It looked like there was going to be a nice rally this morning and there was, for the Dow indices at least. Early electronic trading indicated a fairly strong gain across the board, aided by rallies in both Asia and Europe.

The international markets were being supported by our rally last week and what appeared to be a rebound in oil. The price for WTI and Brent had both been up in early trading until remarks from OPEC/Saudi Arabia sent them back below $56, a drop of more than 2%. The drop in oil capped gains in Europe and impacted futures trading here but the bulls were not routed by any means. Buyers were in the market today and lifted the SPX and Dow Jones Industrial Average to new highs.

Market Statistics

Today's action gave me the impression traders were stock picking. I say stock picking because the rally today was not so broad and there really wasn't a lot of news to drive it. All the major indices moved higher but the gains were not proportionate, ranging from a mere 0.26% for the NASDAQ to over 1% for the Dow Jones Transports.

The bias was towards the Dow Averages from the start. The industrials and transports were indicated higher in the pre-market, opened with at least a half percent gain and then extended those gains into the closing bell. The NASDAQ was the weakest of them all, opening in the red before moving higher later in the day. It finishing with a gain just over 0.25%. The S&P 500 opened positive but was barely able to hold above break even for the first part of the trading day. Later it was able to move higher as well, adding another 7 points and setting a new high.

Economic Calendar

The Economy

We only had one economic release today. There are a lot this week, mostly tomorrow because of holiday shortened trading. Today Existing Home Sales were reported as dropping 6.1%, a surprise drop that helped to trim gains in the pre-market session. All regions reported a drop in sales putting the annualized sales rate at 4.93 million and a 6 month low. The drop may be due to low inventory levels, which experienced a drop of 7% to 2.9 million homes currently on the market. On a year over year basis we are still trending above last year by 2.1%. The drop is well below expectations for a decline near 1%.

Moody's Survey of Business Sentiment is as positive as ever. Mark Zandi reports that sentiment “has been strong all year and is ending 2015 at record levels.” He also says that based on responses “sales, hiring and investment spending are all strong” as is expectations for next year which he says are “especially strong.” A new addition to the summary this week is in reference to credit conditions, which “has improved notably in recent weeks.” The last bit is encouraging as it could add another injection of stimulus into the economy.

There are 16 economic reports scheduled for tomorrow and Wednesday, Christmas Eve. Tomorrow ten, Wednesday 6 including housing, manufacturing, labor and GDP data. Tomorrow the headline event is likely to be the 3r revision to 3rd quarter GDP but will also include Durable Goods, Housing Index, Michigan Sentiment, Personal Income/Spending and New Home Sales. The previous estimate was 3.9%, current estimates for the estimate are now in the range of 4.2%. An upward revision will help support the idea of increasing economic momentum with an entire month until the first look at 4th quarter GDP.

The Oil Index

Oil was trading to the upside early this morning when traders thought it was rebounding. I never learned why it was rebounding, just that it was. Later, comments from OPEC/Saudi Arabia to the effect they (OPEC) wouldn't cut production and that they (Saudi Arabia) might even increase it to gain market share sent prices sinking. The minister making the comments even went on to blame the west for causing the oversupply and low price environment. Except for expectations that demand would help support prices in 2015 there is no sign of a bottom in oil. WTI lost more than 3% while Brent lost a little over 2%. The real carnage in the energy pits though was in natural gas, which lost more than 8% in today's session.

The Oil Index traded to the down side today, falling from resistance along the 3.5 month trend line. The index is now at a possible bullish peak, just under resistance. The indicators are bullish, but not indicating any great strength, and overbought in the near term. The index could move higher from here but without a real rebound in oil price that is unlikely. A retest of support is more likely with a target near 1,212. This is supported by MACD, the bearish peaks are convergent with the recent low and suggest that a retest of that low is likely.

The Gold Index

Gold hovered just below $1200 in early trading before a slow decline turned into serious selling. Spot gold slowly drifted down from $1195 until it broke support near $1190. Once support failed losses quickly accelerated, doubling from -0.5% to -1.0% and then -2.0%. The metal lost more than $22 by 2PM and looks poised to test support near $1150. Rising dollar value is pressuring gold lower and could continue to do so as long as fear of the Fed and rising interest rates is at bay.

