31 Jan 2013 AMC

31 Jan 2013

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Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Stock Market Update 16:15 ET Dow -49.84 at 13860.58, Nasdaq -0.18 at 3142.13, S&P -3.85 at 1498.11 : [BRIEFING.COM] The major averages saw little change during the last session of the month. The S&P 500 shed 0.2%, while Nasdaq outperformed and ended flat. Mixed trade unfolded amid economic data which was largely in-line with expectations. Weekly initial claims were reported at 368,000 (Briefing.com consensus 345,000), which supports the notion that the lower readings over the prior two weeks were primarily the result of seasonal adjustment problems. Today's number drives initial claims right back to the 350,000-400,000 range where they have been bounded for most of the last year. Elsewhere, the personal income report stood out as the December increase of 2.6% was well ahead of the 0.7% rise expected by the Briefing.com consensus. However, the notable rise in personal income was due to a surge in personal income on assets as investors chose to lock in a lower capital gains tax rate ahead of the New Year. The fourth quarter Employment Cost Index increased by 0.5%, in-line with the Briefing.com consensus. The day's final economic report saw the January Chicago PMI climb to 55.6. The reading surprised to the upside as economists surveyed by Briefing.com had generally expected the index to come in at 50.5. In addition to economic data, investors received several notable earnings reports.Ryder System (R 56.78, +2.52), MasterCard (MA 518.40, +2.40), and Qualcomm(QCOM 66.02, +2.49) gained between 0.5% and 4.6% after beating on earnings. On the downside, ConocoPhillips (COP 58.00, -3.09), Dow Chemical (DOW 32.20, -2.41), and UPS (UPS 79.29, -1.94) fell short of expectations. With January now in the books, we would like to recap the first month of 2013. Month in Review: Equities Soar as Full Force of 'Fiscal Cliff' Averted Responding favorably to the Congressional compromise on tax rates, the S&P 500 jumped 2.8% in the first week of 2013 and rarely looked back. Despite some mixed economic and earnings news along the way, the S&P 500 closed with a gain in 13 out of 21 sessions and ended January at 1498.27 its best level since December 2007. The Dow Jones Industrial Average for its part surged 5.8% and recorded its best January since 1989. Economic Data Paints Bleak January Picture The bulk of economic data reported during the month beat the Briefing.com consensus. However, data reported for the month of January often came up short. Of the seven January reports, five fell short of expectations. The Empire Manufacturing Index, NAHB Housing Index, Philadelphia Fed Survey, Michigan Sentiment, and Consumer Confidence reports all missed expectations. Meanwhile, the ADP Employment Change and Chicago PMI surprised to the upside. The advance fourth quarter GDP reading was a headline disappointment, as a 0.1% contraction was recorded for the final quarter of 2012. However, the report was not as weak as it appeared. The biggest drag on quarterly growth came in the form of a 6.6% decrease in government spending. This was largely due to a 22.2% decline in defense spending which followed a 12.9% increase during the third quarter. The change in private inventories also subtracted 1.27 percentage points from the change in real GDP. Personal consumption expenditures, which constitute more than 70% of GDP, rose 2.2%, which was the largest increase since the first quarter of 2012. Business investment rose 12.4%, which was the largest uptick since the third quarter of 2011. Mixed Earnings Unable to Derail Rally The second half of the month saw the start of the fourth quarter earnings season. Most companies have beaten on the bottom line per usual, hurdling estimates that had been lowered in many cases by analysts ahead of the reports. Revenue growth is still weak, but similar to earnings, most companies have exceeded depressed top line growth estimates. Cautious guidance has been a common theme as many companies see headwinds in the first half of the year, although the default opinion is that the second half of the year should look better. Transports, Energy, Health Care, and Discretionary Stocks Paced the Gains The Dow Jones Transportation Average gained 9.4% as truckers and railroads joined the rally enjoyed by airlines since mid-November. Energy stocks also displayed relative strength and the SPDR Energy Select Sector ETF (XLE) advanced 8.3%. This was largely supported by a 6.2% rise in the price of crude oil. The energy component ended the month just a shade under $98. The Health Care sector has been a standout, trailing behind only energy in the sector rankings on a year-to-date basis (+7.4%). The discretionary sector has also been among the top performers in the S&P 500. Homebuilders continued their strength from 2012. The SPDR S&P Homebuilders ETF (XHB) ended January with a gain of 8.3%. Many builders reported strong fourth quarter earnings, replete with reports of strong backlogs and order trends. Technology Lagged as Apple Weighed The tech-heavy Nasdaq underperformed the remaining major indices as Apple(AAPL), which is the single largest index component, continued displaying weakness. Shares of Apple sold off through the first half of the month before pausing near the $500 level. A disappointing January 23 earnings report caused the stock to lose more than 10%. The company fell short of revenue expectations and issued downside guidance. The largest tech stock ended the month down 14.4%, at levels last seen in February 2002. Excluding Apple, the technology sector fared relatively well. Semiconductors outperformed despite a rash of disappointing earnings reports and outlooks. The PHLX Semiconductor Index climbed 7.7%. Defensive Stocks Bid into Second Half During the second half of the month, defensive-oriented sectors started to attract increased buying interest. Telecoms (+1.8%) and utilities (+4.5%) registered the bulk of their gains during the second half of the month after the broader market had already seen the majority of its rise. Health care stocks enjoyed strength throughout the month as upbeat earnings supported the space. Headwinds Remain as S&P 500 Nears Uncharted Territory As the S&P 500 hovers just 4.3% below its all-time high, challenges remain visible. A notable drop in consumer confidence occurred as the initial impact of the payroll tax cut expiration was felt by income earners. Sequester cuts are scheduled to go into effect in March, with the brunt of the impact to be absorbed by the defense sector. The debt ceiling issue has only been deferred rather than fixed. Japan's bold bid to weaken its currency and to inflate its economy is raising the risk of currency wars as other countries aim to support their exporters. Geopolitical issues are simmering, with conflicts in the Middle East starting to make headline waves (eg. Egypt, Israel/Syria/Iran) and North Korea toying with nuclear tests. Rising interest rates threaten to slow the housing recovery. Bullish sentiment, which is a contrarian indicator, is picking up noticeably. ..NYSE Adv/Dec 1557/1421. ..NASDAQ Adv/Dec 1525/946.

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Jason's Commentaries

It was more of a flat day than a down day yesterday. Unemployment claims came in slightly under expectation which caused a slight drag on the market yesterday. Nasdaq was up because there was slight bounce in Apple's shares. Overall, it more like a down day. Furthermore, most of the sectors were down except for Tech and Utilities. However, looking at the internals, over 900 mil shares traded over in the NYSE yesterday, with the bulls and bears equal in strength, I reckon the deciding factor will be the non-farm payrolls tonight. The ISM report will like have little effect on the market. Since the GDP report shows contraction in the economy, it was largely due to the decrease in government spendings. As for the public spending, it has actually increased. Therefore the economy is likely to be on a recovery phase. The FOMC statements states that asset purchase program will continue at $85B a month until further notice. If anything in all, January has been a bullish month and based on the January Barometer, we're likely to end higher 2013.

Looking at the technicals, we're currently at the 3rd candle reversal and we might just consolidate for the rest of Feb in a sideways and volatile fashion. With Gold and Silver plummet yesterday and Curde Oil holding its high at $97 range, we're likely to see $100 soon. 

Market Call: FLAT to downside

Date: 1 Feb 2013