Introduction

Markets held steady and even set new highs on the 30th anniversary of Black Monday. While interesting to look back on Black Monday it has little relevance on today's markets. Today's trading is supported by positive economic trends and earnings, along with another jump in oil prices. Action was on the light side with decliners and advancers roughly equal but bullish with far more issues making new highs than new lows.

Asian indices were mostly higher with gains in the range of 0.5%. The Shang Hai index lagged with a loss of -0.35% as Chinese inflation data came in a bit hotter than expected. The CPI came in as expected at 1.6% YOY but PPI beat expectations at 6.9%. European indices were more mixed, closing flat on the day as issues in Catalonia continue to simmer. European balance of trade also has some impact on trading, falling nearly 1.4 billion Euros since last year.

Market Statistics

Futures trading was positive all morning and indicative of marginal gains at the open. The trade held fairly steady throughout the early session with little impact from economic data or early morning earnings releases. The open was a bit hectic as weekend traders sought to enter the market; the SPX opened with a gain of roughly 2 points and then extended that to nearly 6 points in the first 4 minutes of trading. This peak turned out to be intraday high for the broad market, leaving most indices trending sideways to flat for the rest of the day. The point of note is that the Dow Jones Industrials, the NASDAQ Composite and S&P 500 all set new all time intraday and/or closing highs in today's action.

Economic Calendar

The Economy

The Empire State Manufacturing Survey made a surprise jump in indication of robust expansion, their words, within the greater New York Federal Reserve region. The headline gained nearly 6 points to hit 30.2 and a 3 year high. Gains were made on new orders, shipments and employment. New orders rose to 18, shipments gained 11 to hit 27.5 and labor came in strong at 15.6. Other signs of strength were in prices paid, down from last month but still showing inflationary pressure, delivery times and inventories. Forward outlook is also good rising 6 points to 44.8 and just below 3 year highs.


Moody's Survey of Business Confidence fell -1.4% to 30.7% in the last week. The drop shows some instability in week to week confidence but is generally steady at historically strong levels. Mr. Zandi says global business is able to look past political uncertainties and geopolitical tensions, that future outlook is positive and expecting further improvements in global economies. Inventories and hiring remain healthy.


With a little more than 6% of the S&P 500 reporting for the 3rd quarter the numbers are already looking a bit mixed. Last week's reports from the financial sector having the largest impact, particularly those of Wells Fargo and those among the insurance group. That said 81% of those reporting are beating on the bottom line and a slightly smaller 78% are beating on the top, both figures are above their 4 year averages. The blended rate of earnings growth is now 2.1% and well below expectations at the start of the quarter.


Looking forward earnings outlook remains strong and relatively stable with some improvement to the long term. Full year 2017 estimate has fallen by a tenth to 9.1% on this week's fall in the Q3 blended rate, 4th quarter 2017 estimate held steady at 11.10%. Looking to 2018 full year estimates have improved on rising oil prices and improvements in forward guidance to hit 11.6%, its highest level in nearly 4 months. First quarter 2018 estimate was upped by 0.2% to 10.6% while the second held steady at 10.3%.


The Dollar Index

The Dollar Index gained about 0.20% today as traders await this week's data. On the domestic side of things the big mover of the week will be the Fed's Beige Book on Wednesday. Indications of strength within the economy and in particular inflationary pressures will be dollar strong. Countering this, and in light of last week's weaker than expected CPI and PPI, is a raft of data out of the EU, Germany and the UK that could easily tip the balance of power away from the dollar. The index created a small green bodied candle today, halted by resistance near $93 and the short term down trend line. A break above this line may be bullish, a fall from it will confirm the ongoing down trend.


The Gold Index

Gold prices edged lower on today's rise in the dollar, falling a half percent to trade just below $1,300. The drop below $1,300 could precede a deeper pullback but with the dollar trending lower I'd wait until a little later in the week before committing to that trade. While US economics are improving and driving hawkish forward FOMC expectations so too are data points in Europe, and there is far more important data coming out of Europe this week than here at home. This means that any dollar strength could driven by the Beige Book could be undermined by euro and pound strength, keeping gold prices at or near current levels. A firm break of $1,300 would be bearish, a snap-back and bounce would be bullish, with short to long term direction range bound.

The Gold Miners ETF GDX fell nearly -2%, confirming resistance at $24, and breaking below the short term moving average. Today's move looks bearish but remains within current trading ranges, both near and long term. The indicators are both consistent with range bound trading; MACD momentum is trending weak and near 0 at this time while stochastic confirms resistance with a reversal and bearish crossover just below the upper signal line. The ETF may continue to move lower with first target for support at the long term moving average near $23.15. A break below that would be more bearish but still face potentially strong support levels at $22.50 and $22. A bounce could be bullish within the range but faces resistance at $24 and then $25.


