Consolidation Monday was the theme of the day as the market spent the day holding on to gains and dealing with the move higher over the last couple of week. With the major indexes holding new highs and hanging onto the breakaway gaps from Friday all is well for now.
The existing home sales were disappointing with a drop of 1.9% in September. The price of homes however, rose 11.7% year-over-year to $199,200. The report also showed a five month supply of inventory based on the current sales. XHB fell 0.5% on the day and ITB was off 1.5% as the sales were disappointing. New home sales will be announced on Thursday. As we discussed in the weekend update, there is plenty of economic data out this week. The jobs report for September is due tomorrow following the government shutdown. 185,000 new jobs are expected from the report.
This will be the peak week for earnings and they will set the tone going forward. Netflix was part of that today jumping 6.4% on the day and more than 9% after-hours on better than forecast earnings. That will impact the NASDAQ tomorrow as well.
State of the Market:
The S&P 500 index moved to a new high last week and held on today closing at 1744. The near term target is 1800 on the index and support is 1730 and 1690. I like the upside going forward assuming the earnings and economic data hold up. Held the breakaway gap on the upside from Friday.
The NASDAQ hit a new high again at 3920 and followed through on the breakaway gap from Friday. Earnings from Google and now Netflix will only help the upside move. The NASDAQ 100 index followed suit as the large cap stocks regain their upside leadership on earnings. Watching to see if this holds going forward, but for now it is helping our plays on the index. The leadership remains.
The Dow remains the laggard and continues to trade in a sideways direction. Not a fan of the index as earnings from IBM and others have not helped the cause. GE has helped, but this is an uphill battle currently. I am willing to wait and see before committing any capital to the index.
The Small Cap stocks continue to provide solid leadership much like the NASDAQ. The did test slightly on the day and we will watch to see how it plays out moving forward.
Chart to Watch:
The chart below is Apple and we are bringing it back as the move on the upside was solidified today. This was one of our pattern trades recently and it continues to move higher. Technically the break above $489 was the entry and it has been methodically moving higher bucking against the negative talk and sentiment towards the stock. As you can see the clear move today above the 508 level was another entry signal for the stock. Fundamentally there remains concerns about margins and sales looking forward. The next earnings announcement is 10/28 and we will see how it trades into earnings. Upside remains in play and the outlook positive.
Sectors to Watch:
All of them is my response currently. The financials, telecom technology, basic materials, industrials and utilities are looking sound on the move higher. Digging into the sectors we find plenty to like in the sub=sectors of each of these leaders short term. The key is to take what the market gives one day at a time. The global markets continue to follow the leaders on the upside, commodities are mixed and bond yields are rising again hurting the price of the bonds. Watch and manage your risk accordingly.
What to Watch Tomorrow:
More earnings on tap and we will see how much they move the value of stocks. We are still likely to see some selling at some point moving forward, but until it shows the impact we will have to go with the flow/trend. Set your stops and trade your plan. Don’t get caught up in the euphoria of the speculation and keep your stops in place. There is a long way to go and plenty of argument left to take place.