30 Aug 2013 AMC with Week in review

30 Aug 2013 AMC

Market Summary 

 

Before Market Open....

The S&P 500 futures hover just above their flat line.

Markets across Asia were mostly higher as some of the recently beaten down averages outperformed. India's Sensex (+1.3%) gained after Prime Minister Manmohan Singh reassured citizens the country was not headed back to the 1991 crisis. Mr. Singh said the country needs to narrow its current account deficit, suggesting, "We need to reduce our appetite for gold, economize the use of petroleum products and take steps to increase our exports." Other emerging markets such as Indonesia (+2.2%) and the Philippines (+2.2%) saw robust gains. Elsewhere, Japan's Nikkei (-0.5%) slipped after mostly in-line economic data. Markets in China and Hong Kong were little changed. Data out overnight was heavy, but mostly limited to Japan as household spending ticked up 0.1% year-over-year (0.4% expected); national core CPI surged 0.7% year-over-year (0.6% expected); Tokyo core CPI climbed 0.4% year-over-year (0.4% expected); and preliminary industrial production gained 3.2% month-over-month (3.9% expected). Elsewhere, Australia's private sector credit was in-line at 0.4% month-over-month. 

·         In Japan, the Nikkei slipped 0.5%, closing lower for a fourth straight month. A stronger yen weighed on exporters as Honda Motor gave up 1.0% and TDK shed 3.7%. 

·         Hong Kong's Hang Seng added 0.1% amid a choppy trade. Financials were mostly lower as Bank of China and China Merchants Bank gave up 0.6% and 0.9%, respectively. 

·         In China, the Shanghai Composite settled higher by 0.1% as port operators led the way after reports suggested other cities may join Shanghai in establishing free trade zones. Tianjin Port and Ningbo Port both surged the limit, 10%. 

Major European indices hover in the red following an avalanche of economic data. Eurozone CPI rose 1.3% (1.4% expected, 1.6% prior) while Core CPI climbed 1.1% (1.2% expected, 1.1% previous). In addition, Consumer Confidence improved to -16.0 from -17.4 (-17.0 consensus), Business Climate ticked up to -0.2 from -0.5 (-0.3 forecast), and the Business and Consumer Survey held steady at 95.2 (93.5 expected). Also of note, industrial sentiment rose to -8.0 from -10.6 (-10.0 consensus) while the unemployment rate remained unchanged at 12.1%. Elsewhere, Germany's retail sales fell 1.4% month-over-month (0.5% expected, -0.8% prior) while the year-over-year reading rose 2.3% (2.0% expected, -2.4% prior). Great Britain's Nationwide HPI came in at 0.6% month-over-month (0.6% expected, 0.9% previous) while Mortgage Approvals increased 61,000 (59,000 expected, 58,000 prior), and mortgage lending was reported at GBP0.70 billion (GBP1.10 billion forecast, GBP1.00 billion prior). Italian CPI ticked up 0.3% month-over-month (0.2% expected, 0.1% prior) and the monthly unemployment rate slipped to 12.0% from 12.1% (12.2% expected). Spain reported a current account surplus of EUR2.57 billion (EUR2.40 billion prior).

In news, the British Parliament has voted against David Cameron's resolution calling for military action against Syria. Meanwhile, French President Francois Hollande said his country is ready to act without British involvement. 

·         Great Britain's FTSE is lower by 0.5% as airlines lead to the downside. EasyJet and International Consolidated Airlines Group trade down 2.1% and 1.2%, respectively. Financials have also shown relative weakness with Royal Bank of Scotland down 1.3%. 

·         Germany's DAX trades down 0.8%. Deutsche Lufthansa is the weakest performer for the second consecutive day. The air carrier trades lower by 1.5%. On the upside, Commerzbank and Deutsche Bank trade higher by 1.4% and 2.0%, respectively. 

·         In France, the CAC holds a loss of 0.9% as industrials lag. Bouygues is lower by 2.7% and Schneider Electric trades down 1.4%. L'Oreal is a notable outperformer with a gain of 4.8% after reporting strong results.

