China, Better Earnings Push Up Markets

Earnings: a bit better day. Of 10 companies that reported this morning I looked at, five upped their outlook: Boeing, Kimberly-Clark, Lockheed Martin, Northrop Grumman, and Wyndham Worldwide . The bad news: six of the 10 reported revenues lighter than expected, continuing the main trend of the earnings season.

Choppy, choppy...another day with no follow through from the prior day. Futures up all night after the big down day yesterday. It's like every day we wake up and there is no memory of the prior days.

There is a reason for the move: futures started moving up late last night after Chinese PMI came out higher than expected, again reviving the debate about whether China has bottomed.

A down day on Friday (down 1.5 percent), then a down day on Monday that ended with a big rally at the close, then a down day yesterday that ended ... just the way it started.

The only consistency: the market disappoints the greatest number of participants. Monday's last-hour rally killed everyone who had paid for protection (this is called "stripping the puts"), and Tuesday's down day killed everyone who had gone long on Monday ("stripping the calls").

Oh, one other thing has been consistent: no volume. The complaint used to be that volume was anemic, except on days when the market was down big. Nowadays, volume is anemic even on days when the market is down ... big. Consolidated NYSE volume (all trading in all NYSE-listed shares) on Friday and Tuesday, for example, when the Dow was down 1.5 percent and 1.8 percent respectively, was about 3.7 billion shares. Average volume this year is 3.5 billion.

That's not a good sign: one of the classic tenets of technical analysis is that a pickup in volume is an important sign of a short-term bottom or top. No sign of that, but it may be the old volume rules simply don't work any more in a market where roughly 60 percent of the volume is high frequency trading.

For the past two months, we have done 3.4 to 3.7 billion shares every day, with the exception of 3 days in September when it briefly popped over 4 billion. The market bottom in June was on low volume; though volume was above normal during the recent top in September.


1) Hedge funds STILL lagging: bullish for the end of the year? Hedge fund research firm HFR, quoted in the WSJ this morning, noted that the average hedge fund is 4.7 percent through September, while stock trading funds were up 5.5 percent. the S&P 500 is up 14 percent.

2) While the FOMC will dominate today, most traders believe the Q3 advance look at GDP on Friday will be the big number of the week. Consensus is for growth of 1.8 percent year over year. The recovery has certainly been disappointing: since GDP went positive in Q3 2009, there are only two quarters when growth has been north of 2.6 percent: Q4 2009 (4.0 percent) and Q4 2011 (4.1 percent).

3) Job cuts continue: Dow Chemical is cutting 5 percent of its workforce, about 2,400 jobs, and closing 20 manufacturing facilities. Northrop Grumman also planning to cut 350 positions. Yesterday, Dupont said it was cutting 1,500 jobs.

—By CNBC's Bob Pisani

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