30 Aug 2013 BMO

30 Aug 2013 BMO

Market Summary 

Before Market Opens

Market Internals

Market Internals -Technical-
The Nasdaq closed up 27 (+0.75%) at 3620, the S&P 500 closed up 3 (+0.20%) at 1638, and the Dow closed up 16 (+0.11%) at 14841. Action came on below average volume (NYSE 547 mln vs. avg. of 731; NASDAQ 1292 mln vs. avg. of 1577), with advancers outpacing decliners (NYSE 1957/1087, NASDAQ 1789/717) and mixed new highs/lows  (NYSE 27/33, NASDAQ 61/20).

Relative Strength: 
Greece-GREK +2.80%, Indonesia-IDX +2.52%, Volatility-VXX +2.31%, South Korea-EWY +2.08%, India-INP +1.95%, U.S. Home Construction-ITB +1.95%, Malaysia-EWM +1.80%, Social Media-SOCL +1.36%, Biotechnology-IBB +1.27%, Homebuilders-XHB +1.19%. 

Relative Weakness: 
Copper-JJC -1.89%, Silver-SLV -1.84%, Gasoline-UGA -1.41%, Base Metals-DBB -1.41%, Indian Rupee-ICN -1.36%, Cocoa-NIB -1.29%, Switzerland-EWL -1.04%, Swiss Franc-FXF -0.96%, Middle East and Africa-GAF -0.89%, Sweden-EWD -0.76%.

Leaders and Laggards

Technical Updates

Technical Analysis Close: S&P firmer again but recovery strength muted thus far
A mildly weaker start for the market averages but pressure was limited and the losses short lived with a steady run off opening lows persisting into late morning. The overnight/pre-market bias was generally favorable in the wake of Wednesday's constructive rebound in the S&P off of support but the pre-open tone weakened following an above consensus GDP revision (+2.5% vs. consensus +2.1%) which led to some tapering fears. Chatter that the GDP improvement may be reversed in the next report and the recent constructive technicals helped to underpin with the S&P extending to a new rebound high for the week. Momentum slowed late morning (S&P/Dow and the finance sector failed to confirm new Nasdaq Comp high) with the indices drifting slowly back during the afternoon. 

Sector leadership came from: Airline +2%, Home Const ITB +1.9%, Solar TAN +1.4%,Tobacco +1.3%, Biotech IBB +1.3%, Internet FDN +1.1%, Natural Gas UNG +1%, Telecom IYZ +0.9%, Casino +0.9%, Software IGV +0.9%, Retail XRT +0.9% Weakness was noted in: Silver SLV -1.8%, Crude Oil USO -1.3%, Energy XLE -1%, Oil Service OIH -1%, Steel SLX -0.9%, Utility UTIL -0.6%, Gold GLD -0.6%. 

Two days of gains for the S&P after Wednesday's early test of a support zone (trendline, congest, 100 ema). However, upside momentum has been somewhat muted given the stall just above the 38% retrace of this week's sharp slide and the upper tails in both sessions. Short term resistance is at 1642/1643 prior to the rebound high/50% retrace at 1646/1648. Initial support is at 1635/1634 with a more important zone at 1631/1630.

Briefing's Commentaries 

Closing Market Summary: Equities Climb as Low Volume Persists
The S&P 500 added 0.2% as eight of ten sectors posted gains. The session kicked off on a lower note, but still managed to finish in positive territory despite an afternoon stumble. 

Prior to the open, investors received the news that second quarter GDP was revised up to 2.5% from 1.7%. The Briefing.com consensus expected the reading to be revised to 2.1%. Real final sales were revised up to 1.9% from 1.3%. 

Overall, the upward revision to GDP growth does not suggest that the underlying currents of weak growth are ending. Almost the entire upward revision came from a stronger-than-originally reported trade deficit, which is likely to reverse in the third quarter. That means the increase in GDP pulled potential growth from the third quarter into the second and was not the result of a strengthening economic situation. 

Following the report, equity futures and Treasuries fell to their lows while the Dollar Index jumped to its high in a reaction consistent with increased tapering expectations. As the session dragged on, stocks displayed intraday strength, but slipped into the close while Treasuries erased their losses. The benchmark 10-yr yield slipped three basis points to 2.75%. For its part, the Dollar Index held its gains throughout the session, ending near 82.00. 

Telecom services finished in the lead as the sector advanced 1.2%. Verizon (VZ 47.82, +1.26) provided considerable support after reports indicated the company has resumed talks with Vodafone (VOD 31.80, +2.39) about acquiring Vodafone's 45.0% stake in Verizon Wireless. 

Technology also displayed notable strength as top-weighted components like Google (GOOG 855.43, +6.88) and Microsoft (MSFT 33.55, +0.53) climbed 0.8% and 1.6%, respectively. High-beta chipmakers also rallied as the PHLX Semiconductor Index rose 1.2%. 

