Surprise earnings from big names like Wal Mart and Cisco send markets bouncing from support levels. Today's action was bullish right from the start. Asian indices were up on earnings and data despite the sell off in the US indices. European indices were up on Asia, data and earnings and that all led into a morning of positive surprises for US traders. The news sent our indices up by nearly 1% with broad market participation. The surprises include earnings and data, both of which give a promise of growth in the future. Oh, and the House passed their version of tax reform.
Futures trading was positive from the earliest on positive sentiment in global markets. While US tax reform is a front burner issue it appears uncertainty is not holding it back. Asian indices gained an average 1% led by the Nikkei's 1.5%. News in the region includes positive labor data from Australia, merger news and a surprise earnings beat from Tencent. European markets were buoyed by Asian news and lifted on a round of positive data. EU CPI shows steady increase but well below the target 2% while UK retail sales rose more than expected in the month to month comparison and fell less than expected on the YOY.
US markets opened with small gaps, in line with the prevailing trends, and extended those gains into the early afternoon. Action was broad based with advancers leading decliners by roughly 4 to 1. Early afternoon saw the indices move up to news highs near 0.85% as word came down the pipe a tax reform vote was imminent. After the vote the indices moved up to set new highs near 1% but those levels did not hold. The markets moderated a bit going into the end of the day but were able to close near the highs.
There was a lot of data today, starting with the weekly jobless claims. Initial claims rose 10,000 to 249,000 and slightly above expectations. The data is however being affected by back logs in Puerto Rico, the Virgin Islands data is yet to be incorporated. Last week's data was not revised. The four week moving average gained 6,500 to hit 237,500 and remains low relative to trend, consistent with labor market health.
The continuing claims fell -44,000 to hit a new low dating back to December 29,1973. The last week's data was revised higher by 3,000. The four week moving average fell -9,000 and also hit a new long term 44 year low and is consistent with labor market health and improvement.
The total number of claims rose by 25,575 to hit 1.665 in line with expectations, seasonal and long term trends. We can expect to see this number continue to trend upward until hitting a peak in late December. That being said the index is -7.86% lower than this same time last year and consistent with labor market health and improvement.
US import prices came in at 0.2%, down from the previous month's upwardly revised 0.8%. The data shows some cooling in import price pressure although the YOY data is still trending above 2%. YOY import prices rose 2.5% and show some moderation from the previous 2.7%. Export prices remained unchanged.
Headline Philadelphia Fed numbers show decline but the data within the data suggests an uptick in activity is brewing. The Manufacturing Business Outlook Survey fell -5.2 to 22.7 but remains positive for the 16 month in a row. Despite the fall the index also remains above the 20 mark and in territory consistent with strong activity. Shipments fell -3 to 21.7 along with declines in both deliveries and unfilled orders. The silver lining is that new orders rose by 2 while delivery time and unfilled orders remain positive, suggesting back logs remain and could begin to grow again. Along with this is a sharp decline in inventories, -15 to -8.6, that suggests new orders could also begin to grow.
Industrial production rose 0.9% in October on a 1.3% increase in manufacturing and 2.0% increase in utilities offset by a -1.3% decline in mining. The mining sector is still recovering from the storms. Total output increase 0.3%. On a quarterly basis the October data brings the 3rd quarter up to only -0.3% from the previous -1.5%. On a trailing 12 month basis total industrial production has risen 2.9% as has capacity utilization. Capacity utilization rose surprisingly to 77.0% from the previous 73.6% but remains below the long running average.
The NAHB Home Builders Index shows some improvement. The index came in at 77, up 2 from the previous and revised 68 and up 7 from the same month last year. Sales of single family homes rose 2 to 77, future outlook for buyers fell -1 to 77 and current traffic rose 2 to 50.
The Dollar Index
The Dollar Index rose slightly on today's data as it does little to alter current FOMC outlook. There was already a 100% chance of December rate hike and better than 60% chance of another hike by March. Also, international data helped support the basket of world currencies offsetting dollar strength. Today's action created a small doji candle within a support/resistance range consistent the neckline of a possible head and shoulders reversal. Support within the range is near $93.33, resistance is near $94, a break of either could be significant. Even so, longer outlook is for range bound trading as incremental gains in the worlds diverse economies offset strength in ours.
The Gold Index
Gold prices held steady with virtually no movement as traders weigh global relations against economic data and the tax vote. The Republicans got enough votes to pass the bill and prices remain steady. Gold is now trading near $1277 and remains below the $1280 resistance target. The metal could remain range bound into the next round of central bank meetings if nothing emerges to sway sentiment. A fall from current levels may find support near $1270 and $1265, a move higher is still facing resistance at $1280 and then again at $1300.
