26 Aug 2013 AMC

26 Aug 2013 AMC

Market Summary 

Before Market Opens

Asian markets ended in mixed fashion with Chinese indices in the lead following a round of better-than-expected earnings. Regional economic news was limited to just a handful of data points. Japan's Corporate Services Price Index ticked up 0.4% year-over-year (0.4% expected, 0.4% prior), Singaporean industrial production rose 2.7% year-over-year (1.2% expected, -4.2% previous), and New Zealand's trade deficit widened to $774 million from a surplus of $374 million (+$50 million forecast). Also of note, Standard & Poor's affirmed New Zealand's sovereign debt rating at ‘AA+' with a ‘Stable' outlook. 

·         Japan's Nikkei shed 0.2% as exporters and utilities weighed. Konica Minolta and Suzuki fell 2.9% and 1.9%, respectively. Tokyo Electric Power Co was the weakest index component with a 6.9% loss. 

·         Hong Kong's Hang Seng ended added 0.7% as energy names outperformed after Sinopec reported solid quarterly results. Sinopec gained 1.2% and PetroChina rose 1.8%. 

·         In China, the Shanghai Composite settled higher by 1.9%. Property names displayed strength following above-consensus results from China Construction Bank, which added 0.9%. Elsewhere, Jinshan Development & Construction jumped 10.0%. 

Major European indices hover near their lows with Italy's MIB underperforming after it was reported Silvio Berlusconi's PDL party has agreed to withdraw from government should Mr. Berlusconi be expelled from the Senate. Separately, Five Star leader Beppe Grillo pushed for a fresh round of elections. In other news, Greek Finance Minister Yannis Stournaras confirmed the country will face a financing gap of roughly EUR10 billion between 2014 and 2015. Greece plans to return to the bond markets during the second half of next year. Regional economic data was limited to just one item as Spain's PPI rose 0.8% year-over-year (1.5% expected, 1.3% prior). 

·         Germany's DAX is lower by 0.2% as HeidelbergCement leads to the downside with a loss of 1.5%. Other materials stocks like BASF (-0.6%) and Lanxess (-0.7%) also lag while fertilizer producer K+S leads the index with an advance of 2.8%. 

·         In France, the CAC trades down 0.5% as 36 of 40 components register losses. Financials are broadly weaker with BNP Paribas, Credit Agricole, and Societe Generale all down between 1.5% and 1.8%. On the upside, drug maker Sanofi trades higher by 1.4%. 

·         Great Britain's FTSE is closed for a bank holiday. 

·         Italy's MIB holds a loss of 2.3% amid broad weakness. Silvio Berlusconi's Mediaset is the weakest index component, down 6.4%.

Market Internals

Market Internals -Technical-
The Dow closed down 64 (-0.43%) at 14947, the S&P 500 closed down 7 (-0.4%) at 1657, and the Nasdaq closed flat at 3658. Action came on below average volume (NYSE 546 mln vs. avg. of 736; NASDAQ 1359 mln vs. avg. of 1587), with decliners outpacing advancers (NYSE 1261/1800, NASDAQ 1134/1361) and new highs outpacing new lows (NYSE 93/19, NASDAQ 114/15). 

Relative Strength: 
Corn-CORN +5.99%, Grains-JJG +5.19%, Volatility-VXX +3.31%, Junior Gold Miners-GDXJ +2.34%, Biotechnology-XBI +2.24%, South Korea-EWY +0.25%, New Zealand-ENZL +0.23%, Japanese Yen-FXY +0.19%, Egypt-EGPT +0.15%, Chinese Yuan-CYB +0.08%. 

Relative Weakness: 
Indonesia-IDX -4.26%, Italy-EWI -2.61%, Mexico-EWW -2.38%, Thailand-THD -2.35%, Indian Rupee-ICN -2.18%, Lithium-LIT -1.58%, MLP Index-AMJ -1.4%, Consumer Staples-XLP -1.17%, Gasoline-UGA -1.08%, Regional Banks-KRE -0.98%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slip on Thin Volume
Equities ended on their lows as the S&P 500 shed 0.4% while the Nasdaq settled flat. 

