The week in the Market
The Intel numbers were not bad at all, but they were expected what with TXN’s update, the upgrade of global chip sales to 6% from flat, NSM’s excellent earnings, and notebook sales surging. When Intel was unable to add any additional spice to the sauce many decided to take some of the money off the table. It didn’t hurt that it was the weekend and a tropical storm was heading through the Gulf. The hedge funds would rather get squared up some and not be at risk for any surprises.
The Intel news set the tone for the session and the lower than expected trade balance figures and declining oil (in the face of the tropical storm) could not bring stocks around. Even with the drag from chips and tech stocks in general, however, it was a solid session. Volume fell way off pace as the major indices tapped at the 18 day EMA once more and bounced slightly to post modest losses (DJ30 managed a 0.1% gain). Another dip to the 18 day EMA and another bounce, this one much more modest than Thursday. Still, it had the desired effect, i.e. shaking out some more sellers and further setting up the next move higher. The lower volume selling Wednesday and Friday following the Tuesday reversal and the Thursday upside on rising volume is good, orderly consolidation. It weeds out the sellers as it dips lower while the low volume shows us that while the sellers were in the majority (the indices other than DJ30 finished lower) there was no heavy selling.
After a good move higher just as on NASDAQ, this is the action that sets up the continuation of the move. The same thing occurred in 2004 after that initial 4 to 5 week move off of the August low: a lower volume more or less lateral and lower 2 week move that gave way to a higher volume burst to the upside to continue the rally. Another 2.5 week rest in the October earnings season and it was then back to the races through the end of the year. You see this type of positive action over and over in winning moves. Outside of the Tuesday intraday reversal this has been great action. The fact that the market was able to recover from that reversal, hold its ground and continue the more orderly pullback is a further sign of strength here.
The added spice is the Fed and oil. Maybe not really added; the Fed was active in 2004 and oil prices were not exactly cooling off. At the time, however, the market was building in expectations the Fed was getting close to the end of hiking and oil might have been peaking. That proved incorrect, the market sold, and stocks had to start building back up once more. The Fed says it is not done and oil moved right back up after a dip to the mid-forties; both are still lurking out there. The current market, action, however, appears to be pricing in just a couple more hikes by the Fed. Certainly the Fed Funds Futures contract is showing just two hikes for certain. The market is good at sniffing out the end of a rate hike campaign, but it is not foolproof. Thus we keep watching the price/volume action and leading stocks. For now they are looking solid, showing constructive action that is setting up the next move.
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