Introduction

The broad market moved sideways within a very narrow range for the 13th trading day in a row, and the Dow set another new all time high. Neither moved looks very strong yet both are supported by fundamentals and outlook; the economy is growing, earnings are growing and both are expected to keep growing. The Index of Labor Market Conditions has been indicating the onset of robust economic growth for some time, the Index of Leading Indicators has begun to confirm that outlook.

Asian indices moved higher in their Monday session. Traders were cheered by the strong NFP figures from Friday and the prospect of economic strength in the US. Australia led with a gain near 1.0% while others in the region closed with gains closer to 0.5%. European indices were not so buoyant as tension between North Korea and the rest of the world escalate. The United Nations imposed new sanctions aimed at cutting $3 billion out of the countries export income which resulted in new threats from Pyongyang. The strategy now appears to be taunting North Korea into expending their arsenal with empty threats.

Market Statistics

Futures trading was quiet this morning. US indices were indicated to open flat to mildly positive and that held true throughout the morning as there were little in the way of earnings and no economic reports to move the market. The open was calm and orderly, the indices began trading with marginal gains that pushed the Dow Jones Industrial Average to a new all time high. An early morning test of support resulted in a double bottom and reversal that led to new intraday highs for all the major indices. The new highs were only a hair above the opening highs and after noon trading moved sideways from there so overall action was tepid and sideways.

Economic Calendar

The Economy

No official data today but we did still get the Moody's Survey of Business Confidence. This week global business confidence fell -1.0% to a 4 month low. Despite the fall Mr. Zandi says confidence remains strong and evidence of an economy growing above its potential. Pricing power has been able to hold up through the summer as sales, hiring and investment remain firm.


Another earnings cycle is drawing to a close and once again the final rate of growth is well above expectations going into the season. So far 84% of the S&P 500 has reported earnings and of those 72% beat EPS estimates while 70% beat revenue estimates, both well above average. On a sector by sector basis 10 of the 11 S&P sectors are showing growth and 10 of 11 sectors are doing better than expected. The blended rate of growth jumped another 2% this week to 10.1% and is now sitting at the highest level this cycle and matching expectations dating back to early February. With another 36 companies reporting this week the figure is likely to rise further.


Looking forward expectations are still positive and gain strength into the end of next year but, of course there is a but, those expectations have taken a hit in recent weeks. Looking to next quarter earnings growth is expected to 5.6%, this is down from near 10% earlier in the year. The following quarter, Q4, is now expected to see earnings growth of 11.4%, down from 12.5% 3 months ago but still robust. The bright side is that full year growth outlook is on the rise and at a 3 year high. Also, based on the averages, we can expect to see the final growth rates for each of these quarters come in about 4% better than expected which will boost full year growth further.


The Dollar Index

The Dollar Index gave up some of the gains it made Friday as traders come to terms with the NFP release. The release was above expectations at 209,000 but not overly strong. It supports the idea of tightening labor markets and economic growth but not so much an impetus for the Fed to raise rates in the near to short term. The CME's Fed Watch Tool still shows only, at best, a 50/50 chance for rate hike by December. Economic data may support the dollar between now and then but likewise strong or strengthening data in the EU could lift ECB outlook and undermine the dollar. Today's action shaved about -0.17% off the index which is trading just above long term 15 month lows. This level may prove strong enough to stop or even reverse the dollar but I expect to see it tested once or twice before giving that kind of signal.


The Gold Index

Gold prices hovered at a one week low. The metal fell last week on a surge in the dollar that today looks like it could be a knee-jerk counter trend movement. Spot price trade around $1264 in a very tight range while traders try and decide what to do next. This is a low impact data week save for Friday's CPI release so sentiment more than anything will drive prices. A break below $1260 may find support at $1250 or $1235, a bounce from this level will likely retest the recent high just above $1280 with a chance of moving up to the short term highs just above $1300.

The Gold Miners ETF GDX fell -0.15% to sit just above support targets at the bottom of the 7 month trading range. The ETF failed to move up from the bottom of the range and is now hanging just below the long term moving average and indicated lower. Both MACD and stochastic are showing bearish crossovers and stochastic showing a bit of strength. The stochastic signal now qualifies as a strong signal albeit one within a trading range and just above potentially strong support. This support is near $22, a break below which would be bearish.


