Introduction

The market took a pause today, perhaps due to OPEC uncertainty, perhaps due to the first round of monthly macro-data since the election. OPEC headlines over the weekend and this morning had oil prices moving in wide swings, the nature and probability of a price supporting deal are still highly questionable. Over the weekend the deal seemed to fall completely apart as Iran and Iraq both pulled back from agreement. Rumors have it that some sort of promises to Iran weren't kept, leading to their lack of cooperation and a plunge in oil prices; early this morning Iraq agreed to get on board and that news caused a major intraday turnaround in oil trading. Other than that the market only has a big week of major economic data to wait on so lots of opportunities for market movements.

International trading was a bit mixed, a bit choppy. In Asia indices closed mostly in the green, albeit with small gains, as dollar strength and falling oil prices induced caution. European indices were firmly in the red at the end of the day, first hurt by falling oil prices and then later by falling bank stocks. Today's reason to hit the EU financials, yet another possible extreme change in Italian government that is feared to hurt an already unstable banking sector and potential spillover into the greater EU. Nothing new but a reason for caution nonetheless.

Market Statistics

Futures trading was fairly stable if to the downside all morning. Volatility in the international markets did not seem to spill into ours and there was no earnings or economic data released in the early pre-opening hours. Trading at the open was calm and quiet, the SPX opened with a loss near -3 points, about -0.20%, and held near that level for the first hour of trading. The second hour of trading saw the indices dip lower, the SPX to -0.50%, trade sideways for a bit and then move back up a bit and eventually to the opening level.

Intraday resistance was found just below the opening level, 2210, and kept the indices trading sideways within the earlier range. Early afternoon saw the indices hover near the mid point of the intraday range and then move down towards the bottom of said range shortly after 2PM. The late day move lower was not strong, more of a slow drift down and to the right, that never quite reached the earlier bottom, not until the last half hour of trading when a final push lower set a new intraday low, leaving the indices near the lows of the day.

Economic Calendar

The Economy

No economic data today but lots this week. Tomorrow the second estimate for 3rd quarter GDP, slightly higher than the first, could sway the FOMC as could the NFP/Unemployment/hourly earnings bundle released on Friday. In between all that is Challenger job cuts, ADP employment, the Fed's Beige Book, personal income and spending, PMI, pending home sales, auto sales, ISM and construction spending.

Moody's Survey Of Business Confidence gained 0.5%, nearly reclaiming last week's loss, to come in at 32.5. The index is holding steady near recent highs, at 7 month highs, with little on the horizon to damage sentiment. In his remarks Mr. Zandi says that global sentiment is holding well and has weathered the geopolitical storm of the summer/fall. The only negatives he notes is that future outlook dipped over the summer, remains positive, and has not yet recovered.


The third quarter earnings cycle is coming to a close. A little over 98% of the S&P 500 has reported so far and there are 7, 1.5%, reporting this week. The blended rate of earnings growth moved up in the last week, gaining 0.2% to 3.2%. Of those that have reported 72% beat earnings and 54% beat revenue expectations, both above average.


Looking forward earnings growth outlook remains positive and on the upswing. Fourth quarter outlook fell a tenth to 3.3%, down more than 10% from it's peak but likely low relative to what we can expect the final rate of earnings growth to be, something more in the range of 7.5% to 8.5%. Full year 2016 outlook remains steady at 0.1%, likely to rise along with the fourth quarter as the season unfolds. Full year 2017 held steady as well, at 11.4%, but likely to see some change as we get closer to next year.


The Dollar Index

The Dollar Index fell in today's session but the move looks more like profit taking than anything else, there were no market shaking announcements, central bank meetings or comments from Fed members that I heard of. The index fell nearly a full percent in overnight trading to hit support just above the recently broken long term high near 100.50 and bounce back. The action created a doji candle at support and was basically completed before the US session opened, after the US market opened there was very little movement in the index. The indicators are consistent with a peak within an uptrend in that they are both showing strength, and peaking; the current peaks in both are both convergent with the new high and suggest strength in the rally. Additionally, the MACD peak, I don't know that I would call it extreme but it is the highest peak in more than 12 months. With the data this week, the ECB next week and the FOMC meeting just 2 weeks away I'd expect some volatility and at least a retest of the current high.


The Oil Index

Oil prices took a wild ride today, first down more than -1% and then later up more than 3% only to close closer to 2% as OPEC hopes, fears, dreams and realities clash together. The cartel is on the verge of losing its power as traders continue to question just what the deal is, will it be enough, will they all agree to it and then, will they actually do it. WTI gained settled up nearly 2% at 1.91%, trading just shy of $47, and is likely to be volatile going into Wednesday's official OPEC meeting.

Traders in the oil sector remain skeptical of the oil rally, as do I. The Oil Index fell more than -1.3% confirming resistance at the ultimate top of the 7 month trading range. The indicators are consistent with resistance within a trading range and suggest, along with the candle action, that the sector is heading back down to firmer support levels. The risk of course is that OPEC, or maybe the Saudis and Russia, will somehow talk the market back up. Downside target is 1,150.