The major averages held modest gains into the final hour of the session when comments from Secretary of State John Kerry regarding the situation in Syria contributed to broad-based selling. Mr. Kerry said additional information about the recent chemical attack is being compiled and will be made public. In addition, President Obama is expected to decide on the next step in the coming days. 

The comments injected a bit of uncertainty and the CBOE Volatility Index (VIX 14.92, +0.94) jumped to a session high as downside protection received an afternoon surge in interest. However, the Treasury market did not see much of a safety bid as the complex remained confined to a narrow range. The benchmark 10-yr yield ended lower by two basis points at 2.79%. 

The sharp move to session lows was exacerbated by the fact today's session saw very limited participation. With only 546 million shares changing hands on the floor of the New York Stock Exchange, today's total was the lowest since August 5. 

Nine of ten sectors ended in the red with countercyclical groups leading to the downside. Consumer staples, telecom services, and utilities lost between 0.8% and 1.3% to continue their recent underperformance. As a result of today's losses, the three sectors are down between 4.0% and 5.3% this month. 

The fourth countercyclical group, health care, managed to outperform its defensively-oriented peers and finish in the lead with a gain of 0.1%. The sector was underpinned by biotechnology after Amgen (AMGN 113.75, +8.15) made an offer to acquire Onyx Pharmaceuticals (ONXX 123.49, +6.53) for $125 per share, representing a 5.6% premium to Friday's closing price. 

Biotechnology companies also comprise a fair share of the Nasdaq. The iShares Nasdaq Biotechnology ETF (IBB 197.10, +4.05) rose 2.1%, and the relative strength of its components contributed to the outperformance of the Nasdaq. 

All cyclical sectors ended in the red. The materials space outperformed, ending flat as gold miners advanced. The Market Vectors Gold Miners ETF (GDX 30.41, +0.27) climbed 0.9% while gold futures added 0.4% to $1401.80 per troy ounce. Meanwhile, silver futures surged 2.2% to $24.27 per troy ounce. 

Today's economic data was limited to the July durable orders report. Overall, the report was not very encouraging. New orders for primary metals and machinery were both flat while orders for computers and electronic products declined 3.6%. Furthermore, nondefense capital goods orders, excluding aircraft -- a proxy for business investment -- fell 3.3% after a 1.3% increase in June. The kicker in terms of third quarter GDP implications is that shipments of nondefense capital goods orders, excluding aircraft, declined 1.5%. 

Tomorrow, the June Case-Shiller 20-city Index will be reported at 9:00 ET and August Consumer Confidence will be released at 10:00 ET.







Late day selling pressure picks up amid light volume
The market has seen a sharp selloff over the past half hour, with the Dow dropping 100 points from its intraday high. The move lower is going to be attributed to comments from Secretary of State John Kerry about Syria. As mentioned, Kerry said that 'we know the Assad regime holds these chemical weapons' and indicated that the U.S. has additional information about the attack which is being compiled and will be made public. Kerry also said the President will make an informed decision in the coming days.

The idea of Syria using chemical weapons has been getting media coverage for the past week and Kerry's comments didn't really raise any new surprises, but the headlines appear to have been enough to spook a very thin market on an otherwise quiet day. The extremely light volume is more likely to blame than the substance of Kerry's comments.

There were a few other factors this afternoon that may have added to the pressure, such as a wire report that U.S. Treasury will hit its debt limit in mid-October (even though some may point out that this is an improvement from previous projections for it to be reached Oct 1), but the volatility is most likely the result of leverage and light volume exacerbating such a quick move lower.

The market has recouped some of the losses, but remains well off the highs and is marginally lower as we head into the close.

