beat revenue expectations, both down from the same period last year. The bad news is that bookings were light although next quarter outlook is promising. Shares of the stock were a bit volatile following the news but eventually move up by more than 6%.

LinkedIn beat EPS and revenue estimates smartly. The street was calling for EPS near $0.80, actual is $1.18. The strength is driven by a 23% increase in total revenue, an 18% increase in members and a 26% increase in marketing revenue. Shares of the stock moved up marginally in the after hours.

The Indices

Today's action was nothing more than a continuation of recent trading ranges. For the most part price action was to the down side, led by the NASDAQ Composite, but not all indices posted a loss. The Dow Jones Transportation Average closed with a gain near 0.6%, closing above the short term moving average. Despite this gain the index remains firmly trapped within its 8 month trading range and does not look like it is ready to break out. The indices continue to weaken indicating a possible move lower to test for support. If the index does move lower the bottom of the range is near 7,750 although support may be reached before then. The top of the range is near 8,150.


The tech heavy NASDAQ Composite fell about -0.65%, dropping from the short term moving average and closing just below my near term support target at the previous all time high. Today's candle is a medium size black candle confirming downward bias within the near term trading range. The indicators are mixed but remain consistent with range bound trading so it doesn't look like any kind of strong move is gearing up. If the index continues lower it may find support at 5,150 or 5,100, if not a move down 5,000 is possible.


The S&P 500 closed with a loss of -0.30%, creating a smallish black bodied candled. Today's action was light but moved down from the short term moving average and looks like it will continue downward to test support at the bottom of the trading range. The indicators are mixed as to direction but firmly consistent with range bound trading so a move below the bottom of the range does not look likely at this time. Support target is 2,120 and will likely hold into the near term.


The blue chip Dow Jones Industrial Average closed with a loss near -0.16%, creating a small black bodied candle within a very narrow trading range. Today's action moved down from the short term moving average but does not look like it will move much lower. The range has been holding for many weeks and will likely continue to hold at least until the FOMC meeting and more likely until the election in 2 weeks. The indicators remain consistent with range bound trading and support this view. A break outside of the range, when it comes, may be strong and likely lead to a pronounced market movement into the end of the year.


The market remains range bound. We are approaching the end of the 8th week of range bound trading, a period which began at the start of the fall trading season and likely to end with the election, if not with the FOMC meeting. Where the market goes from here is hard to say but based on economic trends, current quarter earnings, next quarter and next year earnings outlook if there is a pull back, dip to support, correction or other bear market activity it will most probably be another buy-on-the-dip opportunity within a larger, secular, bull market. I remain cautious in the near term, FOMC and election risk force me to, but I see the makings of a great rally in the works so am bullish for the longer term.

Until then, remember the trend!

Thomas Hughes