Market Internals


Overnight, China's economic releases met or exceeded expectations, sending Asian bourses higher. Today, Russia's foreign minister said that Russia was joining Secretary of State John Kerry's call for Syria's government to put its stockpile of chemical weapons under international control with the goal of destroy them. The EUR/USD currency pairing immediately leaped higher after Russia's announcement. U.S. bourses, which had been pulling back off the initial high of the day, bounced and soon hit a new high of the day. By the close of the day, the Dow had again closed above 15,000 and the NDX had closed at a new recent high, above the August highs.

The SPX gained 1.00 percent; the Dow, 0.94 percent; and the NDX, 1.17 percent. The RUT rose 1.61 percent, and the SOX, 1.33 percent. Volatility indices dropped. Yields continued pulling back off recent highs, with ten-year yields dropping to 2.897 percent and thirty-year yields, to 3.840 percent.

Gold futures (/GC) for December delivery settled at 1386.70, up 0.2, but volume was about half of Friday's. Silver futures (/SI) for December delivery settled at 23.717, down -0.174, with volume again much less than Friday's. Copper Futures (/HG) for December delivery settled at 3.278, up 0.0165, also on volume much lower than Friday's.

Light sweet crude perhaps reacted to Russia's statement and the thorny problems that President Obama might have in finding support for an attack. Both developments assuaged concerns about the disruption of supply. Crude (/CL) for October delivery settled at 109.52, down 1.01.

Monday's Developments

Last night, China's CPI met expectations for a 2.6-percent gain. The PPI climbed to -1.6 percent from the previous steep -2.3 percent. August exports grew 7.2 percent, the government announced. China's Shanghai Composite jumped 3.39 percent. Other Asian bourses reacted positively, too, with Japan's shares also boosted by the euphoria over winning the bid to host the 2020 Summer Olympics. The Nikkei 225 gained 2.48 percent; the Hang Seng, 0.57 percent, and the Straits Times, 1.31 percent.

U.S. futures were positive during the pre-market session but didn't exactly soar along with Asian bourses. This was before Russia's announcement. With uncertainty about the U.S.'s stance on Syria and the stance of the FOMC with regard to tapering, European bourses also couldn't quite decide where to go in early trading. The Eurozone's Sentix Investor Confidence unexpectedly rose to +6.5 when a -4.0 had been anticipated. However, European bourses couldn't capitalize on that seeming good news and drifted lower all through their morning sessions. It wasn't until their afternoon sessions, when Russia had made its announcement and our bourses had begun building on early gains, that some European bourses attempted bounces off their lows, with mixed results. The FTSE 100 closed down -1.70 percent; the DAX gained 0.01 percent; and the CAC 40 lost 0.22 percent. Spain's IBEX 35 dropped 0.26 percent, but Italy's FTSE MIB gained 1.16 percent.

The U.S. economic calendar was light today. Of course, most attention focused on what was or was not happening with regard to Syria and that surprise announcement by Russia's foreign minister. That announcement began appearing on newswires about forty minutes after the market opened.

Russia's Foreign Minister Sergei Lavrov somewhat surprisingly aligned his government with a proposal made by U.S. Secretary of State John Kerry. That proposal had provided Syria with a way for Syria to avoid U.S. military action, Kerry said, a statement that Russia was to repeat in its concurring proposal. Kerry's proposal would ultimately require Syria to destroy its chemical weapons, first putting them under international control. U.N. Secretary-General Ban Ki-moon said that he was weighing the step of urging the Security Council to demand that Syria to transfer its chemical weapons and the precursor supplies to a place where their destruction would be safe.

Russia's Lavrov said that Russia had already handed its proposal to Syria's foreign minister, currently in Moscow, adding that he expected a fast response. He hoped for a positive response but did not know whether Syria's agreement could be expected. Later, Syria's Foreign Minister, Walid al-Muallem claimed that his country welcomed the proposal from Russia.

