25 July 2013 AMC

25 July 2013 AMC

Market Summary 

Market Internals

The Nasdaq closed up 26 (+0.71%) at 3605, the S&P 500 closed up 4 (+0.26%) at 1690, and the Dow closed up 13 (+0.09%) at 15556. Action came on mixed volume (NYSE 681 mln vs. avg. of 778; NASDAQ 2031 mln vs. avg. of 1669), with advancers outpacing decliners (NYSE 1751/1319, NASDAQ 1650/842) and new highs outpacing new lows (NYSE 163/112, NASDAQ 230/19).

Relative Strength: 
Social Media-SOCL +4.94%, Internet Composite-FDN +2.65%, Spain-EWP +2.49%, Biotechnology-XBI +2.34%, Cloud Computing-SKYY +2.33%, Coffee-JO +2.23%, New Zealand-ENZL +1.81%, BRICs-EEB +1.56%, Egypt-EGPT +1.32%, Sweden-EWD +1.24%. 

Relative Weakness: 
U.S. Home Construction-ITB -3.24%, Volatility-VXX -2.51%, Grains-JJG -2.18%, Thailand-THD -2.03%, Japan-EWJ -1.81%, Homebuilders-XHB -1.39%, Natural Gas-UNG -1.37%, Vietnam-VNM -0.95%, Peru-EPU -0.83%, Pacific Index-VPL -0.78%.

Leaders and Laggards

Sector Performance (% change of the day): Materials (+0.94%), Utilities (+0.88%), Energy (+0.52%), Health Care (+0.48%), Consumer Staples (+0.44%), Financials (+0.09%), Consumer Discretionary (+0.08%), Tech (+0.04%), Industrials (0.00%), Telecom (+0.08%).

Technical Updates

Briefing's Commentaries 

Afternoon Rally Helps Stocks Erase Early Losses

Dow +0.1%, S&P 500 +0.3%, Nasdaq +0.7%, Nasdaq 100 +0.7%, S&P 400 +0.4%, Russell 2000 +1.0%

Equities began the session in mixed fashion before an afternoon rally helped lift the S&P 500 into the green. The benchmark index added 0.3% while the Nasdaq outperformed with a gain of 0.7%.

The tech-heavy Nasdaq displayed strength throughout the session after Biogen (BIIB 227.48, +0.87), Facebook (FB 34.36, +7.85), and Qualcomm (QCOM 63.42, +2.03) reported solid quarterly results. The relative strength of Biogen helped the health care sector finish among the leaders, but the outperformance of Facebook and Qualcomm had a limited effect on the technology sector, which ended little changed.

Chipmakers were able to shake off their early losses during afternoon action. The PHLX Semiconductor Index advanced 0.6%.

The afternoon rally was fueled by gains in energy, materials, and utilities. The energy sector climbed 0.5% after displaying weakness yesterday. Meanwhile, crude oil added 0.3% to $105.68 per barrel.

Elsewhere, the materials sector rose 0.9% amid broad strength. Dow Chemical (DOW 34.99, +0.62) settled higher by 1.8% after beating on earnings.

Also of note, the utilities space gained 0.9% after finishing yesterday's session at the bottom of the leaderboard.

While the Nasdaq spent the entire day in the green, the S&P's gains were limited by the underperformance of influential discretionary and industrial sectors.

Discretionary shares ended near their highs, but home builders registered losses across the board. During its earnings conference call, DR Horton's (DHI 19.38, -1.82) Chief Executive Officer commented on the recent run up in rates, saying traffic count has slowed since mortgage rates began to rise. In addition, cancellations rose to 24.0% of all orders from 19.0% reported in the prior period. DR Horton fell 8.6% while the broader iShares Dow Jones US Home Construction ETF (ITB 21.82, -0.73) dropped 3.2%.

The industrial sector was the lone decliner as transportation-related names weighed. The Dow Jones Transportation Average shed 0.1% after being down as much as 1.3% intraday. Alaska Air (ALK 60.37, -0.79) and United Continental (UAL 34.30, -0.67) registered respective losses of 1.3% and 1.9% after reporting earnings. United Continental topped its earnings estimates while Alaska Air reported a bottom-line miss on in-line revenue.