Commodities

COMEX Metals Closing Prices

·         Dec gold fell $2.80 to $1393.00/ounce

·         Sep silver rose $0.26 to $24.00/ounce

·         Sep copper fell 3 cents to $3.32/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 37 cents to $5.01/bushel

·         Sep wheat rose 25 cents to $6.55/bushel

·         Nov soybeans rose $1.02 to $13.90/bushel

·         Sep ethanol rose 6 cents to $2.50/gallon

·         Nov sugar (#16 (U.S.)) rose 0.40 of a penny to 20.80 cents/lbs

NYMEX Energy Closing Prices

·         Oct crude oil rose $0.80 to $105.79/barrel

·         Sep natural gas rose 1 cent to $3.56/MMBtu

·         Oct heating oil rose 1 cent to $3.08/gallon

·         Oct RBOB gasoline fell 1 cent to $2.83/gallon

Closing Commodities: Grains Surge Higher; Corn and Soybeans Each Rise 8%
Commodities end the day mixed with crude oil finishing lower, near $106/barrel, gold lower, silver higher, copper lower and nat gas one cent higher. Grains really outperformed today, following estimates that corn and soybeans production will be less than expected.

Dec corn ended 7.9% higher at $5.01/bushel, while Nov soybeans rose 7.9% to $13.90/bu.

Oct crude rose $0.80 at $105.79/barrel and Sept natural gas gained one cent at $3.56/MMBtu.

Gold and silver rallied in recent action, but ended the day mixed. Dec gold fell $2.8 to $1393/oz. Sept silver gained 0.26% at $24/oz.

Treasuries

Treasuries Eke Out Gains in Lackluster Session
We apologize for sounding redundant today when discussing the Treasury market, but the market didn't provide a whole lot with which to work. The weak Durable Orders report for July was about it, although there were some geopolitical rumblings regarding Syria that could not be dismissed. 

The sum total of today's trading resulted in small price changes across the curve that translated to yields dropping one to two basis points from the one-year T-bill to the 30-yr bond. 

The only item today that showed the Treasury market had a pulse was the report that durable orders declined 7.3% in July. That was a disappointment relative to the Briefing.com consensus estimate that called for a 5.0% decline and it marked the largest drop in durable orders since August 2012. Excluding transportation, orders were down 0.6%. The proxy for business investment -- nondefense capital goods orders excluding aircraft -- fell 3.3%. Meanwhile, shipments of those goods dropped 1.5%, providing a negative input for third quarter GDP. 

In the wake of the durables report, the 10-yr note popped about seven ticks -- and then it got pooped as that marked the high point for the day. For the remainder of the session, Treasury securities drifted and some attrition set in as buyers stopped using their muscle. 

The benchmark 10-yr note settled up two ticks and its yield dropped one basis point to 2.81%. 

Shortly before the close, Secretary of State Kerry made what sounded like some leading remarks into a military strike against Syria for the Assad regime's use of chemical weapons. Mr. Kerry noted the international norm preventing the use of such weapons cannot be violated without consequences and that President Obama is in the midst of making an "informed decision" about making sure Syria is held accountable. The Treasury market appeared to take those remarks in stride initially, but to the extent that words get translated into action in coming days and weeks, a more concerted flight-to-safety response could be seen. 

On Tuesday, the economic calendar will feature the Case-Shiller Home Price Index for June (Briefing.com consensus +12.0%; prior +12.2%) at 9:00 a.m. ET and the Consumer Confidence report for August (Briefing.com consensus 77.0; prior 80.3) at 10:00 a.m. ET. In addition, the results from the $34 bln 2-yr note auction will be released at 1:00 p.m. ET.

Next Day In View 

Economic Commentary

On other news.... 

The much anticipated deal between Amgen (AMGN) and Onyx Pharmaceuticals (ONXX) was made official this morning. Amgen announced it will purchase all outstanding shares of Onyx for $125 per share in cash, or $10.4 bln ($9.7 bln net of estimated Onyx cash). Though the $125 price tag was not as high as some were hoping for, it still represents an approximate 40% premium to where the stock was trading before mention of the deal. Other oncology companies to watch as potential acquisition candidates include Incyte (INCY), Seattle Genetics (SGEN), Medivation (MDVN), and Ariad Pharmaceuticals (ARIA).






