Introduction

Earnings season has started with most beating top and bottom line expectations, and the market was nonplussed. In some cases the beats weren't quite as much as expected, in others internals within the reports gave cause for concerns. Regardless, the market was able to hold steady at all time highs while the market digest the news. Remember, it's just the first day of peak season, there is still a long way to go until this cycle is in the bag.

International markets were steady as well. Asian indices posted small gains in the wake of the FOMC minutes and new all time highs in the US. European indices were also mostly higher in a day of tepid trading as news of deadlock emerge from Brexit negotiations. The EU's chief negotiator has let slip talks are at an impasse and the UK is unwilling/unready to specify terms for fines and fees upon exit.

Market Statistics

Futures trading was tepid from the start this morning as traders were waiting on important earnings news from JP Morgan, Citigroup and others. The news was great on the headline but details within the reports, particularly in the cases of JPMorgan and Citigroup, left traders in doubt. At that point futures weakened to indicated a marginally lower open and held steady at that level into the opening bell. The opening bell was a bit hectic but not too bad, the SPX opened with a loss near -2 points and extended that to the days low of -5 points within the first 15 minutes of trading. This low turned out to be intraday bottom, the indices rallied back to recoup the days losses and by 12:15 was trending sideways just below the all time high. The rest of the day was much the same, tests of support and resistance within the range which left the indices sideways for the day.

Economic Calendar

The Economy

Weekly jobless claims show that there is little to no long-term and/or lingering impact from the recent storms. Initial claims fell by -15,000 to 243,000, the previous week's figure was revised lower. The 4 week moving average of claims fell by -9,500 to 257,000, the previous week's figure was also revised lower. On a not adjusted basis claims rose 11.4% versus an expectation of rising 18.1%. Not adjusted claims have also fallen back below last years level and are now down -4% YOY.


Continuing claims fell by -32,000 to hit 1.889 million and a new low dating back to December of 1973. The previous week's figure was revised lower, as was the 4 week moving average. If there were lingering effect from storm damage it surely would show up here. This data shows that not only are those displaced by storms back to work but an improvement in the overall employment situation.

The total number of claims fell by -1,390 to hit 1.652 million. This is a new seasonal and long term low consistent with ongoing improvement in the labor market. On a year over year basis total claims are down -7% and expected lower over the next couple of weeks. This figure should bottom by the end of October with an expected uptrend lasting into the end of the year.


The Producer Price Index was also released this morning and it supports slowly increasing inflation and a December rate hike. The headline came in as expected at 0.4% with a 2.6% increase YOY. This is well above the Fed's target rate and not surprising given the unexpected strength shown in the past month's ISM data. The 2.6% YOY increase is also the fastest pace of inflation since February 2012. Core prices are up only 0.2% MOM but rose to 2.1% YOY.


The Dollar Index

The Fed Minutes did little to strengthen inflation outlook, rate hike outlook or the dollar but remember this; the last Fed meeting was before the most recent round of ISM, NFP and today's PPI. Those reports show surprising increases in prices paid by manufacturers and service business, a surprise increase in hourly wages and core producer level inflation running at the 2% target. Based on this I would expect to see some changes in their next statement which is due in about 3 weeks. The Fed Watch Tool has barely budged all week and still holding steady at 88% for December rate hike.

The Dollar Index trend sideways from yesterday's candle in today's move. The index is below the short term moving average after having fallen from the short term down trend earlier this week. This fall was precipitated by stronger than expected trade data from Europe that has increased expectation for ECB policy tightening. The indicators are consistent with a bearish trend following entry with downside target at the recent lows near long term support in the range of $91.50. Tomorrow's CPI data is the next potential mover for the dollar and expected to be hot at 0.6%.


The Gold Index

Gold prices rose to a 2 week high on yesterday's FOMC minutes and a slightly weakened dollar. The metal gained about 0.75% in today's trading to settle near $1,297. Spot price is now approaching potential resistance at the $1,300 level. A break above this level would be bullish for the near term with target near $1,318. A failure to break above $1,300 would help confirm the September reversal with downside target near $1,275.

The Gold Miners ETF GDX trend sideways from yesterday's candle and just beneath resistance targets. The ETF is supported by firming gold prices but remains range bound over the short to long term. A break above current resistance a $23.90 would be bullish near term with upside target near the top of the long term trading range at $25. The indicators are bullish at the moment suggesting that current support will be tested at least.