Today's economic data was limited to weekly initial claims and June durable orders.

The initial claims level increased to 343,000 for the week ending July 20 from an upwardly revised 336,000 (from 334,000) for the week ending July 13. The Briefing.com consensus expected the initial claims level to increase to 340,000. Over the past few weeks, the Department of Labor has acknowledged that its seasonal adjustments are failing to correct for layoffs in the auto and education sectors. This has caused unusual volatility in the headline claims level.

Separately, durable goods orders rose 4.2% in June after increasing an upwardly revised 5.2% (from 3.7%) in May. The Briefing.com consensus expected orders to increase 1.8%. The durables report serves as a perfect example of a strong headline number masking significant weakness that is taking effect across almost every sector.

As expected from Boeing's (BA 106.70, -0.25) orders report, transportation orders were strong in June. Orders rose 12.8% as defense and nondefense aircraft orders increased 29.2%. Outside of transportation, however, nearly every durables sector fell in June. Only machinery (+2.4%) and fabricated metals products (+0.1%) showed positive growth.

That left durable goods orders excluding transportation flat for the month after increasing 1.0% in May. The consensus expected these orders to increase 0.3%.

Tomorrow, the final Michigan Consumer Sentiment Survey for July will be released at 9:55 ET. On the earnings front, Aon (AON 67.55, +0.67), LyondellBasell (LYB 68.05, +0.63), and Wipro (WIT 8.24, +0.07) will report their quarterly results before the opening bell.

LOGM +12.6, SBUX +6.3%, GILD +4.7%, EXPE -23.6%, ZNGA -14.0% following earnings/guidance

Equities began the session in mixed fashion before an afternoon rally helped lift the S&P 500 into the green. The benchmark index added 0.3% while the Nasdaq outperformed with a gain of 0.7%.

Today after the close the following companies were scheduled to reported earnings: AIR, GPN, LSCC, AWAY, EW, AWH, BAS, CLF, FFBC, IPCM, MRH, WIRE, ABAX, AMZN, BLDR, BMRN, CB, CBG, CERN, CINF, COLM, CPSI, CRUS, OUTR, CTCT, DECK, DGII, DLB, ECHO, EHTH, ELY, EXPE, FET, FII, FPO, FR, FSL, GB, GFIG, HBHC, HITT, HLS, IMI, INAP, INFA, KBR, KEG, KLAC, LOGM, MCRL, MOH, MSCC, MTX, MXIM, N, NR, NTGR, OLN, PFG, QLIK, RSG, SBUX, SIVB, TCO, THRX, TNAV, TSRO, UHS, VR, VRSN, WOOF, AIMC, SPSC, ACGL, DTLK, IDTI, NBHC, NEM, RJET, BCOV, EPR, FLEX, HIW, HTCH, RGC, SWI, TGI, CPT, DOLE, GILD, GSIT, MTD, NBIX, QLGC, SPF, TPX, TSYS, MCK, MITK, AGYS

Other notable movers on earnings/guidance: LOGM +12.6%, SBUX +6.3%, GILD +4.7%, MITK +3.5%, CLF +3.3%, WIRE +2.8%, CB +1.9%, DWCH +1.8%, STS +1.7%, EW +1.2%, GFIG +1.1%, VRSN +1%, HIW +0.7%, MCRL +0.5%, CERN +0.2%, FPO +0.2%, QLGC +0.2%, TCO +0.2%, KBR +0.2%, DOLE +0.2%, FLEX +0.1%, EXPE -23.6%, SWI -21.3%, ZNGA -14%, HTCH -13.5%, TPX -10.6%, AWAY -9.9%, GPN -9.3%, OUTR -0.9%, QLIK -8.3%, TSYS -8.2%, ABAX -6.9%, LEG -6.7%, CRUS -6.5%, DECK -5.7%, MXIM -5%, INFA -3.1%, KLAC -3%, BMRN -2.9%, MFLX -2.8%, AMZN -2.8%, N -1.9%, DRC -1.8%, FSL -1.5%, SPF -1.3%, MSCC -1.2%, KEG -1.2%

Futures are _ after hours: S&P 500 futures are +1.05 from fair value of 1685.35 and Nasdaq100 futures are +2.41 from fair value of 3055.41.