The outperformance of technology combined with strength among biotechnology companies helped the Nasdaq (+0.8%) finish well-ahead of the broader market. Today's advance helped the tech-heavy index trim its August loss to 0.2%. 

Equities slipped during the final hour of action amid comments from St. Louis Fed President Jeffrey Lacker who said, "Conditions for tapering QE have been met." Technical factors may have also played a part in the afternoon retreat as the S&P was pressured back below its 100-day moving average, where it settled. 

On the downside, energy (-1.1%) and utilities (-0.5%) were the only two decliners. Weighing on energy shares was crude oil, which tumbled 1.9% to $107.98 per barrel. Meanwhile, high-yielding utilities were unable to catch a bid even as traders moved back into Treasuries. With tomorrow being the final session of the month, the utilities space is poised to finish August behind the remaining nine sectors with a loss of 5.6%. 

Participation remained light with trading volume rivaling that of Monday as less than 550 million shares changed hands on the floor of the New York Stock Exchange. 

Looking back at today's remaining data, the initial claims level fell to 331,000 for the week ending August 24 from an upwardly revised 337,000 (from 336,000) for the week ending August 17. The Briefing.com consensus expected the initial claims level to drop to 330,000. 

It seems that the initial claims level has stabilized at roughly 330,000 following a volatile July when seasonal adjustment biases made it difficult to examine layoff trends. This level signifies a sizable reduction from where claims were at the beginning of the summer and suggests a solid improvement in labor conditions. 

Tomorrow, July personal income, personal spending, and core PCE prices will all be reported at 8:30 ET. The August Chicago PMI report will cross the wires at 9:45 ET and the final reading of the August Michigan Consumer Sentiment Survey will be released at 9:55 ET.

Commodities

Closing Commodities: Crude Oil Drops 1.5%, Ending Above $108/Barrel. Syria Remains Focus

·         A stronger dollar index following better-than-anticipated GDP data and initial claims confirming a strengthening labor market put pressure on crude oil and precious metals

·         Precious metals traded in negative territory during all of today's floor trade

·         Dec gold dipped to a session low of $1402.10 per ounce and eventually settled with a 0.4% loss at $1412.60 per ounce

·         Dec silver pulled back from its session high of $24.49 per ounce and settled 1.3% lower at $24.13 per ounce

·         Oct crude oil declined for the first time in six sessions. It brushed a session high of $11.07 per barrel in late afternoon pit trade but sold off sharply to a session low of $108.40 per barrel moments before the close. It settled at $108.47 per barrel, booking a 1.5% loss

·         Natural gas fell from its session high of $3.65 per MMBtu into negative territory following inventory data that showed a build of 67 bcf when a smaller build of 62-63 bcf was anticipated. Despite dropping to a session low of $3.51 per MMBtu, it recovered back into the black and booked a 1.1% gain as it closed at $3.62 per MMBtu.

COMEX Metals Closing Prices

·         Dec gold fell $6.10 to $1412.60/ounce 

o    Gold traded in negative territory today as better-than-anticipated GDP data lifted the dollar index. The yellow metal dipped to a session low of $1402.10 and eventually settled with a 0.4% loss. 

·         Dec silver fell $0.31 to $24.13/ounce 

o    Silver also traded lower. It pulled back from its session high of $24.49 set moments after floor trade opened and settled 1.3% lower. 

·         Dec copper fell 5 cents to $3.26/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 1 cent to $4.81/bushel 

·         Sep wheat fell 6 cents to $6.41/bushel 

·         Nov soybeans fell 5 cents to $13.69/bushel

·         Sep ethanol fell 3 cents to $2.46/gallon 

·         Nov sugar (#16 (U.S.)) rose 0.30 of a penny to 21.25 cents/lbs

NYMEX Energy Closing Prices

·         Oct crude oil fell $1.60 to $108.47/barrel 

o    Crude oil fell for the first time in six sessions as better-than-anticipated GDP data lifted the dollar index. The energy component touched a session high of $110.07 in late afternoon pit trade but sold off sharply moments before the close. It settled just above its session low of $108.40, booking a 1.5% loss. 

·         Sep natural gas rose 4 cents to $3.62/MMBtu 

o    Natural gas slid into negative territory off its session high of $3.65 on weaker-than-expected inventory data. Despite touching a session low of $3.51, it managed to recover back into the black in afternoon floor action and book a 1.1% gain. 

