Earnings are looking like they are going to be better than expected and the global markets are moving higher. The global markets continued yesterday's rally overnight and into this morning. The surprising earnings from Goldman Sachs this morning, Citi yesterday and other banks last week are starting to give traders the idea that more upside surprises are in store. Expectations are so low right now that it is not surprising that corporate earnings are coming in better than expected. There are still some notable earnings misses and a few companies that have reported results in-line with estimates but so far the trend has been for companies to beat the street. The surprises are not limited to any one sector which is good for the general markets but means that stock picking is especially important for short term traders.
US stock futures were solidly positive going into the start of trading today. Economic data and another surprise earnings report out of the banking sector from Goldman Sachs barely moved the early morning markets, which were already elevated. Futures trading held steady into the open with all three major indexes opening in the green. The S&P, Dow and Nasdaq all moved solidly higher during the day and closed at the session highs.
The positive string of economic data we have gotten over the last few weeks and into today have helped to improve the expectations for third quarter earnings and GDP. Yesterday's retail sales figures and today's Industrial Production figures are already causing some analysts to increase their expectations for the third quarter GDP. We will get the first look at those figures next week with the Advance GDP report.
Today's data included the CPI data for September and Industrial Production data. The CPI came in a little hotter than expected at 0.6% versus the expected 0.5% but did not cause much reaction. The number is inflated on rising energy and food prices. The figure is still tame in the long run and was not cause for concern. Stripping out volatile food and energy the Core CPI figure was a gain of 0.1%. The new data is unchanged from the previous month on the headline and reverses a drop of -0.1% on the core number.
The rest of the week is full of data. Tomorrow housing starts and building permits and then on Thursday more jobless data. Also on Thursday look out for Philly Fed and Leading Indicators.
Asian shares ended their trading mixed. The Nikkei average gained 1.4% and is trading near the middle of its 6 month range. The Heng Seng index only added 0.28% but is trading at a 5 month high. Asian data continues to be mixed, showing signs of improvement in one area and slowing in others.
Europe was the real story today in overseas news. The European markets made a nice jump to the upside with some indexes climbing over 2%. Portugal's announced austerity based budget, Spain's impending request for bail out (again) and the relaxed attitude being taken about Greek and Spanish long term debt restructuring is adding to upside momentum. Portugal has the right idea though. It is better to go ahead and make the cuts and get the job done now rather than wait til the last minute like Spain and Greece. Portugal's budget plans, though good for the country, did not spark enthusiasm from the citizenship and caused some rioting. The FTSE and the DAX both gained a little more than +1% while Spain jumped more than 3%.
Gold traded to plus side today halting the drop that brought the metal to a new two month low. The signs of stabilization in the economy will put a hold on QE for a while which should keep a cap on gold prices for the short term at least. The gold index is bouncing from the short term moving average and confirming support in the $205-$209 level. The index is consolidating following its recent market reversal and break out and could continue to climb higher. The elevated priced for gold, though down over the last few days, should be seen in results from the mining companies.
Gold Index, daily
Oil climbed about 0.2% today. Global fears and economic worry have held the price of oil around $92 for several weeks now. Sanctions against Iran and turmoil in Syria are helping to support the price and keep it from falling below $90. The Oil Index jumped back from a fall below its short term moving average today to retest a long term support/resistance line but indicators are good for it to come back down soon. The index has been trending in a narrowing range for several years and is now in a move back down toward the lower end that began a few weeks ago. Exxon is scheduled to report earnings November 1st of $1.97 per share. This would be a small increase from last quarter but Exxon has missed estimates before.
Oil Index, daily
US treasury yields climbed today. The ten year treasury yields gained 0.057%, moving up from the short term moving average. The yeild looks like it is building resistance at the the 1.75% level.
Ten Year Treasury Yields, daily
Earnings are now the dominant factor in the market. The news so far has been good. The low low expectations have set the bar at a level that corporations should, and are, jumping over with ease. The banking sector has already had some good reports and this mornings release from Goldman was no different. The banking giant reversed its loss from a year ago and blew away the street's expectations. Even with reported weak mortgage growth Goldman was able to post a profit of $2.85 per share, $0.65 above the analysts estimates. The bank earned $1.51 billion dollars on a 49% increase in investment banking and a 28% increase in fixed income/forex/commodities. The stock has been trending up strongly for month and breached a resistance line today. The early morning pop fell by late afternoon and left the stock down by 1%. The stock looks good for long term gains but may trade sideways for a little while until it returns to the long term trend.