I decided to look at the GLD today, the Spyder Gold Trust gold tracking ETF. This ETF tracks the price of gold with an average daily volume over 7 million and open interest over 2.2 million contracts. Today the ETF fell through a potential support at $114.50 with a long black candle. Indicators are bearish and moving lower with next target for support near $110.

In The News, Story Stocks and Earnings

Today is expected to be be UPS's busiest day of the season. There are only 2 days left until Christmas so last minute deliveries will be the cause. UPS is expecting today's volume to set a record as well. To put it into perspective, the company is estimating delivery of 394 packages every second. The company has been preparing for today by hiring more seasonal employees, just like competitor FedEX. Today the stock gained about 1% and set a new all time closing high.

Rite Aid received an upgrade today from Cowen&Company, and then one from Jim Cramer, that sent the stock up nearly 6%. This is just 2 days after a massive gain following earnings release. The report was better than expected and revealed turn-around plans that include closing under performing stores and reducing debt were advancing ahead of expectations. Today's upgrades sent the stock to a new 5 month high with strongly bullish indicators.

Gilead got some bad news today when competitor Abbvie received approval from ExpressScripts. The manager of prescription benefits announced that Abbvie's treatment for Hepatitis C would be its only offering for that class of the disease. The news did not help Abbvie, but really put a hurting on shares of Gilead. Abbvie fell less than 1%, Gilead fell more than 14%. Shares of Gilead shed nearly $15.50 and is approaching potential support near $90.

The Indices

The indices were positive today, led by the Dow Jones Transportation Average. The transports gained a little over 1% in today's session and are approaching the all time high set last month. Today's action extends the trend following bounce begun last week and is accompanied by mixed indicators. The stochastic has fired off the early signal and is moving higher but MACD momentum has yet to confirm. Current upside target is near 9,250 with the possibility of 9,500 on a break above resistance at 9,250.

The Dow Jones Industrial Average was runner up in today's action, gaining 0.87% and setting a new all time closing high. Today's close is less than one point above the all time high set 12/5/2014 and did not receive the fanfare that all time highs usually get. The indicators are mixed as with the transports but in line with the early stages of a bullish movement. MACD is bearish but quickly shifting and retreating to the zero line while stochastic is moving up after firing the weak trend following signal. It looks like the index is moving higher and possibly gaining momentum but there could be some resistance so caution is warranted. A pull back from here would find support near 17,500 and the short term moving average.

The S&P 500 ended with a gain of 0.31% after a day spent hovering just above break even. The index even dipped into negative territory, if briefly, before deciding it actually wanted to move higher. By the end of today's action the index extended the bounce begun last week and eventually set a new all-time closing high. While price action may have been a little weak, the indicators are rolling over into a stronger trend following signal then what we are currently seeing on the transports and industrials. The weak stochastic crossover is now confirmed by a zero line crossover on the MACD. This could lead momentum traders to begin entering the market and lift the index further.

The NASDAQ Composite brings up the rear today. The tech heavy index gained only 0.26% and is approaching the long term high set last month. The index is now less than 20 points below the high with indicators that suggest it will at least test those highs. MACD is bearish but in retreat and fast approaching the zero line, stochastic is moving higher following the weak trend following signal given last Thursday. If resistance is not broken the index could retreat to test support near 4,700 or lower near 4,600.

The Santa Rally is here and looks like it could keep moving higher. There are reasons to be cautious but the trends are up and the market is moving in line with the trends. The indices are bouncing from their respective long term support levels, many of which are coincident with long term trend lines, with indicators that remain consistent with the early phases of bullish movement.

One reason to be cautious is the impending holiday vacation. The time between Christmas and New Years is often market by erratic volumes and trading ranges, two factors that make technical analysis sketchy at best. Another reason to be cautious is the release of the third estimate for 3rd quarter GDP due out tomorrow morning, as well as all the rest of the data scheduled for tomorrow. This data could spur the rally on, but just as easily give reason for pause.

Until then, remember the trend!

Thomas Hughes

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