Market Analysis – What’s the Market’s Next Move?

It seems that every day the market brings a familiar sector to the forefront. Yesterday it was energy again, picking up where financials and technology left off the day before. It may be a limited type of rotation, but it seems to be working as the Dow Jones Industrial average (DJI) rises to new heights.

Yesterday stocks bounced back and forth between lower and slightly lower until just before the close when higher crude oil prices drove up oil and gas equipment, drillers and refiners with a rush of buyers. Refiners were up 8%, oil and gas equipment rose 3.4%, and oil and gas drillers gained 3.2%.

And the heavy buying in energy stocks drove the rest of the market forward, closing the indices near the highs of the day.

Economic data had a big part in yesterday’s trading. The New York Fed Empire State Manufacturing Index for October came in at 34.57, topping the expectation of just 17.25 versus the index for October, which was 11.5. This was the third straight increase, something that hasn’t happened in almost two years.

At the close, the Dow was up 47 points to 10,063, the S&P 500 (SPX) rose 5 points to 1,097, and the Nasdaq (NASD) gained a point to close at 2,173.

The NYSE traded 1.4 billion shares with advancers over decliners by a slim margin. The Nasdaq traded 682 million shares, but decliners there were ahead by almost 3-to-2.

Crude oil futures had a big day with the November contract rising $2.40 to $77.58 a barrel after a sharp drop in U.S. gasoline stocks.

December gold fell victim to profit-taking yesterday, with the December delivery falling $14.10 and closing at $1,050.0 an ounce. The PHLX Gold/Silver Index (XAU) closed at $175.96, off $3.28.

What the Markets Are Saying

As the market closes in on the bearish resistance line at just under S&P 500 1,120, it is a good idea to take a backward look at the price movement of charts, which show the current trend lines.

The bull channel that I talk about every day began forming on April 28 at 855, and since then established five points of support with just one violation — the sell-off from June 16 to July 8, during which prices hit the 200-day moving average for the last time.

As a result of the back-and-forth trading with prices confined in a narrow and orderly trading channel, investors were able to anticipate with an amazing degree of accuracy (for stocks) the trading zones in which to buy and sell. These zones are now so well established that any violation of them would be highly unlikely without a complete reversal in trend.

I estimate that we are now within a day or two of making a minor top at around 1,100 and could even run to the market’s intermediate target of 1,120. After reaching that target, look for a reversal to the first zone of support, starting at 1,070, which is the approximate high of the last resistance point made in September. And under that, the final support at 980 to 1,010, which, if broken, could be crushing, taking prices down to the 200-day moving average at 908.

I mention the zones not because I think that they will be met, but to illustrate how deep the overall support for the current run-up in prices really is. This sort of predictability and orderliness usually means that heavy buying is moving stocks forward and upward, and that the overall advance could go on to target 1,245 with the same degree of high resolve.

Today’s Trading Landscape

Earnings to be reported include: A.O. Smith Corp, AMCOL International Corp., Asia Cement Corp., Bank of Marin Bancorp, First Horizon National Corp., Genuine Parts Co., Halliburton, Heritage Oaks Bancorp, Mattel, Prosperity BancShares and Sensient Technologies Corp.

Economic reports due: Treasury international capital flows, industrial production (the consensus expects 0.2%), and Reuters/University of Michigan consumer confidence (the consensus expects 74).

Late news: Bank of America (BAC) reported Q3 earnings of 26 cents versus an estimated 21 cents. General Electric (GE) reported 23 cents versus an estimated 20 cents. Google (GOOG) reported $5.89 versus an estimated $5.42.

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