The Oil Index

Oil prices jumped today on Iraq's decision to annex oil fields in the Kurdish held region around Kirkuk. The move has raised fears of supply disruptions, adding to fears sprouted last week when Trump refused to certify Iran's compliance with the nuclear deal. WTI jumped more than 0.80% to trade near $52 and at a two week high. Price is bouncing up from the $50 level and looks like it could go higher into the near term. First target for resistance is near $52.50, a break above that level could take oil up to $55.

The Oil Index gained more than 0.35% to set a new short term high but was not able to hold it into the close. The index did close with small gains but created a small red candle within but at the top end of its near term consolidation range. This range has been forming for nearly a month and has taken on a decidedly bullish cast. The indicators are still mixed but rolling into a bullish trend following signal already confirmed by a weak crossover in the stochastic. Resistance is in the range of 1,225, a break above which will be bullish. Based on the magnitude of the current rally upside targets exceed the 1,300 level and 2 year highs.


In The News, Story Stocks and Earnings

Tesla is reported to have fired more than 400 engineers, managers and factory workers last week. The move is speculated to be part of a plan to help improve production of the Model 3 which has been plagued by issues. The issues stem from plans to ramp up production and could be alleviated by what Kelley Blue Book managing editor Michael Harley called a major change in staff. Shares fell from the short term moving average to shed more than -1.25%. Price action has been choppy over the past few months but is forming what looks like a flat topped and bullish triangle.


Netflix reported after the bell and beat across the board. The company reported a marginal beat on revenue with a more substantial beat on both EPS and net new subscribers. EPS of $.37 beat by a nickel, net new subscribers of 5.3 million beat by about a million and forward guidance is strong for the 4th quarter and full year. The stock was up more than 1.5% in the open session, setting a new all time high, and extended that by another 1.5% in the after hours session.


The VIX gained about 3% today but the move was more sideways than not. The index remains low at 9.90 and below the 10.15 resistance line. The indicators are mildly bullish and consistent with the most recent bounce from support but are not indicative of strength at this time. Resistance is just above today's close at 10.15, support is at the long term low near 8.80. At current levels the index is consistent with low levels of implied volatility and bull market conditions.


The Indices

Today's move was tepid to say the least but in most respects still bullish. The stand out is the Dow Jones Transportation Average which fell about -0.80%. The transports are moving lower in a near term move following a breach to new all time highs last week. The indicators are bearish and point to lower prices with an eye on testing support at the short term moving average near 9750. A break below this level would be more bearish with target near 9,400 and the long term moving average.


The S&P 500 made the smallest gains today, only 0.13%. The broad market created a small spinning top doji drifting up to set a new high after a week of such moves. The index is trending higher in the near, short and long term with bullish indicators. The indicators are both bullish but also showing some weakness in the near term that needs to be watched. A fall from current levels would not break trend but would be bearish in the near term with first target at the short term moving average. Until that happens upward momentum is likely to persist, and stochastic is about to fire a weak crossover suggesting the possibility of further upside. Upside target is still 2,580.


The NASDAQ Composite closed with a gain near 0.30%. The tech heavy index created a small doji candle hanging at a new all time high and in danger of being abandoned. The indicators are both bullish but showing near term weakness suggesting consolidation or correction is still possible. A fall from this level may find support near the short term moving average at 6,500. That being said the current rally is fairly strong and could easily continue to drift higher into the near term, upside target is still 6,800.


The Dow Jones Industrial Average posted the largest gain, 0.37%, and created a small bodied green candle moving up to set a new all time, closing at the highs of the day. The indicators are a bit mixed but show an asset trending strongly higher with the possibility of extending the move. MACD momentum has subsided from its most recent peak but flattened out above 0 while stochastic begins firing a bullish crossover, both consistent with continuation within an up trend. Near term target is 23,000, a break above that could go to 23,500.


Today's action was hopeful, hopeful that earnings season will play out as expected. This means a rise in the blended rate of S&P 500 earnings growth and continued positive forward outlook for both the economy and earnings. So far the blended rate has failed to deliver but that is likely to change this week, the other two are in the bag, at least for now. I remain bullish in the long term but remain cautious for the near, keeping those stops close and on the look out for new opportunities.

Until then, remember the trend!

Thomas Hughes