Can we assume that these public statement meant that Russia already had Syria's tacit approval? Did Russia strong-arm Syria's government in order to avoid a showdown with the U.S. or is this a delaying tactic, a la Iran's nuclear shenanigans? Is this an effort by Russia to take credit for any movement toward a peaceful resolution? I can't assume any of that, but financial markets decided to be cheered.

Near the close, former U.S. Secretary of State Hillary Clinton spoke after concluding a meeting with President Obama. She summed up the talking points by saying that the Assad regime's use of WMD against innocent men, women and children "violates a universal norm at the heart of our global order." The assault against that norm requires a strong response. Also, it will not be enough for the Assad government to promise those weapons will not be used again, because the threat would remain that they could be used against Syria's or another country's citizens. They could be moved, sold or stolen. The threat must be removed, and swiftly. Surrendering the stockpiles to international control as proposed by Secretary Kerry and the Russians would mark an important step. However, the current negotiations cannot be used as a delaying tactic, and now Russia must also "support the international community's efforts sincerely or be held to account," she said.

She warned that none of today's discussions about disarmament of these weapons would have occurred without the U.S.'s credible threat of action. Furthermore, if acceding to the current proposals would mark an important step, it's not enough, Clinton said. "The broader conflict in Syria is a threat to regional stability and security of our allies and partners as well as a humanitarian catastrophe for the Syrian people and those neighboring countries attempting to absorb . . . more than two million refugees." She pointed out that in June 2012 in Geneva, the international community had agreed upon actions that must be taken to stabilize the area, and that we "need to find a way to get such negotiations to move toward a resolution."

Today, Moody's weekly Survey of Business Confidence again showed a decline, dropping from last week's 21.7 to 20.4. Since breaking 28 support, the index has dropped steadily. Moody's analysis also shows a change. From its former statements that results were consistent with the U.S. economy's growth at the high end of its potential, the summary now describes sentiment as being "at the lower end of the range that has prevailed throughout much of the recovery." The firm goes on to explain that these numbers are not seasonally adjusted and that sentiment typically dips about this time of year, and it concludes that companies remain optimistic about the outlook into early 2014.

This afternoon, Consumer Credit dropped to 10.4 billion, well below the anticipated 12.7 billion. This number measures the change in the total value of outstanding credit for consumers, with that credit being of the installment-plan type. Experts believe this number corresponds to consumer confidence and spending. The interpretation, then, would be that consumer confidence currently wanes, and that consumers aren't willing to take on debt to make big purchases. Consumers are instead paying down their credit cards.

In other news, the Washington Post speculated yesterday that President Obama might nominate Lael Brainard to join the Federal Reserve's Board of Governors. She is currently the Treasury's undersecretary for international affairs.

Story companies included Neiman Marcus. The luxury retailer had put itself up for sale and today announced a deal with Ares Management LLC and the Canada Pension Plan Investment Board. The two entities will purchase the retailer for $6 billion from current owners TPG Capital, Warburg Pincus LLC, and Leonard Green and Partners LP. The retailer's owners were also considering an IPO if no deal could be secured. The company had filed for an IPO in June but may have had second thoughts about an IPO in the current market environment.

Amazon (AMZN, 137.73, up 0.43 or 0.31 percent) said today that it has no plans to offer a smart phone this year. This was in response to Friday's speculation that they were doing just that.

Time Warner (TWX, 62.24, up 0.79 or 1.29 percent) announced late yesterday that it would send its U.S. retirees to private exchanges to purchase their own plans supplemental to Medicare. These would not be the public exchanges set up by the Affordable Health Care Act. As IBM also said it was doing, the company will provide a stipend to retirees to pay for those insurance policies.

Carl Icahn announced in a letter sent to shareholders that he will no longer engage in a takeover fight for Dell (DELL, 13.84, up 0.00). Although he still believes that the shareholders should vote against accepting Michael Dell's latest buyout bid in the meeting to be held Thursday, he didn't believe he had any chance of prevailing. He said that unfair maneuvers, such as postponing votes and then moving the cutoff date for voting hampered his own big. Icahn congratulated Michael Dell and said he would also place a call congratulating him.

