Today was the calmest day of trading in quite some time as traders await options expiration.


Today was the calmest day of trading we have seen in quite some time. Today's range for the S&P 500 was less than 8 points, the smallest range since February 23, and not too surprising given yesterday's Fed driven rally. The Fed seems to be saying we should be ready for a rate hike in December, today's data supports this view.

Global markets were cheered by the FOMC minutes and the rally in US equities. Asian indices closed with gains greater than 1%, European indices did not fare so well but were able to close in the green, and at new 3 month highs. Both regions were also buoyed by central bank activity other than from the FOMC. The PBC lowered its overnight lending facility, adding stimulus to the Chinese economy, the ECB minutes revealed the members discussed adding QE at their last meeting.

Market Statistics

Futures trading indicated a positive open for most of the morning. Futures fell off a little going into the release of 8:30AM data but firmed a little following it. The indices opened flat to positive and the stayed there all day. There was a little back and forth action between the bulls but it was so mild as to be nearly unnoticeable. This held through until the end of the day leaving the indices just off yesterday's closing levels. One index bucked the trend; the transports put in a stealth rally that added 1% to yesterday's closing price.

Economic Calendar

The Economy

Initial claims for unemployment fell in line with expectations to 271,000. This is a decline of -5,000 from last week's not revised figures. The four week moving average gained 3,000 and hit 270,750, the highest level in nearly two months. On a not adjusted basis claims fell by -9.5%, ahead of the -7.6% projected by the seasonal factors. New Jersey and Pennsylvania had the largest increases in claims, 2,963 and 2,840, while Louisiana and Michigan had the largest declines in claims, -632 and -520. Despite the rise in the 4 week moving average initial claims figures are still trending near the 43 year lows and consistent with labor market health.

Continuing claims fell, shedding -2,000 from last weeks upward revision. Last week was revised higher 3,000, wiping out this weeks decline. Even so continuing claims are holding steady near the 43 year low and consistent with labor market health. The four week moving average moved slightly higher, 750, but is also holding steady near the long term low.

The total number of claims for unemployment rose this week, the fourth week of gains since reaching the long term low last month. Total claims gained 24,215 to hit 1.951 million. Even with the rise in total claims this week's figure is still below the previous long term low set earlier in the year and consistent with labor market health.

The Philly Fed Manufacturing Business Outlook Survey was better than expected, indicating a rebound in activity. The headline index reading came in at 1.9 versus an expected -1.0. This is up from last month's -4.5 and ends a two month streak of contraction in the region. Within the data new orders and shipments both remain negative but increased to near 0. The employment index also improved and also moved back into positive territory, coming in at 2.6. The gains reflects an increase in employment offset by a decline in average hours worked. Perhaps the most notable portion of the report is the future outlook index which gained 6.7 points to hit 43.4, reflecting increased levels of optimism for the next 6 months.

The Index Of Leading Indicators was released at 10AM and was as expected, +0.6%. This end two months of negative readings, -0.1% in both August and September, and indicates growth is expanding into the fourth quarter. The Coincident and Lagging Indices also made gains, rising 0.2% each.

Today's data points support ongoing economic recovery, tightening labor markets and an FOMC rate hike. There will be no data releases tomorrow but there are quite a few next week. Due to the holiday most are scheduled to come out on Tuesday and Wednesday. Big on the list are revisions to 3rd quarter GDP, existing and new home sales, jobless claims, income and spending and durable goods.

The Oil Index

Oil prices did not get a boost from global tensions and are now hovering at three month lows. Today WTI fell, losing about a half percent at settlement time but falling more than 1% on an intraday basis. Price remains just above $40 and looks like it could break through to new lows. Supply and production remain very high while demand expectation is still very weak.

The Oil Index lost about -1% in today's session. The fall was halted at the short term moving average which has provided support for two days now. The indicators remain weak however and pointing lower so a retest of more substantial support is likely, especially if oil prices remain near $40 or move lower. First target for support is 1,150 with a chance for move down to 1,050 if oil breaks below $40. Resistance is near 1,250 should the index move higher.

The Gold Index

Gold prices rebound today after hitting a multi year low yesterday. This move, near 1.5% intra-day, met resistance at previous support, just above $1,080, and does not appear to have ended golds down trend. The Fed has more than hinted a rate hike would come in December, which, along with dovish ECB intentions and steady US economic data, is driving the dollar higher. The dollar index retreated from resistance today, most likely the cause for golds rise, but is looking strong in the short to long term. A combination of an ECB add-on to QE with an FOMC rate hike could cause the dollar index to break above resistance and pressure gold to new lows. It is now less than one month until the December FOMC meeting.

