18 Jul 2014 AMC - Market recovered back higher after sell off on Thursday

18 Jul 2014 AMC - Market recovered back higher after sell off on Thursday

Market Summary 

European Markets Closing Prices -Technical-

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: -0.4%

·         France's CAC: + 0.4%

·         Spain's IBEX: -0.2%

·         Portugal's PSI: -0.8%

·         Italy's MIB Index: + 0.7%

·         Irish Ovrl Index: -0.5%

·         Greece ASE General Index: -2.7%

Before Market Opens 

S&P futures vs fair value: +4.00. Nasdaq futures vs fair value: +18.30.
Markets ended mostly lower across Asia. The latest Bank of Japan minutes voiced concern over potential structural problems in the export sector. China's housing market saw price drop in 55 of 70 cities as the rate of change slowed to +4.2% YoY (+5.4% YoY previous).

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·         Japan's Nikkei (-1.0%) fell to a one-week low. Exports were pressured as the yen strengthened to levels last seen in February. Toyota fell 1.1% and Panasonic slide 1.7%. 

·         Hong Kong's Hang Seng (-0.3%) saw early weakness produce a drop in excess of 1.0%, but trade was able to pare its losses throughout the day. Casino shares remained weak with Sands China and Galaxy Entertainment giving up 2.7% and 1.0%, respectively. 

·         China's Shanghai Composite (+0.2%) eked out a gain as action held the 50 and 100 dma. Real estate developers led the way as Poly Real Estate jumped 4.1% and China Vanke added 3.3%.

Major European indices are lower across the board.

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·         Great Britain's FTSE is off 0.3%. Miners are among the worst performers as Lonmin trades lower by 1.7% and Rio Tinto is off 0.9%. 

·         Germany's DAX holds a loss of 0.7%. Automakers are seeing broad-based selling with Bayerische Motoren Werke, Daimler, and Volkswagen down between 0.8% and 2.4%.  

·         France's CAC is lower by 0.3%. Financials hover little changed with Societe Generale off 0.1% and BNP Paribas up 0.1%. 

U.S. Equities

·         Equity futures suggest a firm open as trade looks to claw back some of yesterday's losses

·         Technology shares are likely to garner interest at the open as Google (GOOG) posted mixed results and IBM (IBM) beat on both the top and bottom lines 

·         The Russell 2000 continues its recent underpeformance, and is now -6.5% off the July highs 

·         The VIX (14.54) finished yesterday's session at its highest level in three months

o    S&P Futures +4 @ 1858

o    Dow Futures +21 @ 16,962

o    Nasdaq Futures +15 @ 3891

Asia

·         Markets ended mostly lower across Asia

·         The latest Bank of Japan minutes voiced concern over potential structural problems in the export sector

·         China's housing market saw price drop in 55 of 70 cities as the rate of change slowed to +4.2% YoY (+5.4% YoY previous)

·         Japan's Nikkei (-1.0%) fell to a one-week low as the yen strengthened to levels last seen in February. 

·         Hong Kong's Hang Seng (-0.3%) saw early weakness produce a drop in excess of 1.0%, but trade was able to pare its losses throughout the day

·         China's Shanghai Composite (+0.2%) eked out a gain as action held the 50 and 100 dma

Market Internals

Market Internals -Technical-
The Nasdaq closed up 69 (+1.57%) at 4432, the S&P 500 closed up 20 (+1.03%) at 1978, and the Dow closed up 123 (+0.73%) at 17100. Action came on mixed volume (NYSE 743 mln vs. avg. of 661; NASDAQ 1683 mln vs. avg. of 1686), with advancers outpacing decliners (NYSE 2582/568, NASDAQ 2130/569) and mixed new highs/lows (NYSE 124/20, NASDAQ 42/54). 

Relative Strength: 
Coffee-JO +3.85%, Biotechnology-XBI +3.32%, Biotechnology-IBB +3.01%, Turkey-TUR +2.92%, Indonesia-IDX +2.72%, Latin America 40-ILF +2.61%, Russia-RSX +2.43%, Eastern Europe-ESR +2.2%, Broker-Dealers-IAI +1.9%, Social Media-SOCL +1.84%.

