Introduction

Indices shed a half percent on news of weak iPhone 8 sales and the dip was bought. Today's action comes on the anniversary of the worst decline in US stock market history but bears little in common with that event. Today's volatility may persist into tomorrow as it is OPEX. Regardless, economic and earnings trends remain positive and today's data does nothing to change that.

International markets felt some pressure today as well. Asian indices closed mixed after the release of Chinese data; the Nikkei led with a gain of 0.40% while the Heng Send shed nearly -2%. The first read on third quarter GDP came in at 6.8%, as expected but down a tenth from last year while retail sales and industrial production for September were both above estimates. European indices were lower across the board on weak data from the UK, tepid earnings and political unease in Spain. The DAX led with a loss of -0.41% followed closely by the CAC's -0.29%.

Market Statistics

Futures trading was negative right from the start, indicating a decline of roughly -0.50% at the open. This held steady throughout the morning and was unaffected by positive reads on jobless claims and the Philly Fed's MBOS. The open was as expected, the indices posted large declines and extended those gains to the days lows by 10:15AM. This turned out to be intraday bottom, the market quickly began to reverse and spent the rest of the day moving to the upside. By 1:45PM the SPX had recovered nearly all of its losses and looked like it would continue moving higher. By late afternoon the index was brushing up against the all time high and by the close it had been exceeded, if barely

Economic Calendar

The Economy

Today's jobless claims is good and reveals no lingering or long term impact from last month's hurricanes. The initial claims fell 22,000 to 222,000 and a new low dating back to March 3,1973. The four week moving average of claims fell -9,500 and is fast approaching a new low. On a not adjusted basis claims -10.7% versus an expected -1.8% and are down more than -12% YOY. I have speculated over the past few months that the downtrend in claims may be been over, this data shows that it clearly isn't.


Continuing claims fell -16,000 to 1.888 million and a new low dating back to December 29th, 1973. The four week moving average of continuing claims fell -22,750 to hit a new low dating back to 1974.

The total number of jobless claims fell -40,371 to hit another new seasonal and long term low. This decline is as expected and brings the total figure within striking distance of my 1.5000 million target. On a year over year basis total claims are down -7.5%. We can expect to see this figure hit bottom soon though, with an expected uptick lasting into the end of the year.


The Philadelphia Federal Reserve Bank Manufacturing Business Outlook Survey rose in the last month and came in better than expected. The headline index gained 4 points to 27.9 and a 5 month high; the index is also trending above the post financial crisis average. The gains were made on broad improvement in the manufacturing sector although there was some slowing of growth. Both new orders and shipments remained positive but fell from last month's levels. Unfilled orders and delivery times both increased and have been positive for the past 12 months showing a prolonged period of expansionary pressures. Both the current employment indices rose, the employment index moving up to 30.6 and an all time high. Prices paid also increased, showing inflationary pressure, but subsided a bit from last month's spike. Looking forward the 6 month outlook dimmed a bit but remains high relative to the long term average.


The Index of Leading Indicators put a slight damper on things, breaking its 13 month positive trend. The index came in at -0.2%, a tenth worse than expected, and the lowest reading since last fall. The good news is that Conference Board economists say the decline is mostly due to hurricane impact with weakness seen primarily in labor and construction. If this is true and there is no reason to suspect it isn't, today's declines in unemployment claims could help the Index of Leading Indicators snap back in the next month. The report goes on to say that other areas of the economy continue contribute positively and that the economy should continue to expand into the end of the year. The Coincident Index gained 0.1% while the Lagging Index fell -0.1%.


The Dollar Index

The Dollar Index fell despite today's round of data. Although positive for the economy it still leaves a shadow of doubt in terms of FOMC rate hike expectations. Today's move saw the index shed about a quarter percent in a move the confirmed both resistance and support. This is consistent with action over the past few quarters as we approach each round of central bank meetings, the next starting with the ECB next week and then the FOMC and BOE the next. The ECB is not expected to change rates but it is expected to do something along the lines of tapering bond purchases which will likely move the Euro. For now, DXY resistance is just below $93.50 with a chance of moving lower. The index is still testing resistance along the down trend line with indicators showing divergence and suggestive of decline. Today's support is at the short term moving average, a break below that would be bearish and trend following with downside target near $91.


The Gold Index

Gold prices got a boost on today's weaker dollar but the gains were muted in light of central bank uncertainty. The spot price moved up about a half percent intraday and settled off the high. Gold is now trading near $1288 and near the middle of the 12 month trading range. There is potential for support and resistance within $20 of today's close and chance for price to jump in either direction. Support target is near $1,260 and resistance just above $1,300 with a break above either unlikely in the near term. There is little in the way of market moving data until the ECB meeting and even then no guarantee fundamentals will change enough to warrant a significant move in the price.

The Gold Miners ETF GDX held very steady and near the middle of its long term trading range. The ETF has been winding up on central bank expectations alongside of gold and likely to continue into the near term. The ETF is currently wedged tightly between the support at the long term moving average and resistance at the short term moving average with little sign it will break in either direction. Momentum is very weak and trending near zero at this time, consistent with listless markets and range bound trading, while stochastic shows some sign support will be tested but no real indication of strengt. A move lower may pierce the long term moving average and even touch to support at $22.50 but I wouldn't expect to much out of the move before the ECB at least, and maybe not until the FOMC in two weeks. A move up is likely to hit resistance at $24, about $0.50 above today's close.


