21 Mar 2014 AMC - Market broke down after lunch and ended the day in red on quadraple witching

21 Mar 2014 AMC - Market broke down after lunch and ended the day in red

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: + 0.5%

·         France's CAC: + 0.2%

·         Spain's IBEX: -0.3%

·         Portugal's PSI: -0.2%

·         Italy's MIB Index: -0.6%

·         Irish Ovrl Index: + 0.3%

·         Greece ATHEX Composite: -2.4%

Before Market Opens 

S&P futures vs fair value: +5.20. Nasdaq futures vs fair value: +15.20.
The S&P 500 futures trade five points above fair value.

Markets across Asia finished mostly higher, piggybacking yesterday's advance on Wall Street. Australia's CB Leading Index ticked up 0.2% month-over-month and Hong Kong's current account surplus narrowed to HKD18.95 billion from HKD31.80 billion. 

·         Japan's Nikkei was closed for Spring Equinox Day. 

·         Hong Kong's Hang Seng rallied 1.2% off eight-month lows. Exporter Li & Fung jumped 21% on news the company plans to spin off its branding and licenses business. 

·         China's Shanghai Composite jumped 2.7%, posting its biggest gain in four months. Traders moved into the heavily beaten down financials as Shanghai Pudong Bank surged the limit, 10%, and Industrial Bank climbed 6.6%. 

Major European indices hold modest gains with Germany's DAX (+0.5%) in the lead. Economic data was limited. Eurozone current account surplus expanded to EUR25.30 billion from EUR20.00 billion (expected EUR18.40 billion); Great Britain's Public Sector Net Borrowing increased GBP7.50 billion (consensus GBP8.60 billion, prior -GBP6.40 billion); and Italian Industrial New Orders rose 4.8% month-over-month (expected 2.1%, prior -4.8%) while Industrial Sales increased 1.2% month-over-month (previous -0.2%).

Among news of note, Russian Prime Minister Dmitry Medvedev said Ukraine should repay $16 billion to Russia following the denunciation of an agreement reached in 2010, per which Ukraine received a discount on gas prices in exchange for a naval base in Sevastopol. 

·         Great Britain's FTSE trades higher by 0.3% with miners showing strength. Anglo American, Fresnillo, Glencore Xstrata, and Rio Tinto hold gains between 0.8% and 2.2%. Burberry is among the laggards, down 2.4%. 

·         In France, the CAC trades up 0.3% with software company Gemalto in the lead (+2.3%). On the downside, financials Credit Agricole and Societe Generale trade lower by 2.5% and 0.8%, respectively. 

·         Germany's DAX is higher by 0.5%. Commerzbank leads with a 3.2% gain while Deutsche Bank holds a loss of 0.4%.

Asia

·         Markets finished mostly higher across Asia, piggybacking yesterday's advance on Wall Street

·         Australia's CB Leading Index ticked up 0.2% MoM

·         Hong Kong's current account surplus narrowed to HKD18.95 bln (HKD31.8 bln previous)

·         Malaysia's inflation rate edged up to 3.5% YoY (3.4% YoY previous)

·         Japan's Nikkei was closed for Spring Equinox Day

·         Hong Kong's Hang Seng (+1.2%) rallied off eight-month lows

·         China's Shanghai Composite (+2.7%) posted its biggest gain in four months

·         India's Sensex (+0.1%) held near record highs

·         Australia's ASX (+0.8%) regained both its 50 and 100 dma

Market Internals

Market Internals -Technical-
The Nasdaq closed down 43 (-0.98%) at 4277, the S&P 500 closed down 5 (-0.29%) at 1867, and the Dow closed down 26 (-0.16%) at 16305. Action came on above average volume (NYSE 1973 mln vs. avg. of 730; NASDAQ 2832 mln vs. avg. of 2055), with mixed advancers/decliners (NYSE 1820/1305, NASDAQ 1133/1563) and new highs outpacing new lows (NYSE 197/20, NASDAQ 164/22).