The Gold Miners ETF GDX fell -0.25% on today's news but is still sitting on the $22.50 support line. This support is the mid line of the long term trading and likely to remain significant into the next month. The ETF is winding up ahead of the central bank meetings which will begin early in December with the ECB, BOJ and BOE. A bounce from this level may go up to test the long term moving average near $23, a break through may fall to test the recent lows near $22.25. A move past either of these targets may indicate a further move but would likely remain with the longer term range.
The Oil Index
Oil prices fell marginally in today's trade but held steady in a day of light volatility and above near term support. Support is near $55.25 and the bottom of yesterday's candle. Prices have weakened on mixed signals given by inventories and estimates. While there are some signs of tightening there are persistent signs of ample supply to meet whatever demand there is. This week's move could signal the top of a new range which could cap the market until something changes. The OPEC meeting is happening later this month and they are expected to extend the production cap and if so could further support the market.
The Oil Index fell marginally but held steady above support. The index has fallen sharply from its recent peak, in tandem with correction in the oil market, and now sitting on a potentially strong support level. This level is consistent with the top of the congestion band broken just a few weeks ago and a likely point to begin looking at new bullish positions. Regardless of oil's fall to $55.25 it is still well above levels seen earlier in the year and consistent with continued robust earnings growth in the oil sector. I'm still cautious, there could be some volatility, but I am still bullish on the sector.
In The News, Story Stocks and Earnings
Wal-Mart reported before the bell and the news is good. The company reported a 4% growth in YOY revenue and beat expectations for both revenue and earnings. The company also reported strong comps in the US, a 50% jump in online sales and an increase in full year guidance. The news was well received and drove shares to gap up by 5% and extend the gains to 10% and close at a new all time high.
Cisco reported after the bell yesterday and helped to drive market action today. The company reported surprisingly positive news that included increased guidance and favorable product mix. Today the stock jumped more than 6% to gap up and hit a high not seen since the DotCom bubble burst.
Gap reported after the bell and the news is good. The company reported 1.1% YOY sales growth and beat on the top and bottom lines. The beat was driven by the fourth quarter of favorable comp store sales gains that are projected to continue over the next few quarters at least. The company was also able to raise full year guidance which drove shares higher by 5% in the after hours session.
The moved up today on earnings and data. They moved higher on hopes for a tax vote and even higher still on the result of that vote. The day's leader is the Dow Jones Transportation Average with a gain of 1.61%. The transports created a long green bodied candle moving up from support and confirming the long term up trend line. Support is coincident with the long term up trend line, the long term moving average and a previous all time high so strong in the technical sense. The indicators remain weak but are now showing oversold conditions and the first indications of support at this level. The stochastic for one is looking bullish and firing a trend following bullish crossover. Support is 9,500, a continuation of this move is likely to meet some resistance in the near term but has a target at the current all time high.
The day's runner up is the NASDAQ Composite with a gain of 1.29%. The tech heavy index created a medium sized green bodied candle which set a new intraday all time high and closed just short of setting a new all time closing high. The indicators remain weak but are consistent with a test of support within up trend and showing early sign of trend following signal. A move up is likely to set new all time highs with target near 7,000.
The S&P 500 came in third today with a gain of 0.81%. The broad market created a medium sized green candle moving up from the short term moving average in a bullish trend following bounce. The index is accompanied by mixed indications but indications that are consistent with a test of support with up trend and the onset of a trend following bounce. A move up from here may find resistance at the current all time high, a break above that would be bullish with target of 2,660 in the near term.
The Dow Jones Industrial Average comes in last with a gain of 0.80%. The blue chips created a small green candle gapping up from yesterday's close in a bullish trend following bounce. The move is not yet confirmed by the indicators but they are consistent with such a move. A continuation of this move may find resistance at the current all time high, a break above that will be bullish with targets near 24,000.
I was cautious earlier in the week and rightly so. With earnings season at an end there is a chance of consolidation, rotation and correction ahead of the next earnings cycle. What I did not expect was to see such a quick bounce but I should not be surprised. The market has been moving higher for quite some time, many traders have tried to wait for deeper corrections in order to get and they have often found themselves late to the rally. Not this time I think. There is still reason to be cautious with new short term trades, there is still a chance for consolidation and resistance is just above today's levels, but I am bullish. Economics are improving around the world, US businesses are performing well and the outlook is good. . . how could you not be?
Until then, remember the trend!