·         Oct heating oil fell 2 cents to $3.19/gallon 

·         Oct RBOB gasoline fell 3 cents to $2.93/gallon

Treasuries

Treasuries Reverse to Gains: 10-yr: +05/32..2.752%..USD/JPY: 98.17..EUR/USD: 1.3244
Treasuries ended on their best levels of the session as buyers took control shortly after this morning's better than expected GDP -- Second Estimate and never let go. Light selling persisted throughout the overnight session with maturities slipping to their lows after the better than expected data, but that marked the bottom as buyers defended key support. Maturities rallied back to their respective flat lines ahead of this afternoon's mediocre $29 bln 7-yr note auction. The auction drew 2.221% and a less than average 2.43x bid/cover (12-auction average 2.65x) that was the weakest since the spring of 2009. Indirect bids were light at 40.8%, but were partially offset by the strong showing from directs (22.4%). Primary dealers were left with just 36.8% of the supply. The complex ticked to session highs following the auction, and held its gains into the cash close. Buying had the biggest impact on the long end of the curve as the 30-yr yield slid more than 5 bps to 3.703%. Meanwhile, the benchmark 10-yr yield ended down 3.1 bps at 2.751% after the early selling caused a brief test of 2.830%. The 5-yr yield lagged the rest of the complex, tacking 0.9 bps to finish at 1.598%. Curve flattening developed on today's bid as the 2-10-yr spread tightened to 236 bps. Elsewhere, precious metals saw losses with gold falling $10 to $1409 and silver shedding $0.50 to near $23.90. Data concludes for the week on Friday with personal income and spending, PCE Prices - core (8:30), Chicago PMI (9:45), and Michigan Sentiment - Final (9:55). STL's Bullard takes the previous day's discussion to Memphis, TN (9)

Next Day In View 

Currencies 

Dollar Tests 82.00: 10-yr: +04/32..2.756%..USD/JPY: 98.25..EUR/USD: 1.3240
The Dollar Index has held on session highs near 82.00 since this morning's better than expected Q2 GDP - Second Estimate, and has managed to reclaim its 200-day moving average (81.70). The Index remains on track to post its best close in nearly a month with bulls now setting their sights on resistance in the 82.50 area that is aided by the 50- and 100-day moving averages. 

·         EURUSD is -100 pips at 1.3240 as trade presses lower for a second session. Traders will be watching 1.3200 over the coming days as the 50-day moving average lurks near the level. Eurozone data is heavy with CPI Flash Estimate, the unemployment rate, and German retail sales. 

·         GBPUSD is -30 pips at 1.5495 as action probes the 200-day moving average. A relatively light week of data has been disadvantageous for sterling has trade has slipped in six of the past seven sessions. A breakdown of 1.5450 paves the way for a retest of the 1.5350 area that is helped by both the 50- and 100-day moving averages. Britain's Nationwide Home Price Index and net lending to individuals will cross the wires tomorrow. 

·         USDCHF is +90 pips at .9310 as trade readies for its best close in two weeks. Today's advance marks a second day of gains, during which action has rallied more than 125 pips off the key .9200 support level. Switzerland's KOF Economic Barometer will be released tomorrow. 

·         USDJPY is +55 pips at 98.25 as action looks to break out of its recent range bound trade. Bulls are looking to run the pair above trendline resistance in the 99.00 area, but that has proved difficult as bears flex their muscles in defense of the 50- and 100-day moving averages. Japan's household spending, preliminary industrial production, and Tokyo core CPI are due out tonight. 

·         AUDUSD is -10 pips at .8925 as action drifts lower for a third day. Participants remain on the lookout as any close below .8900 would mark the worst in over three years. Australian data is limited to private sector credit. 

·         USDCAD is +45 pips at 1.0535 as trade nears it best close in almost two months. This morning's narrower than expected current account deficit ($14.6 bln actual v. $14.9 bln expected) and hotter than expected Raw Materials Price Index (4.2% MoM actual v. 1.2% MoM expected) had little impact as bulls look ready to test the June highs. Canada's GDP is due out tomorrow morning.

Jason's Commentaries


Just got back from a 7 hours meeting and finally got to do my DMA. Last night was right with the call. Dow was up 16 points. Market started with the bullish bias as unemployment claims and GDP results was above expectation. However, that bullish bias did not last past 12pm ET as the market started to lose steam which eventually lost half of its gains. Nasdaq 100 was the main leader of the 3 indices as Vodafone rallied 8.13% after securing deals with Verizon. However, the bulk of the Nasdaq's components remained down. The Dow Jones on the other hand was being dragged down by the energy stocks like Exxon and Cheveron on Syria war fears. The main laggard for last night's market was Energy and Utilities, which are energy related stocks. As for the leaders, the Tech sector performed 0.54% thanks for Vodafone. While looking at the internals, volumes were weak and the bulls merely outpaced the bears. Guess the market is waiting for some major catalyst. On the technical side, Dow slipped after failing to cross the 14,900 resistance level and today will be quite tough for Dow to overcome that resistance. Friday will be a flat day once again.

Market Call: Flat to upside

Date: 30 Aug 2013