The Oil Index

Oil prices fell -1.4% on profit taking as a wait-and-see attitude begins to creep into the market. There have been some sign of market rebalancing and expectation for an OPEC production cap extension to support prices until now. Now the market wants to see some proof. This week's data shows declines in output from many of the largest producing regions, the question is how long they will last. In the US production curbed due to the hurricanes is already coming back online while supply disruption in other areas may be equally short lived, or not. Today's action left WTI trading near $51.25 with a chance to move down to test $50. A move higher may find resistance at $52.50, if not my next target is near $53.50.

The Oil Index fell about -0.25% but remains within its near term consolidation range. The index has been in consolidation for about 3 week's now, following a massive run up from support, and will likely continue to do so into the near term. The indicators are bearish and show a fairly strong sell signal with the caveat that it is appearing within an uptrend. This means a sell-off is possible but not likely provided support remains firm. Support target is near 1,205 and so far buyers have stepped in above that level. A break below here could be bearish but likely a short term move unless oil prices crash. Longer term I remain bullish on oil due to robust earnings growth outlook.


In The News, Story Stocks and Earnings

Verizon surprised the market this morning with earnings that beat on the top and bottom line. Adjusted EPS of $0.98 is slightly below last year at this time but comes on substantial post-paid user growth. Net post-paid growth came in at 603,000 with churn rates on existing customers falling to 0.75%. Along with the beat news on the AOL/Yahoo integration was positive and provided investors with reason to hope results would continue to satisfy into the next year. Shares of the stock jumped more than 2% in the premarket, opened with a gap and moved higher from there only to unleash pent up resistance at the $50 level.


Apple was one of today's worst performers and a primary cause of today's sell-off. Shares of the stock fell -2.5% to below the short term moving average on reports demand for the iPhone 8 are not as expected. A report in the Taiwan Economic Times suggests orders for the phone could be cut by as much as 50% due to lingering use of iPhone 7's and the upcoming release of the iPhone X. Pre-orders for the X begin later this month with expected shipment of the first phones in early November.


United Airlines was another contributor to today's sell off. The airline reported better than expected earnings yesterday after the bell but today's conference call soured investor appetite. The company is suffering from increased competition by low cost carriers that it has not been able to keep up with. The Company CEO may have sparked the sell-off when he said the words "dug ourselves into a hole". Shares of the stock fell more than -12%.


After hours action was pretty active as well. Earnings reports from a number of companies including Sketchers and Paypal sparked big moves in share prices. Sketchers reported better than expected top and bottom line. Revenue of $1.1 billion rose 16.7% from last year and beat estimates by $0.030 billion and EPS was even better. Earnings of $0.59 beat by $0.15 or 25% and helped drive share prices up more than 7%. Paypal also beat with impressive numbers. Revenue is up 21.3% YOY, coming in ahead by $60 million, with earnings of $0.46 beating by $0.03. Shares of this stock rose more than 2.5% in the aftermarket.

The Indices

Today began on a sour note but ended with near term trends intact. The indices fell hard in the early hours, opened with not insubstantial losses but were able to recover most if not all of the declines. The NASDAQ Composite was hit the hardest, closing with a loss of -0.28%. The tech heavy index set a two week low with today's move but price action created a green candle and is within what I consider to be a near consolidation range so not overly bearish. Support set in without closing the gap formed on 10/5 but may be tested again. The indicators are both rolling over into bearish signals consistent with such a test. Support is at 5,550, a break below there could take the index down to 6,400. A bounce would be trend following and bullish.


The Dow Jones Transportation Average fell -0.13% in a move confirming support at the short term 30 day moving average. Today's candle formed a small green body with long lower shadow indicative of buyers, confirming support at the 9,000 level for the 2nd time in 2 days. The indicators remain bearish but MACD has begun to roll over suggestive of support at this level. A break below 9,000 would be bearish with target at 9,600 and 9,400, a bounce would be bullish and trend following with target at the current all time high.


The Dow Jones Industrial Average closed with a gain of 0.02% creating a small bodied green candle to the side of yesterday's candle and setting a new all time high. There is a small amount of lower shadow suggestive of support but not enough to close the gap formed yesterday. The indicators are bullish and on the rise, confirming the current uptrend and suggestive of higher prices. A fall from this level could be bearish but not necessarily, a move higher would be bullish and trend following. Support on a drop may be found just below today's low near 23,000, a move higher may go to 24,000 in the near to short term.


The S&P 500 closed with the largest gain, 0.03%, and set a new all time closing high. The index created a medium sized green bodied candle with visible lower shadow indicative of support and upward momentum. The indicators are consistent with this move although they are showing some near term weakening. This weakness is consistent with consolidation within an uptrend until support is broken. Support is at 2,550 and if broken next target is the short term moving average near 2,525. A move up from here/bounce from support would be bullish and trend following with upside target at 2,580 in the near term.


Today's action was a little alarming and some of the signals are still mixed but it looks like the market is consolidating within the near term up trend. The indices all fell to test support and in all cases support stepped in. Losses, for the most part, were isolated to specific sectors and stocks and highly reminiscent of rotation. The economic and earnings trends remain intact, forward outlook remains positive so I remain bullish.

Until then, remember the trend!

Thomas Hughes