Relative Strength: 
China 25 Index-FXI +2.88%, Coal-KOL +2.68%, Eastern Europe-ESR +2.13%, Steel-SLX +1.91%, Copper Miners-COPX +1.91%, Mexico-EWW +1.88%, Egypt-EGPT +1.65%, Lithium-LIT +1.62%, Middle East and Africa-GAF +1.46%, Rare Earths-REMX +1.43%.

Relative Weakness: 
Greece-GREK -5.22%, Biotechnology-IBB -4.74%, Biotechnology-XBI -4.18%, Technology-Software-IGV -2.32%, Coffee-JO -2.17%, Turkey-TUR -2.15%, Health Care-XLV -1.81%, Spain-EWP -1.29%, Italy-EWI -1.29%, Israel-EIS -0.96%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Strong Week on Cautious Note
The stock market finished an upbeat week on a lower note with the tech-heavy Nasdaq Composite losing 1.0% while the S&P 500 shed 0.3% with four sectors ending in the red.

Equities began the day on a strong note with no economic data to influence the trading sentiment; however, quadruple witching and index rebalancing contributed to additional volatility and volume. With nearly two billion shares changing hands at the New York Stock Exchange, today's final volume was less than 500 million below the 2.44 billion collective total registered between Monday and Thursday.

The S&P 500 surged out of the gate, notching a fresh intraday record high at 1884.00, but was unable to establish a new closing high above the March 7 settlement of 1878.04. After spiking at the open, the benchmark average spent the rest of the session in a steady retreat.

While the S&P 500 did not slip into the red until just before 14:00 ET, the Nasdaq underperformed from the open, making its first appearance in negative territory around 10:00 ET. Biotechnology pressured the index from the early going with the iShares Nasdaq Biotechnology ETF (IBB 246.01, -12.24) spending the session in a steady slide before settling lower by 4.7% on heaviest volume since October 2005. The ETF ended 9.9% below its February high, trimming its 2014 gain to 8.4%. In addition to pressuring the Nasdaq, biotechnology contributed to considerable weakness in the health care sector (-1.5%), which ended well behind the remaining nine sectors.

Although no other sector posted a loss larger than 0.6%, other top-weighted groups like technology (-0.5%) and consumer discretionary (-0.6%) underperformed while financials (+0.01%) finished a bit ahead of the broader market after being up as much as 1.1% at the start of the session.

Losses in the technology sector were paced by chipmakers with Intel (INTC 25.17, -0.25) falling 1.0% while the broader PHLX Semiconductor Index lost 0.9%. On the software side, shares of Symantec (SYMC 18.20, -2.71) caught a virus, plunging 12.9% after the company unexpectedly terminated Chief Executive Officer Steve Bennett, naming Michael Brown interim president and CEO.

Elsewhere, the discretionary space was pressured by homebuilders and Nike (NKE 75.21, -4.06). Top-weighted homebuilders posted losses across the board with the iShares Dow Jones US Home Construction ETF (ITB 24.17, -0.40) slumping 1.6%. For its part, Nike tumbled 5.1% after its cautious outlook overshadowed above-consensus earnings and revenue.

Even though three of the four largest sectors underperformed notably, the broader market was kept from registering additional losses by the relative strength among the second-tier sectors. Consumer staples (+0.03%), energy (+0.3%), and industrials (+0.1%) all finished ahead of the broader market. Materials (+0.5%), telecom services (-0.03%), and utilities (+0.8%) also ended ahead of the S&P 500, but their impact was limited since three sectors account for just 9.9% of the entire market.

With stocks under pressure, participants displayed demand for volatility protection, sending the CBOE Volatility Index (VIX 15.00, +0.48) higher by 3.3% after the near-term volatility measure tested early March lows at the start of the session.

Treasuries spent the entire day in a steady climb from their morning lows. The benchmark 10-yr yield fell three basis points to 2.74%. 

·         Russell 2000 +2.8% YTD 

·         Nasdaq Composite +2.4% YTD 

·         S&P 500 +1.0% YTD 

·         Dow Jones Industrial Average -1.7% YTD 

Commodities

Closing Commodities: Gold Posts 3.1% Weekly Loss

·         Apr gold rose for the first time in five sessions, gaining support from a weaker dollar index. The yellow metal brushed a session high of $1340.50 per ounce in early morning action but pulled back slightly as the session progressed. It eventually settled with a 0.4% gain at $1335.80 per ounce, booking a 3.1% loss for the week. 