European Markets Closing Prices
European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: -1.1%

·         Germany's DAX: -1.1%

·         France's CAC: -1.3%

·         Spain's IBEX: -1.7%

·         Portugal's PSI: -1.6%

·         Italy's MIB Index: -1.3%

·         Irish Ovrl Index: -0.1%

·         Greece ATHEX Composite: + 0.7%

Market Internals

 

Market Internals
The Nasdaq closed down 30 (-0.84%) at 3590, the S&P 500 closed down 5 (-0.32%) at 1633, and the Dow closed down 31 (-0.21%) at 14810. Action came on slightly below average volume (NYSE 725 mln vs. avg. of 767; NASDAQ 1239 mln vs. avg. of 1562), with decliners outpacing advancers (NYSE 907/2124, NASDAQ 598/1901) and mixed new highs/lows (NYSE 19/49, NASDAQ 37/28). 

Relative Strength: 
India-INP +3.95%, Indonesia-IDX +2.74%, Indian Rupee-ICN +2.26%, Malaysia-EWM +1.98%, Middle East and Africa-GAF +1.92%, Volatility-VXX +1.07%, Cotton-BAL +0.39%, Corn-CORN +0.33%, Consumer Staples-XLP +0.3%, Technology-Software-IGV +0.23%. 

Relative Weakness: 
Japan-EWJ -1.98%, U.S. Home Construction-ITB -1.91%, Cocoa-NIB -1.88%, Silver-SLV -1.74%, Greece-GREK -1.72%, Junior Gold Miners-GDXJ -1.71%, Spain-EWP -1.61%, Nordic 30-GXF -1.58%, Russel 2000-IWM -1.56%, Belgium-EWK -1.51%.



 

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks End August on Cautious Note
The major averages ended August on a lower note as the S&P 500 shed 0.3% while the Nasdaq fell 0.8%. Small caps endured a rough session with the Russell 2000 falling 1.6%.

With the Labor Day weekend ahead and the likelihood of military action in Syria also looming, participation was very limited before quarterly MSCI rebalancing added more than a 100 million shares to the final volume tally as 768 million shares changed hands on the NYSE floor. 

Equities fell to their lows midway through the session when Secretary of State John Kerry commented on the Syrian situation, implying the U.S. will act alone if necessary. The S&P followed its quick slide to lows with a recovery to its prior levels, where it settled. 

Eight of ten sectors ended in the red with influential cyclical groups weighing on the broader market. Financials, technology, industrials, and discretionary shares lost between 0.5% and 0.7% with the discretionary sector leading to the downside. 

Nearly all discretionary components posted losses. Home builders settled on their lows as the iShares Dow Jones US Home Construction (ITB 20.56, -0.40) fell 1.9%. Retailers also slumped as the SPDR S&P Retail ETF (XRT 77.88, -0.59) lost 0.8%. Big Lots (BIG 35.42, +0.78) bucked the trend among retailers, climbing 2.3% after reporting a bottom-line beat. 

Elsewhere, the industrial sector succumbed to the pressure exerted by transportation companies as the Dow Jones Transportation Average fell 1.1%. 

On the upside, consumer staples added 0.3% and the weakest sector of the month, utilities, tacked on a slim gain of less than 0.1%. 

While buying interest was somewhat scarce, the CBOE Volatility Index (VIX 16.95, +0.14) rose 0.8% as participants demanded some downside protection. The near-term volatility measure ended August at its highest level since early July after starting the month near its 2013 lows. 

Treasuries spent the session within a narrow range and the benchmark 10-yr yield slipped one basis points to 2.75%. 

Reviewing today's economic data, personal income increased 0.1% in July, down from a 0.3% increase in June and exactly what the Briefing.com consensus expected. Employee compensation fell 0.2% as wages and salaries declined by 0.3%. That pullback was in-line with the July employment report, which showed aggregate earnings down 0.3% in July. The drop in compensation was offset by a 0.7% increase in receipts on assets, which was primarily driven by equity gains. 

Spending levels were weak. Consumption grew 0.1% in July after increasing an upwardly revised 0.6% (from 0.5%) in June. The consensus expected personal spending to increase 0.3%. 

The Chicago PMI increased to 53.0 in August from 51.6 in July. That was exactly what the Briefing.com consensus expected. Production levels weakened slightly as the index fell from 53.6 in July to 53.0 in August. The drop in production, however, was not related to a pullback in orders. New orders increased in August to 57.2, which is the highest level since May. Order backlogs remained in contraction for a third consecutive month, but improved from 42.9 in July to 46.5 in August. 

Lastly, consumer sentiment was revised up to 82.1 in the final reading of the August University of Michigan Consumer Sentiment Index from 80.0 in the preliminary reading. The upward revision still leaves sentiment below the 85.1 reading in July. The Briefing.com consensus expected the Consumer Sentiment Index to remain at 80.0. 