Relative Weakness: 
Volatility-VXX -6.82%, Grains-JJG -2.31%, Corn-CORN -1.88%, Junior Gold Miners-GDXJ -1.78%, Silver-SLV -1.33%, Chile-ECH -0.42%, Peru-EPU -0.22%, Japanese Yen-FXY -0.17%, British Pound-FXB -0.1%, Swiss Franc-FXF -0.1%.

Leaders and Laggards

Technical Updates

Commentaries 

Closing Summary: From Risk Off to Risk On
Whatever concerns the stock market had on Thursday about the downing of a Malaysian Air passenger jet in eastern Ukraine and Israel's ground assault in Gaza, they were quickly set aside on Friday. The major indices snapped back to bullish attention, riding the belief these developments would not evolve into worst-case scenarios and piggybacking off strong sector leadership.

The resilience to follow-through selling efforts took hold overnight in Asian markets and it quickly became entrenched in the US when the opening bell rang. The major indices moved up at the open and held up despite some weaker than expected economic data in the form of the University of Michigan Consumer Sentiment report for July (81.3 versus the Briefing.com consensus estimate of 84.0) and the Leading Indicators report for June (+0.3% versus the Briefing.com consensus estimate of +0.5%).

This resilience likely precipitated some short-covering activity that helped drive the major indices higher. There was more to it than that though.

A strong response to Google's (GOOG 595.08, +21.35) latest earnings report, which featured another double-digit gain in revenue growth, healthy sector leadership, and a renewed surge of buying interest in the small-cap space helped fortify the bullish bias.

The Russell 2000 jumped 1.6% and the Nasdaq Composite, which dropped 63 points on Thursday, recouped that entire loss and then some with a 69 point, or 1.6%, gain. The S&P 500 added 1.0%, meaning it closed with a 1.0% move for the second straight session. Prior to Thursday, the S&P 500 had not had a 1.0% move on a closing basis in 61 sessions.

In brief, the risk aversion trade that dominated on Thursday was supplanted by a risk-on trade on Friday. That was evident in the recognition that every S&P 500 economic sector ended the day higher while gold prices ($1311.30, -5.60) and the 10-yr note (-9/32, 2.48%) ended the day lower. The clearest sign, however, was seen in the CBOE Volatility Index (VIX 12.26, -2.28), which plummeted 16% after surging 32% on Thursday.

Bolstered by a strong move in the biotech space and word that Shire Pharmaceuticals (SHPG 257.06, +3.62) accepted a $54 bln buyout proposal from AbbVie (ABBV 54.91, +1.39), the health care sector (+1.6%) outperformed all other sectors. It was followed by the technology (+1.3%), financial (+1.1%), utilities (+1.1%), and consumer staples (+1.0%) sectors. Those five sectors combined make up just over 60% of the market-cap weighted S&P 500.

In terms of the price-weighted Dow Jones Industrial Average, it was driven by gains in all but one of its 30 components. The notable laggard -- which reported earnings results that failed to wow investors -- was General Electric (GE 26.46, -0.15). IBM (IBM 192.50, +0.01), which also failed to impress with its report, increased by a penny.

A total of 744 mln shares traded at the NYSE, which was heavier than average on account of the options expiration activity. Given the broad-based gains, it should not be surprising to hear that advancing issues outlegged declining issues at the NYSE and Nasdaq by a better than 4-to-1 margin.

