Global markets creep higher amid signs of change. Two new threats to the global status quo have emerged; Angela Merkel was not able to form a coalition and the Saudi succession could happen as soon as next week. While neither is likely to reverse the markets both will affect sentiment and possibly induce volatility. Add to this the already present possibility of US tax reform and there is a lot for traders to keep an eye on going into the holiday weekend.
Asian indices were mixed in today's action, holding steady near break even with a near even split between gainers and losers. The Shang Hai Composite led with a gain near 0.30%, Japan lagged with a loss of-0.60% as traders look west at possible trouble in Europe and the eventuality of tax reform in the US. In Europe markets were rattle by news Angela Merkel was not able to form a coalition leaving her grip on Germany tenuous at best. Equities were able to move higher, led by the DAX +0.50%, as traders chose to focus on economics and earnings.
Futures trading was a little wobbly this morning but not too bad. Early indications had the major indices down less than -0.25%, as the morning wore on those numbers crept slowly higher until turning positive just before the opening bell. The open was a bit volatile but trading held in positive terrritory until 10AM when surprisingly good Leading Indicators helped them move firmly into the green. Trading was positive and moved higher through the day but it was not strong. The SPX was up 0.20% at 2:35 and near the high of the day. Trading remained positive for the rest of the day leaving the indices near the middle of their daily ranges at the close of the session.
There was not a lot of economic data today but what we got was really good. Leading indicators jumped 1.2% in October on top of an upward revision to September. September had been a negative 0.2%, it is now +0.10%. Today's read is more than double the expectations and the largest gain since before the housing bubble burst. The coincident and lagging indicators both increased as well, 0.2% and 0.3% respectively. Economists at the Conference Board say the index points to continued expansion into the end of the year and next year. I say it looks like a period of increased and expanding growth could be upon us.
Moody's Survey of Business Confidence jumped 2.2% in the last week and is now at a 2 month high. Mr. Zandi says that business confidence has firmed in the last week but still low compared to the post election high. Sentiment if strongest in the US, followed by Asia, Europe and South American where political unrest is still stifling economics.
With 95% of the S&P 500 reporting the blended rate of earnings growth has crept up a tenth to 6.2%. This week there is another 3% expected to report. Of those who have reported 74% have beaten EPS and 64% have beaten revenue expectations, both figures above average. In terms of sector there are 7 showing growth versus an expected 6 at the beginning of the cycle. Growth is led by the energy sector which is expected to lead growth into the next few quarters.
Looking forward growth is expected to remain in the forecast and that growth is strong. This week the estimates held steady on a quarterly basis while full year 2017 ticked higher by a tenth. Fourth quarter 2017 is expected to grow earnings 10.0%. First quarter 2018 is expected to grow earnings 10.5%. Second quarter 2018 is expected to grow earnings 10.1%. Second half 2018 is expected to see growth expand above 12%. Full year 2018 is expected to come in around 11.1%. If trends hold up estimates for each of the forward quarters is likely to fall as we approach the onset of each reporting cycle.
The Dollar Index
The Dollar Index got a nice little boost from today's data. The leading indicators helped reinforce current economic outlook and FOMC expectations which supported the dollar if not strengthened it. Offsetting this is increased geopolitical risk but it appears to be the lesser force at this time. The DXY gained more than 0.50% in a move confirming the $93.50 support line and setting a new 1 week high. It also takes the index back above the short term moving average and puts it in position to move higher. Next resistance is just above today's close, near $94.15, a break of which would be bullish. The FOMC meeting could strengthen the dollar significantly, if the other world central banks do not do anything to offset that strength. There isn't much expectation of that happening but the data has been a bit better than expected lately, especially in the EU, and could lead to a firmer outlook for the EUR.
The Gold Index
Spot gold prices took a dive today, falling more than -1.5% from Friday's high. The comes on a firming dollar and an apparent lack of concern over the myriad geopolitical concerns facing the market today. Spot gold has now confirmed resistance above $1,290 and near $1,300, settling below $1,280 with today's action. This may lead to further downside with targets near $1,260 although range bound trading is likely to prevail until the next FOMC meeting.
The Gold Miners ETF GDX fell a full percent in today's action and is now back at the $22.50 support line. The ETF is winding up between the support line and the moving averages with a likely focus on the FOMC meeting. In the near term world headlines will drive day to day moves, longer term FOMC interest rates and strong dollar could push gold prices lower and take the mining complex down with it. A break below $22.50 would be bearish with targets near $22 and $21. A bounce would be bullish with targets near $23 and $24.