Currencies 

Tight Ranges Dominate Trade: The Dollar Index has been attempting to recover its post-Durable Orders losses for most of the day but it did run into some resistance at the 81.50 level. The DXY has pulled back to 81.40 as volume has remained extremely light. Volume will continue to remain light as we head toward the Labor Day weekend. The calendar for tomorrow is also light with the latest S&P Case -Shiller Housing Prices and Richmond Fed being the most notable reports. 

·         The euro is down slightly on the day after giving up the post-Durable gains. The single currency rallied to 1.3394 before heading lower. It has been able to hold the 1.3360 support level intraday. It attempted to push off that level ahead of the Kerry press conference but is headed lower as we approach the final hour of trade in U.S. equerries. Looking ahead to tomorrow the German GfK consumer Confidence number and Italian retail sales will garner the most attention. 

·         The pound has been trading in a tight range as it bounces between the 1.5557-1.5580 areas. There is nothing of interest on the calendar in that country tomorrow. 

·         The yen was able to halt its selling pressure at the 98.75 level. It is moving off that level as growing concerns over Syria help provide support but volume remains extremely weak.

Currency Commentary: Volume Remains Light as Markets Watch Syria Headlines

·         The Dollar Index has been attempting to recover its post-Durable Orders losses for most of the day but it did run into some resistance at the 81.50 level. The DXY has pulled back to 81.40 as volume has remained extremely light. Volume will continue to remain light as we head toward the Labor Day weekend. The calendar for tomorrow is also light with the latest S&P Case -Shiller Housing Prices and Richmond Fed being the most notable reports. 

·         The euro is down slightly on the day after giving up the post-Durable gains. The single currency rallied to 1.3394 before heading lower. It has been able to hold the 1.3360 support level intraday. It attempted to push off that level ahead of the Kerry press conference but is headed lower as we approach the final hour of trade in U.S. equerries. Looking ahead to tomorrow the German GfK consumer Confidence number and Italian retail sales will garner the most attention. 

·         The pound has been trading in a tight range as it bounces between the 1.5557-1.5580 areas. There is nothing of interest on the calendar in that country tomorrow. 

·         The yen was able to halt its selling pressure at the 98.75 level. It is moving off that level as growing concerns over Syria help provide support but volume remains extremely weak (FOREX, BONDX). 

Jason's Commentaries


It all came sudden... I thought I was wrong by the first half of the day as the market started with a bullish bias and retraced very little at the 11am ET window. Market stayed flat through the lunch hour and suddenly broke down at 3am ET after I took off my shorts.... %$#^$%#&$#%^... this is a classical example of 'When you're right, you're still wrong'

The market sold off at 3am ET which caused a loss of 100 points on the Dow. The initial sell off had likely triggered many other system traders to stopped out or to join in the short in the final hour of trading, causing a chain reaction in the sell off. After 20min, there were a short moment of covering but market continued to short in more into the close. 

This may seem bearish but do note that it's done with in a very thin volume of 564.1m shares traded on the NYSE. Internals were pointing towards the bearish side due to the heavy selling in the last hour. The market was initially pulled up by names like Oracle, Home Depot, Amgen which gained 1.79%, 2.08% and 7.72% respectively. Amgen has officially announced it's acquisition of Onyx Pharmaceutical which dragged up the healthcare sector. However, the late sell of wiped out the bullish drag by these names. As a result, healthcare sector was the only sector in the green while Consumer staples suffered the biggest loss of 1.17%. 

On the technical side, Dow Jones is still under its 100MA, and has formed a reversal pattern at a resistance of 15,000. S&P500 closed below its 50MA once again and formed an Engulfing pattern... Not exactly a very bullish sign to begin with. While we have only the Consumer Confidence report coming out, we're unlikely to have some major economic catalyst. 

Market Call: Flat to downside

Date: 27 Aug 2013