Stock Market Takes Time For Breather | Tuesday, October 13

Equity markets have spent the last 2 trading sessions consolidating sharp gains from the prior 2 weeks.

After one of the best weeks for stocks this year, investors are faced with the dual hurdle of the first significant resistance level since the late August stock market correction as well as being on the doorstep of a challenging Q3 earnings season.

The NASDAQ and Russell 2000 are right at their 50 day moving averages.  The S&P 500 is struggling to get through the September 17 intraday highs of 2020.  The DJIA has a streak of 10 straight days of gains while the S&P 500 has logged gains all but 1 of those days.

Stock Market Takes Time For Breather | Tuesday, October 13

Market Breadth has been very positive, and our favorite Last Hour Indicator has been consistently constructive.

Stock even held their own Monday despite Crude trading down 5%.  For months stocks were trading lock step with Crude day to day and often hour to hour.  Crude oil rallied nearly 9% last week, bringing the NYMEX contract teasingly close to the $50 midpoint of the range on the year.

Most industrial commodities enjoyed relief a rally after the “quiet capitulation” that had many at multi year lows toward the end of Q3.

Crude Oil never made a serious charge at the $50 level on Monday.  Stocks enjoyed plenty of help from technical considerations during their sharp rally to start the Fourth Quarter.   Now, there are plenty of headwinds for equity investors the next 2 weeks.

If other commodities follow crude’s retracement of last week’s gains, it’s very likely stocks will do the same.  

Stock Market Takes Time For Breather | Tuesday, October 13

Q3 earnings reports season will get into full swing today.   JNJ has reported mixed results this morning.  Following a disturbing trend from Q2 and Q3 earnings overall, JNJ came in light on revenues.   JPM, INTC, and CSX after the 4:00 PM close.

All four have Blue Chip status and comments from each on the outlook for business in their sectors should get plenty of focus from investors .   One of the great mysteries early in the earnings season is why JPM has moved their earnings report from a Pre opening event to an after the close release.

I certainly hope someone asks the question during the conference call.

As we move through the week expect the barrage of earnings reports to shift some focus from the macro to individual corporate results.  Of  course guidance going into 2016 will also be critical.

While expectations for Q3 earnings have been tapped down quite a bit,  the big hurdle remains halting the trend of the last 2 quarters where many reports came in light on revenues, but were still able to “manage” a beat on bottom line EPS.   On this issue JNJ did not get us off on the right foot.

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