Commodities

Closing Commodities: Crude Oil Gains 1.3% Over the Week on Syria Concerns
A stronger dollar index and further developments on possible military action against Syria put pressure on crude oil and precious metals today. Reports indicated that U.K. lawmakers have rejected a plan for Syrian action and Secretary of State John Kerry discussed "clear and compelling" evidence that Syria used chemical weapons on its citizens. 

·         Oct crude oil extended yesterday's losses as it pulled back from its session high of $108.75 per barrel and exhibited volatility as Secretary of State John Kerry spoke about the situation in Syria. The energy component dipped as low as $106.92 per barrel and settled with a 0.6% loss at $107.78 per barrel. Despite today's decline, crude oil gained 1.3% for the week. 

·         Dec gold fell back below $1400.00 per ounce on speculation that the Fed will soon taper stimulus measures. The yellow metal dipped to a session low of $1391.80 per ounce and settled 1.2% lower at $1395.90 per ounce, just 10 cents above last Friday's closing price. Dec silver also chopped around in negative territory as it pulled back from its session high of $23.96 per ounce. It settled 2.6% lower at $23.50 per ounce, booking a loss of 1.2% for the week. 

·         Oct natural gas oscillated between positive and negative territory today. It brushed a session high of $3.64 per MMBtu in early morning pit trade and dipped to a session low of $3.57 per MMBtu. It eventually settled 1.1% lower at $3.58 per MMBtu, booking a gain of 1.7% for the week.

NYMEX Energy Closing Prices

·         Oct crude oil fell $0.69 to $107.78/barrel 

o    Crude oil extended yesterday's losses as investors reacted to further speculation regarding military action against Syria. The energy component pulled back from its session high of $108.75 and exhibited volatility as Secretary of State John Kerry spoke about the situation in the Middle East. It dipped as low as $106.92 and settled with a 0.6% loss. Despite today's decline, crude oil gained 1.3% for the week. 

·         Oct natural gas fell 4 cents to $3.58/MMBtu 

o    Natural gas see-sawed between positive and negative territory. It touched a session high of $3.64 in early morning pit trade and dipped to a session low of $3.57. It eventually settled 1.1% lower, booking a 1.7% gain for the week. 

·         Oct heating oil fell 5 cents to $3.14/gallon 

·         Oct RBOB gasoline fell 4 cents to $2.89/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 2 cents to $4.83/bushel 

·         Sep wheat rose 3 cents to $6.44/bushel 

·         Nov soybeans fell 13 cents to $13.56/bushel 

·         Sep ethanol fell 8 cents to $2.38/gallon 

·         Nov sugar (#16 (U.S.)) fell 0.02 of a penny to 21.23 cents/lbs

 

COMEX Metals Closing Prices

·         Dec gold fell $16.70 to $1395.90/ounce 

o    Gold fell back below $1400.00 on speculation that the Fed will soon taper stimulus measures and as a stronger dollar index pressured prices. In addition, reports indicated that U.K. lawmakers have rejected a plan for Syrian action. The yellow metal dipped to a session low of $1391.80 and settled the session 1.2% lower at $1395.90, just 10 cents above last Friday's closing price. 

·         Dec silver fell $0.63 to $23.50/ounce 

o    Silver also chopped around in negative territory today. It pulled back from its session high of $23.96 and settled 2.6% lower at $23.50, booking a loss of 1.2% for the week. 

·         Dec copper fell 3 cents to $3.23/lbs

Treasuries

Treasuries See Weekly Advance as Conflict with Syria Looms: 10-yr: -04/32..2.775%..USD/JPY: 98.15..EUR/USD: 1.3215
Treasuries posted solid gains this week as the threat of a conflict with Syria sparked a safety bid. Also contributing to this week's gains was a mixed batch of economic data that saw durable orders (-7.3% actual v. -5.0% expected) and pending home sales (-1.3% actual v. 0.2% expected) miss while GDP - Second Estimate (2.5% actual v. 2.1% expected) and Michigan Sentiment - Final (82.1 actual v. 80.0 expected) beat. The mixed data continues to fuel the debate as to whether or not the Fed will begin tapering its asset purchase program at the September meeting. 

