Big tech reported after the bell, the reports are good, expect big moves at tomorrow's open. Today's action was generally bullish with only the uncertainty of after-hours earnings reports and tomorrow's GDP announcement hanging over it. With that uncertainty gone there is little to stand in way of the bulls.
Asian indices were mostly higher on earnings with some isolated weakness. Gains were small, led by the Shanghai Composite's 0.33%. European markets were higher in the early part of the session and then extended those gains post-ECB announcement. The bank held rates steady, as expected, but was much more dovish than expected on inflation, the taper, the length of QE and how long interest rates would remain low. Most indices in this region gained an easy 1%+, lagged by the FTSE's less substantial 0.53%.
Positive vibes were flowing through the market from the earliest although there was restraint; yesterday's sell-off was shrugged off in favor of positive earnings, EU stimulus and economic data but there was no massive rebound.The SPX opened with a gain of about 3 points and then extended that to roughly 6 points within the first 20 minutes of trading. This turned out to be intraday top, capping gains and leaving the indices trending sideways within a tight range. Unlike most days after hours news dominated today's action and will likely lead to some big moves at tomorrow's open.
Initial claims for unemployment rose 10K from last week's low, last week's figure was revised higher by 1,000. The four week moving average of claims fell by -9,000 to 239,500. On a not adjusted basis claims rose 4.5% to 214,749 and are down -9.4% over this same time last year. Based on this week's data claims have not only recovered from the hurricane but are still trending lower in the long term.
Continuing claims fell by -3,000 to hit 1.893 million and a new low dating back to December, 1973. The previous week's figure was revised higher by 8,000. The four week moving average of claims fell by -4,500 to hit 1.903 million and a new low dating back to January, 1974.
The total number of Americans receiving unemployment benefits fell -15,883 to 1.596 million. This is a new seasonal and long term low, consistent with ongoing improvement in unemployment and hiring. On a year over year basis this week's figure is down -8.5%.
Pending Home Sales came in unchanged from last month and, with last month's downward revision, at a low dating back to January, 2015. The index is now down -3.5% on a year over year basis and has been in decline for the past 6 months. Economists at the NAR say that supply/demand imbalances persist as new listings fail to keep up with sales. This problem is likely to persist, especially in urbanized areas, as land shortages stifle activity across the sector and pent up demand continues to eat up available inventory.
The Dollar Index
The Dollar Index got a big boost from the ECB this morning as the bank tones down its outlook and dashed any hopes of hawkishness the market may have had. The bank has decided to cut its bond purchases in half, starting January 2018, and effectively extending QE into the fourth quarter of next year. Along with this they've amended their inflation outlook, expecting the 2% target to be hit in the second half of next year, and announced that current low rates would remain in place for a long time to come. The index gained nearly 1.5%, creating a long green candle and breaking above the $94 dollar resistance level. This move is likely to continue now that ECB and FOMC policy are no longer paralleling each other. The next big mover could be tomorrow with GDP but likely next week with the BOJ/FOMC meetings.
The Gold Index
Gold prices fell under the weight of a stronger dollar, shedding close to -0.80% by late afternoon. The metal is moving down from the now broken $1,275 near term support target and heading lower. Next target is near $1,263 and may be reached in the next trading day particularly if US GDP is on track or stronger than expected. A break below $1,263 would be bearish with next target at $1,250.
The Gold Miners ETF GDX fell -2% on the fall in gold prices as they equate directly to forward earnings potential. The ETF created a long red candle moving down from my near term support target and coming to rest at the top of the down trending resistance line near $22.37. The ETF is moving lower within a long term trading range and supported by the indicators. Both MACD and stochastic are bearish and showing a little strength so I would expect to see lower prices in the near term. Support may be found along the down trend line but, if broken, firmer targets exist near the bottom of the range at $21.
The Oil Index
Oil prices wobbled a bit in today's action but steadied in the later part of the day and managed to move up and set a 6 month high. WTI settled up $0.46 at $52.64 on tightening markets and hopes OPEC will extend its cuts. The cartel has pledged to do so, we'll find out for sure in a few weeks. Until then upside momentum may prevail with targets near $55.