I don't usually like to cover companies whose stocks have average daily volume under 1,000,000. There's just too much opportunity for extreme moves. Today saw one of them when Koch Industries announced that it would buy Molex Inc. (MOLX, 38.63, up 9.29 or 31.66 percent), a manufacturer that supplies electronic connectors to Apple and others, for about $7.2 billion or $38.50 per share. The stock that had closed Friday at $29.34 and typically averaged 565,092 shares a day, opened at $38.50 and hit 21,956,449 shares by the close.

Sony (SNE, 21.61, up 0.59 or 2.81 percent) has announced a delay in the release of PlayStation 4 in Japan. The game will go on sale in February 22, 2014. This release will not be in time for the holiday season.

An important legal case began today. Neutrality rules regarding to the Internet were adopted in 2011 to ensure a relatively free-wheeling Internet. Verizon (VZ, 45.91, down 0.43 or 0.93 percent) wants to change the priority to some Internet services and is suing the Federal Communications Commission (FCC) to do so. The company also wants the freedom to adjust fees and speeds on some services. Fears are that it might limit streaming services from Netflix (NFLX) and other services with heavy bandwidth usage such as Google (GOOG) and Facebook (FB). A win might mean Verizon could adjust fees and speeds in order to give priority to services they want to provide and either slow down or deny other, competing services. An adverse result for the FCC could also disarm this agency, rendering it ineffective in this realm.

Apple's (AAPL, 506.17, up 7.95 or 1.60 percent) price ran up ahead of this week's announcements that Jim Brown discussed in this weekend's Wrap. Tuesday afternoon, AAPL is expected to announce the iPhone 5S, and Wednesday morning, it's expected to announce, in Beijing, a cheaper iPhone 5C.

Crown Castle (CCI, 72.45, up 1.90 or 2.69 percent) wants to reorganize itself in order to qualify as a REIT, the company said today. The company wants these steps completed so that it can elect that status for the tax year that begins January 1, 2014. The company owns, operates and leases towers and other infrastructures employed in wireless communication. Its president and CEO says that REIT status makes the most sense, giving the company's assets in real estate.

Let's look at daily charts.


Those new to my Monday Wraps might find the following three paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with ovals, usually green for upside and red for downside. Orange ovals are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher oval, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Annotated Daily Chart of the SPX:

As long as the SPX maintains consistent daily closes above about 1648-1653 and particularly as long as it maintains daily closes above about 1657-1662, it has set a potential upside target from about 1676-1681. A push up to 1697-1705 is also a possibility under these conditions, but so is a rollover beginning from the current price up to 1676-1681.

A rollover that finds support in the 1648-1653 range would preserve the tentative bullish structure of this chart. Keltner charts suggest that a failure to find support there on daily closes sets a new downside target from about 1614-1632, an unfortunately wide range within which several types of potential support converge at close intervals. A hard drop will likely drive them all together toward the lower end of the potential support range, however. If that 1614-ish support fails on consistent daily closes, Keltner charts suggest that the decline could be sharp and deep. Keltner charts would then set a downside target near 1500-1510. However, 1600 round-number and historical support, the June low of 1560.33, and 1536-1540 historical support mark interim support levels that should be watched, too. I've seen "impossible" Keltner targets reached too many times to ignore the possibility presented by the 1500-1510 potential target if the conditions are met to set that target, but neither would I ignore potentially strong historical support if I had bearish gains. I'm just alerting you to potential targets that you might not otherwise see.

Annotated Daily Chart of the Dow:

The Dow's setup differs slightly. As long as this index maintains daily closes above about 14900-14940, it maintains an upside target near 15085-15170. Consistent daily closes above that zone then set a potential upside target near 15400-15480. An additional subsequent upside target is also marked, if conditions are met for setting an additional one.