·         S&P 500 +7.0% YTD

·         Nasdaq Composite +6.1% YTD

·         Dow Jones Industrial Average +3.1% YTD

·         Russell 2000 -1.1% YTD

Commodities

Closing Commodities: Crude Ends Flat, Precious Metals Rise

·         Commodities mostly ended lower today

·         Crude oil slide from its overnight high, largely driven by the situation in Ukraine, and closed 1 cent lower at $103.14/barrel

·         Aug natural gas lost 1 cent to $3.95/MMBtu

·         Precious metals rose today with Aug gold gaining $10 to $1309.90/oz and Sept silver rising $0.13 to $20.90/oz

·         Sept copper lost $0.03 to $3.18/lb

COMEX Metals Closing Prices

·         Aug gold rose $10 to $1309.90/oz

·         Sep silver rose $0.13 to $20.90/oz

·         Sep copper fell 3 cents to $3.18/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices; corn and wheat remain at a 4-year low

·         Sep corn fell 6 cents to $3.71/bushel

·         Sep wheat fell 3 cents to $5.35/bushel

·         Aug soybeans fell 12 cents to $11.75/bushel

·         Sep ethanol settled unchanged at $2.00/gallon

·         Sep sugar (#16 (U.S.)) fell 0.12 of a penny to 24.38 cents/lbs

NYMEX Energy Closing Prices

·         Aug crude oil fell 1 cent to $103.14/barrel

·         Aug natural gas fell 1 cent to $3.95/MMBtu

·         Aug heating oil settled 1 cent lower to  $2.85/gallon

·         Aug RBOB fell 3 cents to $2.85/gallon

Treasuries

Longer Dated Maturities Rally on Weak Data, Macro Concerns: 10-yr: -13/32..2.486%..USD/JPY: 101.34..EUR/USD: 1.3525
The Week in Review

·         Treasuries endured a mixed week as selling took hold up front while buyers were in charge at the long end. Click here to see an intraweek yields chart.

·         Macro headlines were plentiful as Portugal's Espirito Santo International teetered on the brink of default, a Malaysian Airlines jet was shot out of the sky in eastern Ukraine, and Israeli troops entered the Gaza. 

·         The latest Fed Beige Book suggested "economic activity continued to expand since the previous report" and that "most districts were optimistic about the outlook for growth." 

·         Economic data out over the course of the week was mostly disappointing. 

·         Retail sales (0.2% actual v. 0.7% expected), business inventories (0.5% actual v. 0.6% expected), industrial production (0.2% actual v. 0.4% expected), capacity utilization (79.1% actual v. 79.2% expected), housing starts (893K actual v. 1020K expected), building permits (963K actual v. 1037K expected), Michigan Sentiment (81.3 actual v. 84.0 expected), and leading indicators (0.3% actual v. 0.5% expected) all missed estimates.

·         Only Empire Manufacturing (25.6 actual v. 13.2 expected) and Philadelphia Fed (23.9 actual v. 12.5 expected) beat.

·         Selling up front caused the 2y to tick up +2bps to 0.480%. Resistance in the 0.500% region will be watched in the days ahead.

·         The 5y added +2bps to 1.666%. The yield saw several tests of support, but was unable to break below the 50 and 100 dma. 

·         The 10y shed -4bps to 2.484%. Action pushed below 2.500% support, and finished the week at its lowest levels since the end of May. 

·         At the long end, the 30y fell -6bps to 3.292%. The yield tested the May low of 3.267%, but was able to avoid its lowest print in 13 months. 

·         A flatter curve took hold as the 2-10-yr spread narrowed to 200.5bps and the 5-30-yr spread tightened to 162.5bps. 

The Week Ahead 

·         There is no data on Monday. 

·         Tuesday will see CPI (8:30), FHFA Housing Price Index (9), and existing home sales (10).

·         Wednesday's data is limited to the weekly MBA Mortgage Index (7). 

·         Thursday's data includes initial and continuing claims (8:30) and new home sales (10). 

·         Data for the week concludes on Friday with durable orders (8:30).

On other news.... 




Currencies 

Dollar Looks at Flat Finish: 10-yr: -12/32..2.481%..USD/JPY: 101.36..EUR/USD: 1.3527

·         The Dollar Index climbed to one-month highs above 80.70 before giving up its early gains and and sliding back down to the 80.50 flat line. Click here to see a daily Dollar Index chart.

·         EURUSD is unchanged @ 1.3525. Some early selling pressured the single currency below the 1.3500 level for the first time since February, but a strong bid emerged at the support level and ran trade back up to the flat line. Germany's Bundesbank will release its monthly report on Monday.