The Oil Index

Oil prices fell more than -1% on new signs of oversupply. The latest news is a report from the IEA stating that sluggish demand and high production would continue to weigh on prices into next year. This report was echoed by another from Goldman Sachs saying stock draws have peaked this year and Brent would average $58 in 2108. The caveat is that the IEA report lends strength to the idea that OPEC will extend production cuts to further offset supply imbalances.

The Oil Index continues to trend sideways within the near term consolidation range. The indicators persist in bearishness and suggest support will be tested further, so long as the index remains above support this action is consistent with consolidation and potential continuation of the existing trend. Support is just above 1,200, resistance at the current high near 1,225. This range may hold into the near term up to and until earnings releases from major players in the sector and/or a significant move in oil prices occurs.


In The News, Story Stocks and Earnings

The big banks began reporting today and the news is mixed. The headline is that both JP Morgan and Citigroup beat top and bottom line expectations smartly. Both companies beat revenue outlook by roughly a billion dollars, 5% for Citi and 4% for JPM, and similarly on the earnings end. The mixed part is that trading volumes were down far more than expected and that charge-off's related to consumer credit were on the rise. The mitigating factors are that trading volume is offset by core business and credit charge-off's are likely related to the recent storms. Shares of both companies fell, led by Citigroups decline of -2.6%. The XLF Financial Sector SDPR fell a little more than -0.5% and looks like it could drift lower in the near term. Bank of American and Wells Fargo are on deck for tomorrow morning.


Domino's Pizza beat on the top and bottom lines but also failed to please investors. Revenue grew more than 13.5% YOY, beat expectations by 2.5% and delivered comps of 8.5% but it still wasn't enough. Shares fell more than 3.5% to test support at the short term moving average and support was there. This may be because the company is still increasing stores domestically and abroad, is experiencing continued organic and comp store growth in both segments and expected to continue producing positive results.


Rumors have emerged that GM will be idling its Detroit Hamtramck facility to due sluggish demand. The plant is GM's most sophisticated in NA and produces a number of car models. It is expected to close for 6 weeks beginning in mid-November and, when the plant reopens, it is expected to produce 20% less cars than before. Meanwhile, the company is threatening a Canadian autoworkers union with a plant shut down if they don't call off an expected strike. The company will instead shift production of the Equinox to Mexico. Shares of GM fell -3% on the news to test support at $44.


The Indices

The indices hit a hiccup today as earnings season begins to heat up; the broad market, industrials and techs all posted small losses on earnings seasons jitters. The transports however broke out to new all time highs as economics point to continued expansion. The Dow Jones Transportation Average gained 0.62% in a move creating a medium sized green candle breaking through the 10,000 level. The indicators are still weak but consistent with a trend following entry so I would expect to see higher prices in the near term. Tomorrow earnings from JB Hunt, one of North American's largest truckers, could drive it higher.


The NASDAQ Composite posted the largest loss, -0.18%, but set a new all time intraday high while doing so. The index created a small doji candle to the side of yesterday's small candle and the 6th such small candle in a row. It is consolidating at all time highs and setting up for its next move, the past week's action is beginning to look like a flag. The indicators have begun to roll over in confirmation of resistance but do not indicate bearishness. If the index were to fall support target is near 6,475 and the short term moving average. If not, a break to new highs will be bullish with upside target near 6,800.


The S&P 500 made the 2nd largest decline, -0.17%, and created a small red bodied candle just below the current all time high. The index is drifting higher but showing signs of pause within the trend. The indicators remain strong but have begun to roll over in confirmation of resistance. A fall from this level may find support at the short term moving average, near 2,515. A break to new highs would be trend following and bullish with upside target in the range of 2,580 to 2,600.


The Dow Jones Industrial Average made the smallest decline, only -0.14%, created a small doji candle and set a new all time intraday high. Price action was calm, quiet and otherwise positive in light of today's earnings releases and the start of peak season. The indicators are consistent with resistance and/or pause within an uptrend so this sideways action and chances of pullback may persist into the near term. A fall from this level may find support near 22,415 consistent with a long term uptrend line and the short term moving average. A consolidation at this level and/or move higher would be bullish and trend following with upside target near 23,400.


The markets have moved up in anticipation of earnings season and begun to consolidate. Now that earnings season is at hand this consolidation is likely to see some shake up, either in a break to new highs or volatility within near term ranges, depending on how the reports come in. If forward outlook remains positive but dims we may see come corrective action, if forward outlook remains positive and improves I'd expect to see some more rally. In either case the long term bull market remains intact and I firmly bullish for that time frame. Nearer term I am bullish but cautious with new money due to the signals.

Until then, remember the trend!

Thomas Hughes