Goldman Sachs, daily
Citi stunned the markets this morning with the resignation of Vikram Pandit. Everything said about his leaving was positive but speculation ran wild all day. Everyone agreed that there was probably something up with the decision. I would not be surprised to see some other headlined about it in the near future. The stock responded by extending yesterday's gains on increased volume. Citi stock added 1.6%.
The entire banking sector traded mixed today. One bank was up and another was down. The Banking Index traded to negative today but remained above the short term moving average. The index has been trending up and has now entered a possible bull triangle. If the upside surprises in the banking sector continue with the rest of the big banks and the big regional banks the index could break out to the upside. Tomorrow is a big day for the sector and the market. Earnings are being released by American Express, Bank of America and US Bancorp.
Bank Index, daily
Intel traded sharply up today ahead of its earnings report after the bell. Early on it seemed the stock seemingly reversed it downtrend in one session but by the days end the candle signal was a little more ominous. The results failed to satisfy traders who drove the price down in after hours trading. In the report the company says that growth remains slow but inline with expectations, customers remain cautious and that these trends are expected to extend into the fourth quarter. Intel beat the streets estimates of $0.49 per share by $0.09, or $0.58 per share.
IBM also failed to satisfy investors and dropped in after hours trading. The stock companies earnings came in just shy of the expected $3.62 per share expected by analysts. IBM also cited sluggish markets and expects the fourth quarter to be the same. The street had been expecting a much better report and had the stock up nearly 1% in regular trading. Following the report IBM shares lost over 7%, dropping well below the short term moving average and making a lower low.
Johnson & Johnson moved up on its earnings announcement. The company reported a dip in profits but an increase in sales. Regardless, the company beat estimates by a penny and guided the full year to a level just above the previous range. The stock traded up to a long term resistance level and 4 year intra-day high and then fell back before the close. JNJ stock has been consolidating in a range since jumping over 10% this summer. Today's news and guidance could help the stock move past resistance.
Johnson & Johnson
Today's the S&P's move up began at the short term moving average and helps to confirm support around the 1425-1435 level. This is the level coincident with the break-out and continuation pattern the index made a few weeks ago. The S&P is trading very near to it's multi-year high and will likely retest if not surpass it very soon. The markets had to climb a wall of worry to get hear and now the worry is subsiding. The economic indicators are improving, the unemployment rate is coming down, earnings seem to be OK and the fourth quarter estimates are starting to be revised up.
S&P 500, daily
Longer term the economy is still facing many headwinds, headwinds that will have their effect on corporate profits and growth. The world is still growing very slowly, Europe is still in recession and there is no real sign of acceleration anywhere, just some signs of stabilization. There are also long term expectations from economists for the global economy to dip again next year and bring the US very near to recession.
On the long term charts of the S&P momentum is currently bullish but weak when compared to past rallies. This weakness is divergent from the long term trend and one sign of the impending market correction I have been looking out for. Because of this I still think the markets are heading up but the end of the â€œmost hated rallyâ€ is getting closer and closer. In the short term the next resistance is around 1465, if the markets can get above that level and maintain it then the next target is 1565.
S&P 500, weekly
The VIX is still creeping along at historic low levels. The index has been trading in an increasingly narrow range. The VIX dropped at open but then moved up during the day, nearly making it back to break even.
The Dow chart is showing a textbook Dow theory feature, a lower low. The index moved down from resistance and made a lower low than the previous low. Should the index fail to make a new high soon this will add weight to the impending market correction argument.
There is still a lot of earnings to sift through. Market direction will likely not be determined this week but the reports will help clarify the past and give a hint of the future. Data will drive the underlying trend long term, the economic calendar is full this week but next week is when it really heats up. The FOMC meeting and rate announcement is on Wednesday next week and the advance 3rd quarter GDP figure is released on Friday.
Until then remember the trend and trade with caution.