Tomorrow morning before the open no economic reports are scheduled to be released.

Tomorrow before the open the following companies are scheduled to report earnings: WIT, CLS, NS, DRC, HP, KKR, LEA, LEG, MTRN, SWK, WBC, WY, ABBV, ACO, AHGP, AON, ARLP, B, BPO, DLR, DTE, HMSY, LPNT, LYB, MOG.A, OFC, PFS, SAIA, STL, TRP, TYC, VTR, VVI, WETF, CHH, UTI, TYPE, NVE, NWL, CMCO

Commodities

Treasuries

10-Yr:unch..2.585%.. USD/JPY:99.27.. EUR/USD:1.3273
Treasuries End with Modest Losses: Treasuries ended the day with modest losses as the complex fell for the third time in four days. Maturities saw selling develop early this morning when Britain posted in-line Q2 growth of 0.6% QoQ and that persisted throughout most of the morning as sellers piled on following the better than expected headline durable orders data (+4.2% actual v. 1.8% expected) that was unchanged after stripping out aircraft. Buyers emerged at key resistance, and pressured yields lower over the remainder of the day. This afternoon’s $29 bln 7-yr note auction was solid, but not spectacular, drawing and a slightly less than average 2.54x bid/cover (12-auction average 2.66x). A strong 48.6% take down by indirect bidders (12-auction average 39.2%) helped leave primary dealers with just 34.8% of the supply. Today’s selling had the biggest impact on the belly of the curve as the 5-yr yield climbed 4.3 bps to 1.421% to finish at its highest level in roughly two weeks. Meanwhile, the 10-yr yield tacked on just less than 2 bps ticking up to 2.607%. Slight outperformance came from the long bond as a 1.2 bp advance in its yield has action holding just below its highest level in two years. Curve steepening developed as the 2-10-yr spread widened to 227.5 bps. Elsewhere, precious metals ended near their best levels with gold up $13 at $1332 and silver higher by $0.20 near $20.20. Data concludes for the week on Friday with Michigan Sentiment – Final (9:55).

Next Day In View 

On other news.... 

HAL Halliburton announces commencement of $3.3 bln modified Dutch tender offer for its common stock(44.34 -0.48)
Co announced today that it is commencing a modified "Dutch auction" tender offer to repurchase shares of its common stock for an aggregate purchase price of up to $3.3 billion. Pursuant to the tender offer, company stockholders may tender all or a portion of their shares (1) at a price specified by the tendering stockholder of not less than $42.50 and not more than $48.50 per share or (2) without specifying a purchase price, in which case their shares will be purchased at the purchase price determined in accordance with the tender offer.

HAL Halliburton agrees to plead guilty to destruction of evidence in connection with Deepwater Horizon tragedy (44.34 -0.48)
Halliburton Energy Services Inc. has agreed to plead guilty to destroying evidence in connection with the Deepwater Horizon disaster, the Department of Justice announced today. A criminal information charging Halliburton with one count of destruction of evidence was filed today in U.S. District Court in the Eastern District of Louisiana.


Earnings

SBUX Starbucks beats by $0.02, reports revs in-line; guides FY14 EPS in-line (68.17 +1.56)
Reports Q3 (Jun) earnings of $0.55 per share, $0.02 better than the Capital IQ Consensus Estimate of $0.53; revenues rose 13.2% year/year to $3.74 bln vs the $3.72 bln consensus. 

Co issues guidance for Q4, sees EPS of $0..59-0.60, which includes a 3 cent gain from the sale of SBUX equity in Argentina and Chile, may not be comparable to $0.57 Capital IQ Consensus Estimate. Co issues guidance for FY13, sees EPS of $2.22-2.23, which also includes gains and may not be comparable to $2.18 Capital IQ Consensus Estimate. 