If the Dow should roll over soon or after testing the closest upside target, prices that then churn between 14720-14940 unfortunately don't tell us much of anything about next direction. That's just a noisy congestion zone. A failure to hold support above about 14720, however, set a much deeper Keltner downside target of about 13900-14060. Again, I have seen these "impossible" Keltner targets reached, sometimes quite quickly, so I don't ignore the possibility. However, if I had bearish gains I wanted to protect, neither would I ignore the possible support zone churned out when the Dow was marking out its April and June lows, with that potential support perhaps kicking in anywhere from 14444-14550.

Annotated Daily Chart of the NDX:

The NDX again leads the pack on a Keltner basis. It broke above the potential resistance of its red 9-ema, formed consistent daily closes above it, and headed up toward its next target, shoving the top of its smallest grey channel along with it. Today saw the NDX testing the potential resistance on daily closes of that target from about 3146-3175. While the NDX doesn't adhere to the predictions of Keltner channels as well as some other indices, a glance at the chart shows that these channels do offer some if/then useful guidelines. If the NDX can sustain daily closes above this 3146-3175 potential resistance it was testing today, on consistent daily closes, it then sets a next potential upside target from about 3200-3225.

However, it would be normal for the NDX to either churn sideways for a while or pull back to retest that rising red 9-ema. It's pulled a bit further away from that moving average than it typically does. A pullback that finds consistent daily support above 3100-3122 would maintain the bullish tenor of this chart and suggest that the NDX could then rise again to retest the nearby resistance. A failure to find support above about 3100 on consistent daily closes, however, sets the next potential downside target near 3048-3083.

The NDX has more closely spaced support than some other indices. A break of the 3048 level on consistent daily closes sets the next potential downside target near 2955-2990, on a Keltner chart. However, interim gap support from the huge gap from July 10 to July 11, and round-number and historical support near 3000 can't be ignored. The potential Keltner targets are marked because you might not be seeing them elsewhere and because they sometimes are more predictive than other targets. However, plans should be made to protect bearish gains at those interim potential support levels, too, if they're hit.

Annotated Daily Chart of the RUT:

As long as the RUT maintained daily closes above about 1020-1030, it maintained an upside target near 1042-1050, a target it began challenging today. If the RUT follows the NDX's example, it could push up through this target and all the way to the next, at 1055-1065, before pausing. Much--including any disturbing developments with Syria, hints from FOMC voting members about the committee's intentions to begin tapering or rising yields--could keep the RUT from following the NDX's example, however. Small-caps tend to be more sensitive to rising interest rates than larger companies.

A subsequent upside target is also marked in case the RUT shoves past the next two potential resistance zones. What if the RUT rolls down, however, either immediately or after testing 1042-1050 or 1055-1065? RUT bulls want to see support at 1020 hold on daily closes in that case. A failure to hold support there sets the next potential downside target at about 988-1008. That's an unfortunately wide potential support range that's hard to narrow any further because of the potentially strong historical and round-number support thickly layered in that same range.

A failure to hold support above about 988 sets up a potential target much lower, marked on the chart. As with other indices, however, an interim level of potential support can be found near the June low. Any bearish gains should be protected if that June low is retested.

Annotated Daily Chart of the Dow Jones Transports:

The Dow Jones Transports gives us further insight into how the economy is doing and either verifies or contradicts what we're seeing on other indices. As the price channel in black shows, however, this time it's not giving us a lot of information. What that channel shows is that the DJT is still trading down mostly within a descending regression channel. Prices attempted a breakout today, but the breakout is not yet convincing.

However, the DJT is also still finding support and bouncing each time it retests the Keltner support lines found at about 6135-6240. This chart displays no major change in long-term trend yet, but if the DJT is going to continue the previous pattern, it needs to soon break up out of that descending regression channel and head up toward new highs.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap.

In addition, tonight the Bank of Japan releases Monetary Policy Meeting Minutes, and the Tertiary Industry Activity Index will be released as well. Those minutes have the capacity to roil currency markets.

