The market held steady near Friday's close as traders wait on data and testimony from Janet Yellen. Today's action is not surprising coming out a holiday weekend and with so much for the market to be wary of. There is not an overwhelming amount of data but what there is carries some weight. These include today's New Homes Sales, Q3 GDP revision and the all important PCE Price Index. Then there are several members of the FOMC set to speak. These include Janet Yellen on Wednesday in a regularly scheduled report to congress.
International indices were a bit negative but losses were, for the most part, limited. In Asia South Korea led with a decline of -1.44% on weakness in the tech sector. Chinese markets were also a bit weaker than most others as officials reduce tariffs on nearly 200 consumer items. European markets were more uniformly lower with declines in the range of -0.5%. The region was hit by weakness in tech and financials offset by renewed hopes Angela Merkel could form a coalition government.
Futures trading was wishy washy throughout the early hours. The indices were indicated to open near break even with prices meandering above and below the flat line going into the opening bell. The open was flat with a slight push into positive territory for most indices setting new all time intraday highs. The rest of the day saw them trend sideways around break even level and closing the day with little to no movement.
Only 1 economic release today, New Homes Sales. New Home Sales came in above expectations with a 6.2% gain over the previous month. The previous month was revised lower but not enough to overcome this month's strength. The October gains put sales up 18.7% over last year and at a new 10 year high. Sales are being driven by low inventory in existing homes but there is a problem, inventory is low in new home sales too.
Moody's Survey Of Business Confidence jumped 2.6 to hit 34.8 and a 5 month high. Mr. Zandi warns that the results may be skewed by last week's holiday but responses to survey questions are generally good nonetheless. We'll have to wait until next week to see if sentiment is able to hold up, today's preliminary results for Cyber Monday may help support it. Early reports had sales up 17% over last year with strength expected in the afternoon and evening.
The third quarter earnings cycle is all but done with 98% of reports logged. Of those 76% beat bottom line estimates and 66% beat on the top, both above average. A total of 8 sectors are showing growth with 8 also reporting better than expected by analysts. These results are more or less what was expected by traders although down from the previous quarter.
The good news is that forward growth remains positive despite some declines in the estimates. Next quarter earning growth estimate has declined the most falling to a mere 10.0% from highs near 14% earlier in the year. If trends hold true we can expect to see this number continue to decline into the start of the reporting season. Looking to next year Q1 and Q2 estimates ticked up in the last week and have been trending sideways over the past 3 months. Full year 2017 and 2018 estimates both held steady in the last week at 9.5% and 11.1% respectively.
The Dollar Index
The Dollar Index gained marginally in today's trade, moving up from Friday's 1 month low to create a small doji in the middle of a near term trading range. The index is trapped within the range and winding up on data ahead of an upcoming round of central bank meetings. This week could see it continue to move within this range as central bankers in the US tell us what's on their minds. This, along with the PCE, is likely to drive markets but not to the point of breaking out. Resistance is near the recently broken $93.25 level, support target is near $91.35.
The Gold Index
Gold prices edged higher to test resistance at the $1,300 level and that resistance was present. The move is however weak and inconclusive, a first foray in a greater attempt to move higher most likely. The move is driven by a weakening dollar and may continue into the near term. While US data and FOMC expectations are strengthening the dollar signs of economic improvement are appearing in other currencies as well, undermining dollar gains and boosting gold. How high this goes is yet to be seen, this week could send the metal moving but I'd expect it to remain range bound until the CB meetings next month. Resistance remains at $1,300, $1,280 looks like firm for support in the near term.
The Gold Miners ETF GDX gained close to 1% on today's move in gold but it was capped by the long term moving average. Today's move sets a one month high that is supported by the indicators. Both MACD and stochastic support the idea of higher prices if neither are strong or suggestive of a trending market. Resistance is the moving average, near $23, a break of which would be bullish with upside target of $24. A failure to break would leave the ETF range bound with support near $23.50.
The Oil Index
Oil prices fell a little more than -1.71% on OPEC fears. The semi-annual meeting is being held this week and now, amid firm belief the cartel would extend its production cap, there are rumors Russia will back out. If this happens, or any negative unexpected news, and the market is flooded with oil we could see prices back in the low $40's or high $30's real quick. That being said no nation involved with the cut can afford lower prices so I doubt the rumor will pan out. Looking to the fundamentals supply, production and capacity remain high and well able to provide for world needs. When that changes oil prices will move up and stay up. In the nearer term I expect we'll hit a top sooner or later, we might be seeing one now.