The Gold Index

Gold prices bounced back somewhat today but remains below $1,200. Spot prices climbed more than 1% in mildly choppy trading to hover near $1,190. This move is linked to today's dollar weakness so does not appear to have strength or legs. Resistance is now $1,200, maybe lower, and with dollar outlook bullish I'd expect to see gold move lower rather than higher in the short to long term. FOMC rate hike expectation is 95.9% according to the Fed Watch Tool.

The gold miners of course got a boost from rising gold prices but they, like gold, are under pressure and appear likely to be headed lower. The Gold Miners ETF GDX gained nearly 4% in today's session, moving up from potential support levels, but remains within a narrowing flag pattern with bearish outlook. The indicators are mixed, MACD is bearish but consistent with a trough while stochastic is firing what could be buy signal. The caveat is bearish outlook for gold and the four month downtrend in gold stocks which makes today's set up in the GDX look more like the precursor for a bearish continuation than a bottom or bounce. Resistance is near $22, support is near $20, a break of either will be significant.


In The News, Story Stocks and Earnings

Time Inc, publisher of Time Magazine, received an unsolicited and turned down bid to buy from billionaire Edgar Bronfman Jr. The news was enough to spur investors to buy in the hopes that a deal could be reached, if not with this consortium then another. The current offer is $18 per share, a 22% upside to last week's close, which leaves some room if a deal were to get closed, even after today's 18% spike.


Wells Farge, the once unsullied banking gem, has suffered yet another blow. A new class action lawsuit, from the employees, alleging the company herded them into underperforming proprietary investments, over $3 billion worth, at the expense of employees. The news helped send the stock down by nearly -2% but does not appear to be material to the long term health of the bank or the banking sector. The chart still looks rather bullish to me.


Shoe Carnival reported after the close and missed expectations. The discount shoe store did not provide investors with reason to celebrate when they announced that seasonal sales were lower than expected, impacting revenue and earnings, and lowering full year guidance. Warmer weather hurt sales of boots of other cold weather shoes in the second half of the quarter but may be made up in later quarters if the winter precipitation forecast is to be believed. Shares of the stock fell -3.75% in the open session and look as if they may have hit a peak, action in after hours trading confirms it. Down -12%.


The Indices

The Trump rally is showing some signs of slowing. Today's action was light, but to the down side and comes with declining market momentum. The biggest decliner was the Dow Jones Transportation Average which lost -0.90% and created a small bodied black candle. The signal is not strong, a near term pause at most, but momentum continues to wane so more serious resistance could set in as the index approaches the all time high near 9,300. Stochastic remains strong and at the upper reaches of the upper signal zone, where it is likely to stay in the near to short term. Upside target remains 9,300.


The NASDAQ Composite is the next biggest loser in today's action, shedding -0.56%. The tech heavy index created a small bodied black candle, the fourth in what looks like a developing consolidation, just below the current and recently set all time high. The indicators remain bullish if consistent with a peak/consolidation. A pull back to test for stronger support go as low as 5,250 while a move to the upside could take it as high as 5,500 in the near term.


The S&P 500 comes in third today with a loss of -0.53%. The broad market created a small bodied black candle, closing near the low of the day, just below the recently set all time high. The index looks like it could be setting up to test for support, the indicators are bullish but consistent with a peak and possible near term pull back or correction, with that support level just below today's close. Support,first target anyway, is along a short term uptrend line and the previous all time high, which happened to intersect just below today's candle. A break below this level could be bearish and take the index down to a more established longer term uptrend line near 2,150. A confirmation of support would be bullish and has a target near 2,250.


The Dow Jones Industrial Average made the smallest losses today, only -0.20%. The blue chips created a small doji candle, just below the recently set all time high, and may indicate a pause in the rally is at hand. The indicators remain bullish but like with the other indices give reason to think a consolidation or test for support could be coming. MACD, while extreme and strong for the movement, is also diverging from the most recent peak suggesting that the rally has legs, but has reached a near term peak. Support could be at 19,000, if so great and bullish, if not the short term moving average near 18,600 looks like the next likely level. If the market is able to get its legs under it and move higher from here upside targets remain at 19,500 and 20,000.


Today's action certainly makes it look like a pause is at hand, and no wonder. The OPEC meeting alone is enough to move the market so waiting for it to pass is a good idea, the data load this week is another reason to wait, not to mention next week's ECB meeting, and the following week's FOMC meeting. This pause could hold current levels, and it could lead to a pull back to stronger support levels, but in either case I think it more likely the rally continues from that point forward than for it to end. Economic trends are positive, the consumer is getting stronger and earnings outlook is expansive... a recipe for bull market. I remain cautiously bullish, eyeing the market, waiting for the data, and eyeing my chance to get in on the next dip to support. OPEC may be a big deal, but only for a few more days.

Until then, remember the trend!

Thomas Hughes