·         May silver, however, slipped into negative territory shortly after equity markets opened. It retreated from its session high of $20.50 per ounce and settled at its session low of $20.31 per ounce, or 0.6% lower. Today's decline brought losses for the week to 5.1%. 

·         May crude oil traded in positive territory today. It lifted from its session low of $99.11 per barrel and peaked at $100.25 per barrel. It eventually settled 0.6% higher at $99.48 per barrel, booking a 0.9% gain for the week. 

·         Apr natural gas extended yesterday's losses, dipping to a session low of $4.29 per MMBtu in mid-morning action. It settled 1.4% lower at $4.31 per MMbtu, booking a weekly loss of 2.5%.

COMEX Metals Closing Prices

  Apr gold rose $5.60 to $1335.80/oz 

·         Gold rose for the first time in five sessions, gaining support from a weaker dollar index. The yellow metal brushed a session high of $1340.50 in early morning action but pulled back slightly as the session went on. It eventually settled with a 0.4% gain, booking a 3.1% loss for the week. 

  May silver fell $0.12 to $20.31/oz 

·         Silver, however, slipped into negative territory shortly after equity markets opened. It pulled back from its session high of $20.50 and settled at its session low, or 0.6% lower. Today's decline brought losses for the week to 5.1%. 

  May copper rose 2 cents to $2.95/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn rose 1 cent to $4.79/bushel 

·         May wheat fell 14 cents to $6.92/bushel 

·         May soybeans fell 25 cents to $14.09/bushel 

·         Apr ethanol rose 4 cents to $2.85/gallon .

·         May sugar (#16 (U.S.)) fell 0.28 of a penny to 21.75 cents/lbs

 NYMEX Energy Closing Prices

  May crude oil rose $0.61 to $99.48/barrel 

·         Crude oil traded higher today as the dollar index chopped around in negative territory. The energy component lifted from its session low of $99.11 and peaked at $100.25. It eventually settled 0.6% higher, booking a 0.9% gain for the week. 

  Apr natural gas fell 6 cents to $4.31/MMBtu 

·         Natural gas extended yesterday's losses, dipping to a session low of $4.29. It settled 1.4% lower, booking a weekly loss of 2.5%. 

  May heating oil settled unchanged at $2.91/gallon 

  May RBOB rose 1 cent to $2.90/gallon


Treasuries

Fed Taper Sends Yields in the Belly Sharply Higher: 10-yr: +06/32..2.745%..USD/JPY: 102.12..EUR/USD: 1.3798
The Week in Review

·         Treasuries endured heavy selling across most of the complex this week as the Fed announced another taper to its asset purchase program while also altering its forward guidance. Click here to see an intraweek yields chart.

·         The Fed announced it would trim its asset purchases by another $10 bln to $55 bln per month. 

·         Forward guidance was changed to encompass "a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."

·         Economic data mostly exceeded forecasts as Empire Manufacturing (5.6c actual v. 5.4 expected), industrial production (0.6% actual v. 0.1% expected), building permits (1018K actual v. 955K expected), current account balance (-$81.1 bln actual v. -$87.6 bln expected), and the Philly Fed (9.0 actual v. 2.0 expected) all topped forecasts.

·         Data misses were limited to NAHB Housing Market Index (47 actual v. 50 expected) and housing starts (907K actual v. 915K expected).

·         Up front, the 2y rallied +9bps as the now infamous "six months" comment from Fed Chair Yellen suggested the Fed could begin hiking rates as soon as the middle of 2015 as its asset purchase program is currently on track to wind down by the end of 2014. The 2y finished the week @ 0.425%, its highest since January.

·         This week's selling had the biggest impact on yields in the belly of the curve, which climbed as much as +16bps. 

·         Wednesday's +15bp surge in the 5y accounted for almost all of its weekly advance. The yield survived an early week test of support in the 1.550% region before seeing an aggressive rise following the Fed taper. Current action has the yield testing trendline resistance off the September highs near 1.725%. 

