The market fell again as traders await the deluge of data and earnings scheduled for later this week.


The market fell in a day of quiet holiday trading. The Columbus Day holiday had market volumes down and possibly accelerated this mornings fall. The major indices moved lower in the range of -1% during the early half of today's session but bounced from the early lows to hover around break even most of the day. A number of global events impacted trading today, as well as anticipation for earnings and economic data later this week.

First up was better than expected trade data from China; data that was unable to reverse bearish sentiment. Exports rose by more than 15% on a year-over-year basis, outpacing imports and leaving the trade balance a positive $31 billion. Despite this news Asian indices fell, led by the Nikkei's loss of -1.15%. The news was able to lift European indices, which also received a dose of good news from closer to home. Reports say Putin has ordered Russian troops to return to their bases now that “training exercises” are over helped to lift EU indices into the green.

Market Statistics

Our own indices were indicated to open flat to negative for most of the early session. The markets opened marginally lower, bounced into positive territory within the first 5 minutes and then fell back to test early support by 10:15AM. The indices traded sideways for most of the morning, hitting the daily low around 10:45AM. From that point until late in the day the indices traded in a range right around break even with the bias toward the upside. Then, late in the day, I think it was the Ebola headlines that sent the market lower.

There were a few major headlines from that front today starting with the CDC chief blaming a break down of protocols on the Texas nurse contracting the disease. The next was outcry from nursing unions and hospital organizations that claim they have received no training and no support, effectively shifting the blame back to the CDC. Then, around 3PM the CDC announced that there could be more cases showing up in the next couple of days. The Ebola effect on the market is an unknown at this time but something we will be dealing with into the foreseeable future.

Economic Calendar

The Economy

Not much data today but of course the weekly Survey Of Business Confidence conducted by Moody's and Mark Zandi. This week's summary is a little different than it has over the past few months. It leads off with a notable decline in foreign business sentiment, particularly in South American and to a lesser degree Europe. After that it picks right up where it has been all summer. Mr. Zandi reports that business sentiment is notably high, as it has been all year, and that hiring intent remains strong. Planned lay-off's are also low and expectations into the end of the year remain high.

The Oil Index

Oil prices took a big hit today as OPEC's stance toward oil prices became a little more official. WTI fell by -1% but Brent took the biggest hit, falling more than -2%. OPEC, which is suffering deep division within its ranks over oil prices, is not planning on cutting production in order to support prices, according to statements from the Kuwait oil minister. This is along with Saudi Arabia's willingness to accept lower prices in order to retain market share. WTI traded just below $85 in today's session with Brent hovering just above $88. OPEC is scheduled to meet next month so I expect to hear a lot more about these stories before then.

The Oil Index sank to a new low today, falling about a half percent in today's action. The index had at first surged higher but downward pressure caused by falling oil prices pushed the index below support. The index is now trading along the 1430 support line with increasingly bearish indicators. Stochastic is oversold and may remain that way into the short term but it is the MACD that is the most troubling. Downward momentum has been increasing with each leg of the decline and is convergent with lower prices or a retest of the current lows following a bounce. There could be a bounce or consolidation from the current level but it would face resistance around 1480. A break below current support could take it down to 1400 and 1350 in the near term.

The Gold Index

Gold prices climbed about 0.60% today, adding $7 to Friday's closing price. Today's action took the metal up to $1230 and higher in electronic trading. The metal has been bouncing from the long term lows around $1190 and is being buoyed by the Fed's lack of direction on interest rates. Rates are surely going up, which is why gold has fallen to these levels, but when is still in question and the Fed really isn't giving us any concrete clues. Momentum is currently to the upside so gold will likely move higher into the near term until the next major catalyst emerges. The Beige Book could be it, along with the data coming out this week.

The Gold Index traded to the upside today, in line with the upward trajectory of gold. The index gained over 4% in today's action but is still below long term support. The index has been consolidating for about a week, ever since gold hit bottom last week, and is winding up for a move. Direction is unclear and tied to gold prices but I think that long term buyers may be in this market. A break out of the current consolidation pattern will be the tell. A break back above support will help to confirm this theory. An upside target, provided the index can break the $82.50-$85 level, is around $110 with a downside target near the the $65 level. The senior miners are scheduled to report around the end of the month and into the first week of November.

