Markets Coast Through Another Day

The market spent the day anticipating Apple’s earnings and sorting through the economic data. On both accounts there was some good news and some bad news for all. The economic data rattled some with the Pending Home Sales falling 5.6% in September. The blame of course went to higher interest rates, but there was some blame given to the higher price of homes. Either way the numbers were disappointing and that sent the housing and REITs lower on the news. All fought back to a loss of only 0.5% on the day, but shows how susceptible sectors are to news good or bad.

Other data was okay with the industrial production up 0.6%, better than expectations and utilization was at 78.3% also better than expected. The reality is stagnate economic data, i.e. no growth. There is plenty of more data the balance of the week along with the FOMC meeting concluding on Wednesday.

After-hours Apple posted earnings that were better than expectations, but showed a reduction again for the year-over-year quarter. Margins continue to struggle and the stock was trading lower by 2.1% after-hours at $518. This will have an impact on the indexes tomorrow if the trend hold true after the market opens tomorrow. Facebook announces earnings on Wednesday and there are mixed reviews on how well they will perform.

On a side note, Fidelity is launching it’s suite of sector ETFs for 12 basis points in fees as an entry into the space. This should get interesting since most of the players have been there for some time. The lower fee tactic has been done by Vanguard and Schwab. The competition between firms is heating up and the lower benefits only help investors in the end. I will be watching to see how these compare to the SPDRs and others overall. Remember volume on new funds are not always good for trading. Give them some time to build up volume and assets.

State of the Market:

The S&P 500 index continues to hit new highs closing at 1762.  The near term target remains at 1800 on the index and support is 1730 and 1690. I like the upside going forward as the buyers remain in control relative to sentiment and momentum. Earnings and economic data remain the key short term for the index relative to direction. The downside risk is a possibility near term and if investors turn and run it could get ugly quickly.

The NASDAQ hit a new high again at 3943 last week and closed down today at 3940. Apple will not help if the move lower on earnings after-hours today holds into tomorrows trading day. The NASDAQ 100 weighting to Apple is greater and it will present even more problems for the index. Adjust your stops any QQQ positions accordingly.

The Dow remains the laggard, but has been attempting to make a run for the previous highs. The closing at 15,568 keeps the trend to the upside, but near the resistance of the previous high. Merck was the big drag on the index today down 2.6%. Coke (KO) move to the 200 DMA and is attempting to break the downtrend going back to the May highs. Worth watching for a positive upside play if it breaks higher. Wal-Mart completed a double-bottom break higher today and a confirmation of the move would provide some upside catalyst to the Dow.

The Small Cap stocks continue to trade in an uptrend near the current high. The last seven trading days have been testing the new high and looking for a catalyst to move the index higher. Watching for some leadership if we are going to continue higher short term.

Chart to Watch: 

The chart today goes to Facebook, not because of any big moves today, but because they will announce earnings on Wednesday and all eyes will be fixated on how they perform relative earnings. The technical indicators are turning negative on the stock as profit taking hits the tape (my view). With the stock being up 100% over the last four months it would make sense in the face of uncertainty about earnings and the stock price. The break lower today puts the uptrend line in jeopardy of being broke the break of near term support  at the $51.25 mark was a negative, and the higher volume selling on the day was another negative. It is almost setting up as a not news will be good enough situation for the stock. Patience as this plays out is the best course of action along with hedging the position.


Other Moves of Interest:

Consumer Staples (XLP) was up 1.3% on the day. This is a continuation of the uptrend move and a breakout to a new higher. Since hitting the high in May the sector has been in a well defined trading range and the move above $42 is a solid breakout for the sector. HSY, AVP CCE and LO all contributed to the move higher on the day.

Netflix (NFLX) – On Thursday we posted the reversal on earnings for the stock and the potential for a test of the 50 DMA. Today the close at $314, down 4.2%, put the test well on its way. Key support for the stock is near the $300 level short term.

Amazon (AMZN) – held the gap higher from earnings on Friday. The inside day offers some hope of the upside continuing following some digestion. If there is a shift in sentiment the gap would be the area to watch on the downside.

What to Watch Tomorrow:
Reaction to Apple, will it be a catalyst on the downside for the broad indexes? Economic data continues with PPI, Retail sales, home pricing index, consumer confidence and business inventories. These will set the tone along with earnings. Remember, be discipline, set your stops and manage your risk in the current market environment.