The Oil Index fell a little more than -1% in today's action. The index moved down from Friday's peak and created a medium sized red candle sitting on the short term moving average. Price action looks bearish and could take the index lower but it will have to break through the 1,230 level which is emerging as a potentially strong support level. The indicators are mixed but consistent with support at current levels, support that may be tested again. A break below 1,230 would be bearish and could take the index down to 1,200. A bounce would be bullish with target near the recent high. I remain bullish on the sector long term due to forward earnings outlook but wary ahead of the OPEC meeting. Even if they do what the market expects it may not be enough to hold oil prices up and that could drag the index down in the near term.
In The News, Story Stocks and Earnings
Amazon hit a new all time high as data shows that retail sales are shifting to on-line, shocking as that sounds. Shares of the stock jumped in the early morning session, gapping up at the open, and set the high above $1,200. The down side is the highs were not held and the stock formed a small shooting star candle. This candle is not likely indicative of reversal or even a pull back but it could cap gains into the near term. The indicators are bullish but showing significant divergences that may indicate an underlying weakness and the possibility of consolidation/correction.
Wal-Mart has emerged as perhaps the only company able to challenge Amazon for on-line marketshare. The company just reported digital sales up 50% in the last quarter on its efforts to match Amazon's scope and pricing. A report today shows Wal-Mart prices are just 0.03% higher than Amazon's, one of the reasons it is able to compete. Shares of the stock barely budged on Cyber Monday hooplah but that may be a good thing. The stock gapped up on the last earnings report and is now in consolidation at new all time highs.
The VIX gained a fraction in today's action but is indicated lower. The fear index created a small red candle testing resistance at the $10 level and looks set to retest Friday's lows. The indicators are both bearish and pointing lower in support of such a move. This move is consistent with current bull market conditions, the recent push to all time highs and a continuation of those same trends.
The indices all flirted with positive moves today but only one was able to close with gains, the Dow Jones Industrial Average. The blue chips posted a gain of 0.09% and created a small spinning top doji to the side of Friday's candle. Price action set a new all time high if barely but also looks like it will continue to move higher. The indicators are mixed but consistent with a bullish shift in momentum and a trend following move higher. A break to new highs would be bullish with target near 24,000. A fall from this level could be bearish but likely to find support at the short term moving average.
The Dow Jones Transportation Average posted the largest decline, -0.25%. The transports created a small red bodied candle moving down from Friday's test of resistance but confirming support along the long term up trend line. The indicators remain bullish and pointing higher, suggesting higher prices, making today's price action look like a prime entry for bullish positions. The only caveat is the short term moving average which is acting as resistance, a break above that would be bullish.
The NASDAQ Composite posted the second largest decline, -0.15%. The tech heavy index created a small red spinning top to the side of Friday's candle and set a new all time high while doing so. This action may be bearish in the near term but not indicative of any kind of large move just yet. The indicators remain bullish and consistent with new highs so it is more likely today is merely a day of consolidation. A fall from here may go as low as 6,800 or just below to the short term moving average. A move up would be bullish and trend following with target near 7,000.
The S&P 500 posted the smallest decline, only -0.03%. The broad market index created a small spinning top doji to the side of Friday's doji and set a new all time high while doing so. The indicators are both bullish, MACD having formed a crossover today, and support higher prices although the signal is still weak. A firm move higher would be bullish and trend following with upside target near 2,660. A fall from this level could be bearish but likely to find support at the short term moving average.
Today's action was OK despite the obvious lack of movement. It helps by giving the market a day to consolidate and gives no sign of traders fleeing the market. This action could continue tomorrow as there is little to move the market but starting on Wednesday things could start changing. Early in the morning is the first revision to 3rd quarter GDP along with Yellen's testimony, later in the day is the Fed's Beige Book and the latest read on national economic progress. I remain firmly bullish for the long term, I see no place for the market to go but up. In the nearer term I am also bullish but a little wary of correction with so much news inducing material on the schedule.
Until then, remember the trend!