The Oil Index
Oil prices fell today on caution ahead of the OPEC meeting in Vienna later this month. The cartel is expected to extend its production cap and, hopefully, help to tighten the oil markets. This hope is offset by signs of currently high production and ample supply. The Saudi succession news, that Prince Mohamad Bin Salman would take control of the country next week, did not seem to affect oil prices. WTI shed -0.80% to trade near $56.25.
The Oil Index shed a half percent in today's action but is relatively steady for the past 4 days. The index is sitting on support at 1230 on last week's retreat in oil prices and looks like it may continue to consolidate at this level. The indicators are both bearish and suggest a further test of support but neither indicate reversal at this time. Support is also consistent with the 30 day moving average so may be strong. A bounce from this level would be bullish and trend following, a break below it would be bearish. Considering the high price of oil and forward earnings outlook I remain bullish on the sector.
In The News, Story Stocks and Earnings
ATT and Time Warner were moving on rumors the DOJ was going to announce an anti-trust decision about their proposed merger/takeover. The DOJ is apparently set to sue ATT to prevent such a merger and that was confirmed in the after hours. Both ATT and TWX came out in opposition to the move claiming it's not different than other mergers within the sector. ATT moved up on the news but only slightly and remains within recent ranges. Time Warner fell more than -1% and looks perilously close to falling down to long term lows. Support is near $86, a break below could take TWX down to $80 or $75 in the next few weeks.
Urban Outfitters reported after the bell and beat on the top and bottom lines. The hip retailer of urban survival gear reported revenue grew 3.5% YOY with EPS roughly 25% better than expected. The gains are driven by a 1% increase in comp store sales and an 8.7% increase in wholesale revenue. Ex-hurricane impact net comparable sales are up 2% and a company record. Shares of the stock gained more than 5% in after hours trading.
The VIX is falling fast after spiking in the last week. This spike came in tandem with a test of support during OPEX week that was driven by earnings cycle rotation, economic data and geopolitical issues. The index is now retreating from that peak and has fallen below both moving averages. The indicators have rolled over in line with the prevailing trend and are consistent with lower fear levels. Based on all this it looks like the minor dip to support we saw in the SPX may be all we get for now.
The indices tried to push lower in the premarket but the bulls wouldn't have it. They kept prices hovering at break even and to the positive side of break even all day through the open session. Price action was not strong but it is consistent with ongoing consolidation efforts within the market. The day's leader is the Dow Jones Transportation Average with a gain of 0.40%. The transports created a small green bodied candle to the side of Friday's candle and sitting on the long term moving average. Today's action also close above support at a previous all time high and a long term up trend line. The indicators remain weak but are rolling over and consistent with support at this level. A bounce from here would be bullish and confirm the long term trend.
The Dow Jones Industrial Average made the second largest gain in today's session, 0.30%. The blue chips created a small green bodied candle to the side of Friday's candle and well within the near term consolidation range. The indicators remain weak but are showing signs of support at this level, a move up from which would be bullish and trend following. Resistance is at the current all time high, a move above there could go to 24,000.
The S&P 500 comes in third with a gain of 0.11%. The broad market created a small bodied green candle to the side of Friday's candle and within the near term consolidation range. The indicators remain weak but do show signs of support at this level and are consistent with consolidation within this range. A continued move higher would be bullish but face resistance at the current all time high. A break above there would be bullish with target at 2,660 in the near term.
The NASDAQ Composite brings up the rear with a gain of 0.11%. The tech heavy index created a small doji like spinning top candle just below the current all time high and to the side of Friday's candle. Price action is at the top of a near term consolidation range and looks bullish. The indicators are still a bit weak but showing signs of support at this level, consistent with last week's bounce from the short term moving average. The current bounce is trend following and bullish but faces resistance at the all time high. A break to new all time highs would confirm upward continuation with a near term target at 7,000.
This week is going to be a full one with Thanksgiving in the mix. This means a holiday shortened week on top of all the market has to contend with. The good news is that price action in the broad market remains bullish and the VIX suggests whatever correction was due to come has come and gone. That being said there is still reason to be careful, it's a long time until the next earnings cycle. Between then and now is Black Friday, Cyber Monday, the entire holiday season, a round of central bank meetings, myriad data points and a lot of politics. I remain bullish for the near and long term.
Until then, remember the trend!