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Weekly Stock Gains, Key Chart Tests in Sight as Fed, Earnings Loom

Print
October 9, 2015

U.S. stocks could get a boost from upbeat global sentiment, although the prospects for uncertain Federal Reserve interest rate policy, and a potentially sketchy earnings season after Alcoa (AA) warned about China, could keep a lid on gains. Some traders could turn a touch defensive in the final day of what’s been a strong week for the major U.S. averages.

Asian stock markets finished in the green on Friday. European stock averages are positioning for their strongest weekly performance since late January, boosted by a broad-market belief that officials will keep monetary policy there loose and commodities price improvement. Gold is up some $12 an ounce as metals roundly gained in Friday trading. Oil futures pushed past $50 a barrel. The dollar dropped.

In Thursday trading, the Dow Jones Industrial Average ($DJI) ended above 17,000 for the first time since August (figure 1). The S&P 500 (SPX) cleared 1,995—its 50-day moving average—on its way through the psychologically significant 2,000 line. Looming resistance at 2020 could prove to be a tougher test. SPX is on track for a gain of 3% this week.

Dow-Jones-stock-average

FIGURE 1: 17K MILESTONE.

The blue-chip Dow Jones Industrial Average ($DJI) charted on the new-look thinkorswim® platform recorded a triple-digit gain to clear 17,000 in Thursday’s broad advance. It was a fifth straight session for gains and the first time above this line since August. Data source: Dow Jones Indices. For illustrative purposes only. Past performance does not guarantee future results.

Fed is Watching the World Turn. The Federal Reserve’s September meeting minutes issued on Thursday revealed a panel of policy makers that remains concerned about the impact of the global economic slowdown. The minutes also said policy makers didn't expect to reach a 2% U.S. inflation target before the end of 2018. To many economists that read as wiggle room for a rate move. New York Fed President William Dudley is due to speak to CNBC today at 11:00 a.m. ET. Separately, the Atlanta Fed's Dennis Lockhart and the Chicago Fed's Charles Evans are scheduled to speak. As bond markets assess interest rate moves, the yield on the benchmark 10-year Treasury note sat lower on Friday, at around 2.09% after closing at 2.108% on Thursday.

Alcoa Downgrades China Outlook. Alcoa (AA) is an early decliner on Friday. Its post-close Thursday earnings reports missed Wall Street expectations for both earnings and revenue. But traders may care even more about management’s comments on China. The aluminum producer slashed its production outlook for the country for cars, trucks, and construction. Alcoa said it now expects 2015 automotive production growth in China to be in the range of 1%-2%, down from a previous outlook of 5%-8% growth. Heavy duty truck and trailer production is now expected to drop 22%-24%, compared with a previous estimate for a 14%-16% decline. Commercial building and construction sales are expected to increase 4%-6%, down from its previous growth forecast of 6%-8%. The company reported adjusted Q3 earnings per share of $0.07 on revenue of $5.57 billion. The Thomson Reuters analyst survey called for $0.14 a share on revenue of $5.69 billion.

Oil Tops $50. U.S.-traded crude oil futures pushed past a key psychological level of $50 a barrel and are on track to record a gain of nearly 9% for the week. Industry analysts pin price support on recent OPEC talk for collaborating to tackle the global supply overhang and expectations of shrinking U.S. production. Prices were also seen getting a short-term boost as distribution concerns arose from Russia's military operations in Syria. Crude futures were trading up some 2.5% early Friday, to $50.64 a barrel, the highest since the third week of July.

Good trading,
JJ
@TDAJJKinahan

NC
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