·         A +9bp rise in the 10y ran the benchmark yield up to 2.750%. The 2.800% region will remain in focus into next week as trendline resistance off the January highs is helped by the 50 and 100 dma.

·         The 30y saw significant outperformance. The yield on the long bond ticked up just +1bp to 3.609% as sellers concentrated their efforts on maturities in the belly. Many participants will be watching the 3.550% area in the days ahead with a breakdown possibly putting 3.150% in play.

·         The 2-10-yr spread steepened slightly over the course of the week, widening to 232.5bps. 

·         Aggressive flattening took place in the 5-30-yr spread as trade tightened to 189.5bps. 

The Week Ahead 

·         There is no data scheduled for Monday. 

·         Tuesday will see the Case-Shiller 20-city Index, FHFA Housing Price Index (9), consumer confidence, and new home sales (10). Treasury will auction $32 bln 2y notes. Fed speak begins for the week with ATL's Lockhart giving his economic outlook (16) and Philly's Plosser discussing the economy and monetary policy (19). 

·         Wednesday's data includes the weekly MBA Mortgage Index (7) and durable orders (8:30). Treasury will hold a $35 bln 5y note auction. STL's Bullard travels to Hong Kong to participate in a panel on "Central Banks - Will Policy Making Ever be Conventional Again?" (11:45). 

·         Data picks up on Thursday with initial and continuing claims, GDP - Third Estimate (8:30), and pending home sales (10). Treasury will auction $29 bln 7y notes. STL's Bullard remains in Hong Kong to discuss "What are the Prospects for U.S. Monetary Policy" (20:20). Chicago's Evans will be in Hong Kong, discussing the economy and monetary policy (21:30). 

·         Data concludes for the week on Friday with personal income and spending, PCE Prices - Core (8:30), and Michigan Sentiment - Final (9:55). KC's George talks the U.S. economy (12:15).

On other news.... 




Currencies 

Dollar Drifts Little Changed: 10-yr: +05/32..2.751%..USD/JPY: 102.21..EUR/USD: 1.3798

·         The Dollar Index holds little changed during what has been a rather lackluster trade. Click here to see a daily Dollar Index chart.

·         Action had spent the entire U.S. session trapped in a 15 cent range as trade stalls near three-week highs. 

·         Resistance in the 80.50 area that is guarded by both the 50 and 100 dma will be watched closely in the days ahead. 

·         EURUSD is +15 pips @ 1.3795 as trade checks up on support in the area. Today's action has been limited to a 40 pip range during U.S. trading as a lack of tradable news and data has produced an uneventful session. Eurozone data is heavy on Monday as Flash Manufacturing and Services PMI from across the region will be released. 

·         GBPUSD is -15 pips @ 1.6490 as trade remains on track to post a fifth straight day of losses. This week's selling has dropped sterling off 52-month highs, shaving off approximately 150 pips. Many are looking toward support in the 1.6400 area, which is helped by the 100 dma. 

·         USDCHF is -5 pips @ .8830 as some recent selling has dropped action into the red. All in all the pair has seen a rather lackluster trade as action has hovered near .8850/.8875 resistance over the past couple of days. 

·         USDJPY is -15 pips @ 102.25 as some selling takes hold for the first time in three days. Today's action has been rather tame as Japanese banks were shuttered for Spring Equinox Day. Traders will be focusing on the 102.50 resistance as both the 50 and 100 dma reside in the area. Bank of Japan Governor Kuroda will speak tomorrow in London.

·         AUDUSD is +50 pips @ .9085 as trade hovers near four-month highs. The hard currency has been supported throughout the session as buyers surfaced early in defesne of the .9050 support that is helped by the 100 dma. The 200 dma (.9139) is of particular interest as a breakout puts .9300 in play.China's HSBC Flash Manufacturing PMI will cross the wires Sunday evening. 

·         USDCAD is -25 pips @ 1.1215 as sellers have been in control since this morning's hot Canadian CPI (0.8% MoM actual v. 0.6% MoM expected) and better than expected retail sales (1.3% MoM actual v. 0.8% MoM expected) retail sales data. Today's weakness has the pair sliding off its best levels since July 2009, setting up a potential move into the 1.1100 area.

Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries

Week in Review: Fed Chair Yellen Defines "Considerable Time" 

All of the fear and loathing about the Sunday referendum in Crimea was set aside on Monday. Stock markets in Europe and the US rallied, not because there was a de-escalation of the standoff in Ukraine, but because there was no escalation of the standoff that would threaten global economic growth. As expected, Crimeans voted overwhelmingly in favor (95.5% of votes cast) of joining the Russian Federation. As expected, the outcome of the referendum was not accepted as valid by President Obama and EU leaders. Still, there were two points of relief that sparked a short-covering rally on Monday: (1) Military force has not been used and (2) hard-hitting economic sanctions had yet to be imposed. The early rush of buying activity was helped along by a positive showing out of China's stock market (+1.0%), which responded favorably to news of a new urbanization plan. Separately, there were reports that the People's Bank of China would expand the yuan's daily trading band to 2% from 1%.

The major averages finished the Tuesday session with solid gains, but outside of a few pockets of considerable relative strength, most sectors could be classified as reluctant participants in the daylong rally. Small caps led the way with the Russell 2000 climbing 1.5% while the S&P 500 advanced 0.7% with nine sectors posting gains. Prior to the open, equity indices were on track for a lower start to the session, but that changed in a hurry when comments from Russian President Vladimir Putin began making the rounds. Although Mr. Putin did not provide any groundbreaking insight, European markets and equity futures rallied when he said Russia does not want to see a break-up of Ukraine.

Wednesday's session ended in the red with small caps displaying the largest decline. The Russell 2000 lost 0.7% while the S&P 500 settled lower by 0.6% with all ten sectors ending in the red. Equity indices did not show much change during the first half of the session as participants awaited the latest policy statement from the Federal Reserve, but activity picked up considerably after the release of the directive. In response to a question as to what the Fed means by "considerable time" for keeping the current target range for the federal funds rate after the asset purchase program ends, Fed Chair Yellen said "probably six months." Selling activity accelerated after the remark and the fed funds futures market, which, last week, expected the first hike to take place in July, saw the expectations shift to April.

On Thursday, the major averages finished on an upbeat note with the Dow Jones Industrial Average (+0.7%) in the lead. Small caps underperformed with the Russell 2000 adding 0.1% while the S&P 500 settled higher by 0.6% with nine sectors posting gains. Stocks began the day on the defensive amid cautious action overseas, but were quick to erase their early losses. The S&P 500 climbed out of the red during the first hour of action with most European indices following suit. The early advance was powered by the heavily-weighted financial (+1.7%) and technology (+0.7%) sectors, both of which continued their outperformance into the close. Outside of the two, the telecom services sector (+2.5%) was the only other area of relative strength, but it bears noting the group accounts for just 3.0% of the entire S&P 500.

Next Week In View





Economic Commentaries

Economic Summary: No US data today; Kocherlakota would like to maintain unemployment/inflation related guidance, but with a unemployment target of 5.5%
Fed/Treasury Events Summary:

·         Minneapolis Fed President Kocherlakota (dissenter at last meeting, dovish) said new rate guidance does not communicate steps towards 2% inflation goal; would favor low rates until unemployment hits 5.5% and inflation hits 2.25%

Upcoming Fed/Treasury Events:

·         Dallas Fed President Richard Fisher (voting FOMC member, hawkish) to speak tomorrow at 13:45

Other International Events of Interest

·         Eurozone current account surplus widened to EUR25.3 bln (EUR18.4 bln expected, EUR20.0 bln previous)

·         Mexico Central Bank leaves rates unchanged at 3.50%, as expected 

Jason's Commentaries

The market started the day once again on a bullish note, however, that bullish was being washed out by lunch time and ended the day in red. Volumes were exceptionally high due to the quadruple witching. On the technical side, the market on the resistance, forming something like a shooting star. The tech sector did not end too well for the day as names like Google and Oracle lagged. However, with the current market strength, i believe the market is likely to be sideways for a while.

Market Call: FLAT to upside

Date: 24 March 2014