In The News, Story Stocks and Earnings

Earnings season is definitely in the news. The season began last week but really starts in earnest this week. The financial sector will be the focus but there are still enough other reports to give meaningful insight into sectors ranging from technology to the consumer to transportation and others. According to data from FactSet the expectation for earnings growth stands at 4.5%. This is about half the expectations at the beginning of the quarter due to downgrades in 9 out of 10 S&P sectors. We can expect this number to be beaten based on past performance. Over the past 12 quarters 72% of companies reported above average for both sales and earnings resulting in an increase of average earnings of 2.3% by the end of each quarter. So far 27 S&P 500 companies have reported with 19 of those beating the average estimate for earnings and 19 beating the average estimate for sales. With this in mind earnings growth this quarter could be as strong as 6.8% or more, in-line or slightly below the last quarter. The telecom sector is still expected to lead with the largest increase in earnings.

The Financial Sector is also expected to post impressive bottom line gains. The average expected increase in EPS for the banking sector is nearly 11%. If this sector beats by 2.3% they could report earnings improvements of over 13%. Today the Banking Index traded to the downside, along with the broader market. The index fell about a quarter percent in today's trading. The index is near to a two month low and trading beneath the 150 day moving average. The indicators are bearish and point to lower prices with a target about a dollar below the current prices. It looks like the banks are moving lower in the near to short term but the index may also be at a bearish peak. Based on price action over the past year the index has been in similar situations several times before only to bounce right back.

JP Morgan lost about -0.40% today, after trading positive for much of the afternoon. The bank is below the resistance of the long term high and now trading near long term support. The stock is still trading above the long term moving average but has bearish indicators. Momentum is not strong but to the downside and convergent with a further test of support. Support is now indicated around $57.50 with earnings being reported in the morning.

Wells Fargo is also reporting tomorrow. This bank traded lower as well, losing about -0.63% in today's action. The stock is trading in a similar pattern to JPM and is below recently set long term highs and above long term support. The indicators are convergent with lower prices with the current target along support about a quarter below today's close.

The Indices

The markets moved lower today and appeared to have found support until late day news sent traders seeking the exits. The late afternoon drop was accelerated by a new announcement from the CDC that more Ebola cases related to the Texas nurse could pop up. I am not surprised by this, a little shocked, but that is all I will say about that.

Today's move lower was led by the Dow Jones Transportation average and is the third day of losses greater than 2%. The index, and the others, has now formed 3 long black candles in a row and is gaining momentum. MACD increased with today's move and is convergent with lower prices, or a retest of current lows should a bounce occur. Stochastic is moving lower but still holding on to a little strength as it has not yet crossed the lower signal line. If the selling continues my targets are 250, 500 and 750 points lower... but with earnings season at hand the market could reverse at any time.

The S&P 500 fell -1.65% today, extending its move below the long term trend line. The broad market was the second biggest loser today and is also gaining momentum. The index broke support at 1,900, creating a third long black candle and creating a 5 month low. MACD momentum is on the rise and convergent with low or lower prices in the near and short term. Stochastic is low in the range, oversold in the near term but still holding above the lower signal line. The break of 1,900, if confirmed, could take the index as low as 1800 in the near term with possible support around 1,850.

The NASDAQ Composite fell -1.46% today, extending its move below support and the long term moving average. The index is moving lower in identical fashion to the other indices and is gaining momentum. The MACD peaks are converging with price action along with weak and down trending stochastic. Stochastic is still holding on to a little strength, like the others, but is very close to breaking the lower signal line. The index is about 115 points above support with no indication of this move halting at this time.

The Dow Jones Industrial Average had the smallest decline of the day, only -1.35%. The blue chips fell after breaking support are gaining momentum, as are the other indices. The MACD peaks are increasing along with each new low in the index, pointing to lower prices and/or retesting current lows. The index is about 100 points above next estimated support with resistance above 16,500. If the index moves lower from here it will set a lower low and be in danger of a more prolonged downward movement.

It looks like traders and investors are still waiting for something and the waiting is adding to the depth of the correction. The more market participants wait, and the longer they wait, the deeper the correction could go. Today the Ebola news helped the correction reach new levels and may have provided another reason to wait. The only thing I can see that is causing the correction is mounting fears, one fear after another, mounting one after another smothering bullish perceptions. Each fear is short term in nature, although important, while the underlying trends are long term. The long term US economic trends are still up and as yet, un-impacted by global events.

No doubt this week will be dominated by the Fed's Beige Book, earnings, expectations, economic data and how the market interprets all of it. In between it all global growth and geopolitical issues will add their twist to market action as well as the spreading Ebola story. Tomorrow there is no data so unless there is a major international headline I think market action will be dominated by earnings. Expect to hear from JP Morgan, Wells Fargo and Citigroup before the opening bell and then Intel after the close. Others reporting tomorrow worth taking note of include CSX, JB Hunt, Dominos and Johnson&Johnson.

Until then, remember the trend!

Thomas Hughes