The Oil Index

Oil prices trend sideways today in a volatile session. Prices were pushed lower on rising output and high supply levels and then later supported by economic growth outlook, demand hopes and this week's OPEC compliance meeting. OPEC ministers are meeting today and tomorrow to discuss the production cap and how to encourage compliance. OPEC has been struggling with its self imposed cap because member nations sneak oil onto the market. Most recently ramping production in violence plagued Libya and Nigeria are impacting overall supply from the cartel. If they aren't able to stem the flow in some way prices are sure to fall back below $45. WTI fell more than -1.0% intraday and closed with a loss of -0.5% but the daily range was within the near term 7 day range. A break below this range, bottom near today's low at $48.40, would be bearish.

The Oil Index shed -0.75% today but price remained within the near term consolidation pattern. The index appears to be in consolidation within a near term up trend and posed to move higher. The indicators are currently pointing lower in confirmation of resistance levels but convergences with recent highs suggest those levels will be tested again. A break above those highs, just above the long term moving average, would be bullish but face additional resistance near 1,170. If OPEC fails to support prices and the index falls support is likely to be found near 1,120 and the short term moving average.


In The News, Story Stocks and Earnings

Tyson Foods reported before the bell. The supplier of all things meat delivered juicy results beating on the top and bottom line. EPS of $1.28 beat by more than 6% on revenue that grew 4.8% YOY and beat estimates by 3.7%. Gains were driven by volume and pricing increases that led management to raise forward guidance to a range above consensus. Shares of the stock jumped more than 5% on the news but were capped at the top of a short term trading range.


CBS reported after the bell and beat on the top and bottom lines. According to CEO Les Moonves the skinny bundles work. He went on to say that Showtime had a terrific quarter and that 2018 would be even better (for CBS). EPS of $1.04 beat by $0.06 and helped drive share prices up by more than 1% in after hours trading.


The VIX continues to trend at/near long term and historic lows. It has in fact moved down to set a new long term low since the last time I looked at it. Today's action saw the index move down from the short term moving average in a move that looks like it will continue going lower to retest the new long term low. The indicators are consistent with an asset trading within a range and possibly moving lower within that range. If so, downside target is near 9.00. A move up may indicate a near term rise in fear but would not be significant until breaking above resistance at the long term 150 day moving average. Until then the index is consistent with bull market conditions.


The Indices

The indices moved higher but once again the move was not very strong. The days leader was the S&P 500 with a gain of 0.16% but the index has still not set another new high. Today's action created another small bodied candle trading within the near term consolidation range. The indicators are consistent with consolidation within an uptrend and have begun to roll over into what may become the next trend following entry. A break to new highs would be bullish with upside target in all time territory.


The Dow Jones Industrial Average posted the 2nd largest gain in today's action, 0.12%, and did set a new all time high. The blue chips created a small bodied candle at new all time highs in a move that continues to drift higher. The indicators are bullish and pointing higher so this move may continue into the near term.


The NASDAQ Composite made the 3rd largest move, 0.11%, and may have begun to move higher after its recent drop to support. Today's action is still within the 7 day trading range but bullish and moving toward the top of the range. The indicators have begun to roll over into bullish trend following signals which would support such a move. A break above 6,400 would be bullish and take the index up to the current all time high with the possibility of reaching new all time highs.


The Dow Jones Transportation Average brings up the rear with a gain of only 0.08%. The transports created a very small spinning top doji just below resistance and looks like it may trade sideways for the next day or so. The indicators are a bit mixed but rolling into a bullish signal that would reverse the near term down trend and confirm the short and long term up trends. Resistance is at 9,300, near a former all time high, a break above which would be bullish. Support is currently along the long term moving average, a break below which would be bearish.


The indices are moving higher and there doesn't seem to be much in their way. The moves, while weak in the near term, are continuations of long and short term trends that are themselves supported by economic growth, earnings growth and positive outlook for both. I am firmly bullish for the longer terms and cautiously bullish for the nearer because it's better to be cautious than busted. When the next sell-off correction occurs I'll be ready.

Until then, remember the trend!

Thomas Hughes