This week's gains were paced by the long bond as buying pushed its yield down 13 bps to 3.676%. Friday's advance caused the 30-yr yield to close the gap from August 12/13 with action managing to settle on the 50-day moving average. Elsewhere, the 10-yr yield shed 8 bps on the week, ending near 2.750%. Traders will be watching the 2.735% area over the coming days as near-term support rests at the level. A breakdown of that area will likely result in a test of the 50-day moving average which resides near 2.635%. The 5-yr yield lagged as light buying made for just a 3 bp drop to 1.601%. This week's buying flattened the yield curve as the 2-10-yr spread narrowed to 235.5 bps. Precious metals slipped this week as gold shed $2 to $1394 and silver fell $$0.65 to near $23.50. Markets are closed Monday in observance of Labor Day. Data flow for the week begins on Tuesday with ISM Index and construction spending (10)


On other news.... 

Rumor Round Up
Rumor activity finished the week on a strong note.

·         AAMRQ/LCC speculation is ongoing with reports today indicating that DoJ trial will start Nov 25.

·         Royal KPN (KKPNY) / America Movil SA (AMX) deal concerns continue to circulate with Reuters.com story out today suggesting AMX is considering dropping bid.

·         American Express (AXP) and Microsoft (MSFT) are both now considering Foursquare stake, according to reports (yesterday MSFT said may be interested). 

·         BlackBerry (BBRY) saw volume spike midmorning following WSJ.com story that highlighted recent Director comments and potential to sell select 'subset' units. 

·         Reports out overnight suggested that AT&T (T) could make competing bid for Vodafone (VOD).

·         General Electric (GE) is looking to spin off part of its credit card business from its GE Capital unit, according to reports out overnight.

·         Comments from L'Oreal (LRLCY) execs circulated in reports out overnight related to potential sale of Sanofi-Aventis (SNY) stake for future acquisitions (reported earnings yesterday).

·         A NYPost story suggested that Time Warner Cable (TWX)/CBS (CBS) battle may continue beyond start of NFL season next weekend.

While many rumors circulate during the day, and the validity of the source of these rumors can be questionable, the speculation may increase volatility in the near term.






Currencies 

Dollar Looks to Close at One-Month High: 10-yr: +02/32..2.754%..USD/JPY: 98.10..EUR/USD: 1.3211
The Dollar Index holds small gains near 82.10 as trade remains on track to close at its best level in a month. Early buying ran the Index up to nearly, but the gains could not be extended as sellers stepped up to defend the 50-day moving average. Hawkish rhetoric out of Washington has also been a factor in the dollar's afternoon slide. Click here to see a daily Dollar Index chart.

·         EURUSD is -30 pips at 1.3205 as trade tests support in the area. The single currency briefly dipped below its 50-day moving average (1.3190), but was quickly able to retake the level. Selling over the past three days has shaved roughly 200 pips off the pair, which ison track to post its lowest close of August. Italian and Spanish Manufacturing PMI will be released Monday. 

·         GBPUSD is -15 pips at 1.5485 as trade presses lower for the seventh time in eight days. Today's selling has pushed the pair below its 200-day moving average, and has trade looking to test minor support in the 1.5450 region. Britain's Manufacturing PMI is due out Monday. 

·         USDCHF is -10 pips at .9300 as trade holds near a two-week high. An early bid failed near .9330 as sellers flexed their muscles in defense of the 50- and 200-day moving averages. Swiss data is limited to SVME PMI. Japan's capital spending will be released Sunday evening. 

·         USDJPY is -20 pips at 98.15 as trade remains unable to break out of its range that has been in place. Sellers continue to defend trendline resistance off the May highs, which is seeing help from both the 50- and 100-day moving averages. Today's heavy dose of Japanese data had little impact on trade as action has held in a pretty tight range. 

·         AUDUSD is -20 pips at .8900 as trade flirts with its worst close in over three years. Traders are watching current levels closely as action hugs the 100-month moving average. Any close below .8900 will be the worst since August 2010. Australian data includes company operating profits and building approvals. China's Manufacturing PMI will cross the wires tonight while HSBC Final Manufacturing PMI is due out Sunday evening. 

·         USDCAD is -15 pips at 1.0520 as sellers have had the upper hand since this morning's slightly worse than expected Canadian GDP report (-0.5% actual v. -0.4% expected). Near-term support rests in the 1.0475 area while sellers will look to defend the early-July highs in the 1.0575/1.0600 region.

Weekly Analysis
Week 35



Technical Updates







 Briefing's Commentaries

On Monday, 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. The comments raised the expectations for a military operation, a concern participants grappled with throughout the week. 