The Gold Miners ETF GDX gained nearly 3.5% in today's session after retesting the all-time low yesterday. This move is likely driven by short covering as well as options expiration/assignments and bottom seekers more than anything else. This bounce could continue higher with the short term moving average,$14.40, as near term target but I don't trust it. The move to retest the lows was strong in terms of momentum and indicates support is likely to be tested again, if not broken. Support is the all time low, just below $13.00.

In The News, Story Stocks and Earnings

UnitedHealth made the news early this morning when it issued a profit warning due to Obamacare. The company revised 2015 full year earnings down by nearly a quarter because its health exchange based products are not performing. The company says that not enough people are signing up to make the exchanges profitable, claims are higher than expected and they even suggested that some users are taking advantage of the system. The release goes on to suggest that UnitedHealth would not participate in the exchange system after 2016. Needless to say the news sparked more talk of the possible demise of Obamacare. Shares of the stock fell more than -6% at the open, struggled to regain the loss but were held near the low of the day.

Best Buy reported earnings before the opening bell and sent the stock seeking support. The company reported earnings that were ahead of expectations on weaker than expected revenue and lowered full year guidance. The stock lost more than -7.5% in the pre-opening session to open near the one year low. Support was there and drove prices back up but not enough to recover all the losses.

The JM Smucker Company reported before the bell as well but delivered much different results. The company beat on the top and bottom lines and was able to adjust guidance to the top end of the previously stated range. The improvement is due to strength in the Big Heart pet brand and coffee. Shares of the stock surged by 3% in the pre-opening session and then more than doubled that gain after the opening bell. Smuckers is now trading at a new all time high.

Jack Dorsey's Square IPO'd today. The stock opened at $11.20 after pricing at $9, then popped on the open gaining more than 50% on an intraday basis and closing with a gain of 45%.

Nike made headlines in after hours trading with the announcement of a new $12 billion buy back plan, a 14% increase to the dividend and a 2 for 1 stock split. The news was well received, sending shares up more than 4%.

The Indices

Today's action was light to say the least. Volumes were low as was volatility; most indices traded within very tight ranges except for one, the Dow Jones Transportation Index. This index gained 1% in a move that takes it to the top of the three month range. The indicators are still weak but swinging into a bullish signal so it looks like resistance will be tested here if not broken. A break above the top of the range, 8,275, could take it up to next resistance near 8,500. Support is near 8,000 should a pull back occur.

The other indices all closed with a loss, if negligible, led by the S&P 500. The broad market created its smallest candle in 10 months and is hanging near the top of yesterday's candle. The index is bouncing higher and looks like it could continue but the indicators remain mixed. The indicators are mixed, but also showing what could be the early signs of a bullish trend following entry. Stochastic has already fired a weak signal, yet to be confirmed by MACD, while MACD is approaching the zero line, a set up that can easily lead to a stronger signal should the index continue to consolidate at or near current levels. Upside target is near 2,120 in the near term with support targets near 2,075, 2,050 and 2,000.

The NASDAQ Composite made the next largest decline, -0.03%. The tech heavy index created a similarly small candle although it has traded in a tighter range than today's within the last 30 days. The index appears to be bouncing higher with upside target near 5,110 but the move has yet to gain strength. The indicators are mixed as with the SPX but also setting up for a potential bullish trend following entry.

The Dow Jones Industrial Average made the smallest move of all, only -0.2%. The blue chips are also bouncing from support levels, in line with underlying long term trends, and look like they will continue with upside target near 18,000. The indicators are mixed as with the others and likewise beginning to rollover into what could become a strong trend following entry signal. It may take a few weeks for this signal to develop so I expect to see some side-winding in this as well as the other indices until then.

The market took a breather today. The negative implications of that is there was no follow through on yesterday's rally. The positive is that the market held its ground and did not reverse yesterday's gains.

It looks like the rally will continue but there are still some hurdles for the market to overcome. One is geopolitical tensions, another is slow global growth, another is weak expectations for 4th quarter earnings, not to mention the fact we are entering the doldrums of the earnings cycle.

The combination of waiting for the FOMC meeting along with a lack of earnings news could keep the market from breaking out to a new high. At best the indices will remain range bound at current levels, at worst they will correct to long term support levels. In between now and the meeting will be an entire month of economic data to sway sentiment, induce volatility and drive market direction.

I remain bullish and a buyer of dips.

Until then, remember the trend!

Thomas Hughes