What about Tomorrow?

Annotated 30-Minute Chart of the SPX:

Consistent 30-minute closes above about 1668-1669 set and maintain a potential upside target of 1680-1683 for the short-term move on the SPX. The SPX did break free of this resistance today, but then it couldn't build on the early afternoon gains after breaking out. I'm not predicting a pullback through the yellow support zone, but I wouldn't be surprised to see it, either.

A failure to maintain 30-minute closes above 1665 sets a new short-term downside target, first at about 1657-1660 and then at about 1650-1654, if the first downside target doesn't support the SPX on 30-minute closes.

Other potential downside targets are also marked but be aware that a sharp move down will push those targets lower, too.

Annotated 30-Minute Chart of the Dow:

Consistent 30-minute closes above about 15050-15070 set a potential upside target of 15165-15195, but the Dow has not yet convinced me that it's heading up to that next target. Its afternoon bounce couldn't make much headway once the Dow began producing closes that high, and then prices drifted back down inside the yellow support zone. We must await tomorrow's action to see whether that gravitational pull has caught the Dow's prices.

Consistent 30-minute closes below about 15020 set a new potential downside target from about 14930-14980, where next support on 30-minute closes might be found. A failure to hold support at about 14930 would then target 14860-14900. Another potential downside target is marked in case that target does not provide support on 30-minute closes. However, a steep decline would likely drive that support lower by the time it could be hit.

Annotated 30-Minute Chart of the NDX:

The NDX more convincingly broke free of the zone that ranges from 3155-3165 and has set a potential upside target of 3177-3187. The NDX has already challenged the original target set when it broke out: about 3174. For that higher upside target to be maintained, the optimum behavior would be for any pullbacks to find support on 30-minute closes on a rising 9-ema, or at least by somewhere in the 3155-3165 range.

A failure to find support on 30-minute closes by 3155 sets a downside target near 3139-3148. Subsequent downside targets are also marked if that one should fail to provide support on 30-minute closes, but they will likely have moved lower in the event of a strong pullback.

Annotated 30-Minute Chart of the Russell 2000:

The RUT charged higher, almost all the way to its upside target this afternoon, as demonstrated in this 30-minute chart. Those who want to see further gains want it to find support on 30-minute closes at a rising red 9-ema, or at least by about 1039.

A failure to find support above 1039 on 30-minute closes would set a next potential downside target from about 1032-1034. Other potential downside targets are marked, too, in case the RUT should fail to maintain 30-minute closes above the 1032 level. Keep I mind that a sharp move downward will drive those potential support levels lower, too.

So, what do I think? I think much of today's gains were driven by headlines that suggested that political negotiations might make headway and avert a military action in Syria. Headline-driven reactions make me wary, especially when they're accomplished on relatively light volume. For example, the heavily traded SPY shares have a three-month average daily volume of 124,186,000, but today's volume measured only 83,391,046. Keep in mind that the three-month period against which this is measured included the summer months when volume is normally relatively light.

On 30-minute charts, both the RUT and the NDX look as if they might have a few more points before they top out, but the NDX in particular is up against major potential resistance on the daily chart. The Dow hasn't convinced me that it's set even a new short-term upside target on the 30-minute chart, and it will also soon face potential resistance on the daily chart if it does manage to break out toward that next 30-minute target. The SPX does appear to have room to run on the 30-minute chart, but hitting that next upside target on the 30-minute chart would also jam it against potential resistance on the daily chart.

President Obama's speech tomorrow night might have provided a headwind against which market prices would struggle and it will do so again if those negotiations fall apart. However, if the hope keeps up that Russia is doing some arm twisting of its own, then those winds will likely shift the other direction and provide support to markets.

Without many important economic releases until Friday, we're left with Apple's announcements and the Syrian situation as potential market movers, along with any errant FOMC member who might decide to make a pronouncement. In this case, we're left again with our if/then conclusions drawn by looking at these charts and watching what happens with regard to those zones we've mapped out.