Tuesday saw the major averages settled on their lows after broad-based selling persisted throughout the session. Sellers were in control, reacting to the increased likelihood of U.S. military involvement in Syria. In addition, investors exhibited caution amid news indicating the debt ceiling will be reached in mid-October and that Congress has yet to begin budget negotiations ahead of the new fiscal year, which begins October 1. The S&P 500 fell 1.6% to end below its 100-day moving average for just the second time this year. Small caps endured even more selling as the Russell 2000 lost 2.4%. The Dow Jones Transportation Average fell 2.6% as airlines displayed significant weakness. Delta Air Lines (DAL 19.73, +0.09) and United Continental (UAL 28.46, -0.04) tumbled 5.7% and 7.2%, respectively. 

Wednesday's session ended with the S&P 500 adding 0.3% to follow the Tuesday slide. Although the benchmark index advanced, it was unable to retake its 100-day moving average. Eight of ten sectors finished in positive territory with energy leading the way. The sector displayed significant strength, climbing 1.8%, after outperforming in the previous session. On a related note, crude oil rose past $109.40 per barrel to push its quarter-to-date gain to almost 12.0% amid increased tensions in the Middle East. 

On Thursday, 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 did 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.



Next Week In View

Events and conferences of interest for next week
Events and conferences of interest for next week, Sept 2-6, are listed below. For a complete list of next week's events, please see the events calendar.

Monday

·         US Markets are Closed for Labor Day

Tuesday

·         MDLZ, MO, GIS, SJM at Barclays Capital Back-to-School Consumer Conference

·         ALU, CHKP, GWRE, INTC at Citi 2013 Global Technology Conference

·         Qualcomm Uplinq 2013 Mobile Developers Conference, 

·         HIMX Annual Meeting

·         RBA Statement

Wednesday

·         STZ, PG, PM, KO at Barclays Capital Back-to-School Consumer Conference

·         YELP, EBAY, SFLY, DDD at Citi 2013 Global Technology Conference

·         BPI, CBS, ANGI, P at Barrington Research Growth Conference

·         Fed's Williams

·         Fed's Kocherlakota

·         BoJ Rate Decision

Thursday

·         ECB Rate Decision, Draghi Press Conferece

·         BOE Rate Decision

·         G20 Meeting

Friday

·         August Nonfarm Payrolls, Unemplyment

·         Fed's Evans; Fed's George

Jason's Commentaries

Here's a quick sum-up of what happened on Friday, I was totally wrong with my call. Market started with some bearishness and held flat throughout the session before John Kerry coming out to talk about US's stance on Syria's chemical attack. That started to rock the market which some serious gyration. We have pretty much of a nice volume on Friday, with 736.1m shares traded on the NYSE and the bears are pretty much in charge. Nonetheless, the sudden increase of stock activities pretty much lies in the gyration we had in the equity market as the high frequency traders started their heavy algo trading.

On the sectors, we have the discretionary sectors lagging the most with -0.62% followed by industrials, lagging -0.56%. Staples were the only few that were up with 0.3%. The automakers were amongst the worst performers during the market on Friday night which dragged the Discretionary sector down while the industrials were being dragged down by Defense names like Boeing, Honeywell. Railroads played quite a big part in that drag as well. The Staples were surprising being dragged up by Walmart and P&G, which landed staples in the positive region.

On the technical perspective, we are having Dow sitting on the 14,750 support level which is not very strong and I believe that price level would not last very long. The next potential strong support lies either at 14,500 or 14.700. However, the S&P500 is sitting nicely n the 1620 level lines and the next eminent support would be at the 1600 level. Although we're having the long weekend in the states on Monday, this long weekend fails to pull the market up and which is quite a bearish sign as well. If Tuesday open lower, we might have some serious bearish market to come.

On the weekly perspective, we might be at the 5th candle reversal if we hit a nice support. Assuming if the jobs report ended up good in the week, we might some possibilities in getting a flat week. Else, it might look pretty bear to me. Obama as announced during the weekend, is going to seek Congress's approval in Syria's attack and that attack will have 'no boots on the ground'. Meaning, they will probably provide air covers and long range attacks to destroy key military bases. Obama would not want to have a prolong war which will cause the debt ceiling to hit even higher.

In summary, I'm looking at some possibilities for the week which can only be confirmed on the Tuesday close. While we're having the jobs reports coming out this week, be prepared to sit through the volatility. Especially with the Syria attack, which adds on to the additional volatility, these few weeks is going to be hard to read. Nonetheless, I believe we're still not that bearish yet.

Market Call: FLAT to upside

Date: 3 Sep 2013