The Oil Index held steady despite gains in the underlying commodity. The index created a small red bodied candle to the side of yesterday's candle and sitting on near term support target just above 1,200. The index has been in consolidation for about a month now and setting up for what could be another move higher. Price action such as what we've seen over the past month is healthy within uptrend and forming a significant congestion band. It allows the indicators to cool off as they have, setting them up for trend following crossovers. The indicators are still bearish and pointing lower so a further test of support is possible, the flipside is that both are also low in their range and set up to fire trend following signals should a bounce from support develop. A catalyst for such a bounce may be a move higher in oil prices, positive earnings/outlook from the energy sector or both.
In The News, Story Stocks and Earnings
Twitter released earnings this morning and sent the market a good message despite admitting it had been miscalculating monthly average users for many, many quarters. The company reports that revenue is down more than -4% over last year, beating estimates by about a half percent. The results come on improvement in non-GAAP income, EBIDTA, average monthly users and average daily users. Forward outlook is also good, better anyway, with earnings projected at the high end of the previously stated range. Shares of the stock jumped more than 18% to trade near the top of its long term range.
Today was the peak of peak earnings season, the busiest day of the season, with hundreds of companies reporting and many of them market moving. The ones topping the list include MSFT, INTC, GOOG and AMZN which all beat top and bottom line expectations. By beat I mean that revenue and earnings for all were well above estimates, supported by strong demand and accompanied by positive outlook. Even Amazon beat on earnings. EPS of $0.52 was nearly $0.50 ahead of estimates. Google's EPS of $9.57 blew away consensus of $8.34. Intel beat by more than 20% while Microsoft topped forecast by 16.6%. Shares of all rose in after hours action, led by Amazon's +7%. If after hours enthusiasm holds through until tomorrow the XLK Technology SPDR will likely move up to test or set a new all time high on this news.
The Wall Street Journal reported CVS was in talks to possibly buy Aetna, a deal that would combine insurance and pharma services under one umbrella. According to the report the deal could be worth $200 or more per share. The news caused CVS to drop about -3% but drove shares of Aetna up more than 10% but leaves about 10% on the table should the deal go through as reported.
Today's action was tepid at best but to the upside and above near term support to say the least. Markets were led by the Dow Jones Transportation Average although I suspect the NASDAQ may be lead tomorrow. The transports rose nearly 1.5% intraday to close with a gain near 1% and create a medium sized green candle. This candle is in rebound to yesterday's sell off and moving up from support at the short term moving average. The indicators are mixed but consistent with a test of support within up trend. Stochastic is already firing a strong trend following crossover, MACD has yet to confirm but not far behind. A move up would be bullish with target at the all time high, a move lower bearish with target at the long term moving average near 9,400.
The Dow Jones Industrial Average closed with the 2nd largest gain, near 0.30%. The blue chips created a small bodied green candle just below the all time high and to the side of yesterday's candle. The past three candles are beginning to look like a small flag pattern within the prevailing up trend and could lead to further upside. The indicators are a bit mixed in the near term but bullish and convergent with the all time highs in the short to long. MACD in particular is convergent and bullish, ticking higher with today's data. Stochastic is high in the upper range and showing a bearish crossover but this could as easily precede a trend following signal as a decline. A fall from this level could dip below 23,000, a move higher would be trend following with targets in new all time high territory.
The S&P 500 closed with a gain near 0.10% and created a small spinning top candle to the side of yesterday's candle. The move is a sign of uncertainty, should I sell or should I not, that may persist into the near term. The indicators are not looking good and pointing lower following bearish crossovers, indicative of lower prices. Near term support is at the short term moving average and may be reached in the next few days if earnings fail to inspire support. A break below the moving average would be bearish with downside targets at 2,500 and below.
The NASDAQ Composite closed with a small loss, -0.10%, and created a small red bodied candle. The candle is sitting on support at the short term moving average and may move lower to test that support again. The indicators are both moving lower and suggestive of lower prices but not a guarantee. A break of support would be bearish with targets near 6,400, a bounce would be bullish with targets near the all time high and into new all time high territory. Based on earnings after the bell I imagine we'll see it bounce.
The markets were mixed today. Action was light, weak, tepid, lackluster and without real direction. This is most likely because of the earnings deluge released after the bell. Based on the ones I've seen I do expect to see the market move higher tomorrow. To say the tech sector beat on expectations is an understatement. The sector, for the most part, has beat on all fronts and across all metrics, and with positive forward outlook. There may be volatility and there will likely be some rotation but with earnings looking the way they are I just don't see reason for correction. I am bullish, if there should be another pull back or dip in prices I will be a buyer.
Until then, remember the trend!