Co issues in-line guidance for FY14, sees EPS of $2.55-2.65 vs. $2.64 Capital IQ Consensus Estimate. Co sees mid single digit comparable store sales growth. Will add an additional 1,400 net new stores: Americas ~ 600;  EMEA ~ 100; CAP accelerating to 700; Consolidated operating margin improvement of approximately 150 to 200 basis points over FY13.

AMZN Amazon.com misses by $0.07, reports operating income above guidance, revs in-line; guides Q3 rev towards low end of expectations; sees Q3 operating loss, below ests(303.40 +4.46)
Reports Q2 (Jun) loss of $0.02 per share, $0.07 worse than the Capital IQ Consensus Estimate of $0.05; revenues rose 22.4% year/year to $15.7 bln vs the $15.74 bln consensus; operating income $79 mln vs. ($340)-10 mln guidance and ests at ~$62 mln.

Co issues guidance for Q3, sees Q3 revs of $15.45-17.15 bln vs. $16.98 bln Capital IQ Consensus Estimate; operating income is expected to be between ($440)-(65) mln vs. ests for positive $83 mln. This guidance includes ~$340 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates. 

Operating cash flow increased 41% to $4.53 billion for the trailing twelve months, compared with $3.22 billion for the trailing twelve months ended June 30, 2012. Free cash flow decreased 76% to $265 million for the trailing twelve months, compared with $1.10 billion for the trailing twelve months ended June 30, 2012. Free cash flow for the trailing twelve months ended June 30, 2013 includes fourth quarter 2012 cash outflows for purchases of corporate office space and property in Seattle, Washington, of $1.4 billion. 

Currencies 

Dollar Tests 82.00: The Dollar Index has seen steady selling over the course of the session push it below the 82.00 mark. Today's weakness has the greenback lower for the fourth time in the past five days with action on track for its lowest close in a month. 

·         EURUSD is +55 pips at 1.3250 following today's improved data out of the region. German Ifo Business Climate improved to 106.2 (106.3 expected, 105.9 previous) and Spanish unemployment sank to 26.3% (27.2% expected, 27.2% previous), posting better than feared results. Traders continue to monitor the 1.3400 level, with a close above there marking the best since February. 

·         GBPUSD is +40 pips at 1.5355 after surviving an early test of support aided by the 50- and 100-day moving averages. Today's bid comes after the in-line GDP number showed the British economy expanded at a rate of 0.6% QoQ in Q2. Near-term resistance comes into play in the 1.57400 region. 

·         USDCHF is -50 pips at .9320 as trade pushes below the 200-day moving average. The selling has the pair on track for its worst close in a month, putting the key .9200 level on some radars. 

·         USDJPY is -70 pips at 99.55 as action moves to the lower end of its recent range. The pair has spent almost the entire month of July trapped between 99.00/101.00. Tokyo Core CPI will cross the wires tonight. 

·         AUDUSD is +55 pips at .9220 with today's bid halving yesterday's losses. The .9300 resistance area remains in focus, with the pair looking for its first close above the level in over a month. The hard currency has been able to shake off the overnight comments from Prime Minister Rudd, who suggested China is experiencing somewhat of a credit crunch.

·         USDCAD is -30 pips at 1.0280 as trade has so far been able to hold the 100-day moving average (1.0265). The 1.0200 area remains key as it represents trendline support off the September lows.

Jason's Commentaries



Dow closed with a 13.37 gain, Nasdaq gained 25.59 and S&P500 gained 4.31 points. The market started with a bearish bias but the bulls started rallying in the afternoon that wiped out the losses and ended up with a gain. Definitely more bullish than bearish. Once again, Nasdaq led the market towards a gain, however, it wasn't the tech the led the market last night. Materials and Utilities were the main leaders in the market last night with a 0.94% and 0.93% gain respectively. Tech was flat last night as Microsoft and Google weighs. Looking at the internals, there's more bullishness in the market than bearishness and i'm expecting the market to continue to go up higher. Meanwhile, it will be good if it can retrace a little. Not much to comment on today, just a volatile ride in the market.

Market Call: FLAT to upside

Date: 26 Jul 2013