·         GBPUSD is -15 pips @ 1.7085 after clawing back most of its early weakness. Sterling remains on track for a third day of losses as it fights to hold 1.7050/1.7100 support. 

·         USDCHF trades flat @ .8975. Some early strength lifted the pair above .9000 and had action looking at its best close since February, but a reversal in the euro altered those plans. 

·         USDJPY is +20 pips @ 101.35 as trade sees a bounce off key support. The pair ended yesterday's session at its lowest levels since February, but the bears have been unable to produce follow through selling. Japanese banks are closed on Monday for Marine Day. 

·         AUDUSD is +45 pips @ .9395 as action presses to a one-week high. The hard currency has seen several test of .9350 support during the month of July, but support aided by the 50 dma has held. 

·         USDCAD is -25 pips @ 1.0735 as trade slips off one-month highs. The pair saw a sharp drop down to 1.0700 after the in-line CPI (-0.1% MoM) number and strong wholesale sales (2.2% MOM actual v. 0.7% MoM expected) report crossed the wires, but managed to quickly halve those losses. Resistance near 1.0800 is home to both the 50 and 200 dma.

Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries

Weekly Wrap The week that just concluded had it all.  There were earnings results, economic data, a monetary policy report, M&A activity, calls for tax reform, geopolitical conflict, and volatility.  It was a remarkable week, and when it was all said and done, it was another winning week for the S&P 500, which gained 0.5%.

The financial sector led the earnings reporting brigade and just about every major financial firm that reported assaulted their S&P Capital IQ consensus earnings per share estimates.  To wit: Goldman Sachs (GS) beat by $1.04,BlackRock (BLK) beat by $0.43, Citigroup (C) beat by $0.17, JPMorgan Chase beat by $0.16, and Bank of America (BAC) beat by $0.12.  The aggregate response was favorable.  The financial sector gained 1.0% for the week.

The only other sector that did better was the technology sector.  It gained 1.6%, bolstered by impressive results from Intel (INTC) and Google (GOOG), and news of a partnership on made-for-business applications between Apple(AAPL) and IBM (IBM).

The economic reporting wasn't quite as robust.  The retail sales, industrial production, housing starts, building permits, leading indicators, and University of Michigan Consumer Sentiment reports all came in below expectations.  There were some upbeat reports though, namely the Empire Manufacturing, NAHB Housing Market Index, Initial Claims, and Philadelphia Fed Index reports.

In sum, it was a mixed week of economic reporting that didn't alter the market's thinking at all about the timing of the first hike in the fed funds rate.

On a related note, Fed Chair Yellen went before the Senate Banking and House Financial Service Committees on Tuesday and Wednesday, respectively, to deliver her semiannual testimony on the economy and monetary policy.  Much of what she said had already been heard before by the market.  Briefly, she noted that the economy is getting better, but that it is still not on firm enough footing to raise rates.  She conceded that a rate hike could occur sooner than expected if incoming data proved to be stronger than envisioned, but that, ultimately, any interest rate decision would be dependent on incoming data.

One thing Ms. Yellen did say that caused quite a stir was that "equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched."  That view got all of the talking heads worked up as it was likened to Alan Greenspan's "irrational exuberance" speech in 1996.  It did lead to some increased selling pressure in those respective spaces.  The Russell 2000 ended the week down 0.7% while the iShares Nasdaq Biotechnology Index (IBB) declined 2.5%.

Once again, there was a good bit of M&A news this week. The featured item of the week on that front was a report that Time Warner (TWX) turned down an $80 bln buyout offer from 21st Century Fox (FOXA).  The bookend to the week, though, was the news that Shire Pharmaceuticals (SHPG) finally accepted a $54 bln buyout proposal from AbbVie (ABBV).  Separately, there was a call by Treasury Secretary Lew for Congress to pass legislation that prevents tax inversions in merger deals.

All of the corporate and economic news took a distant backseat to geopolitical developments on Thursday that included reports of new sanctions levied by the US against Russia, a Malaysian Air passenger jet being shot down by a surface-to-air missile over eastern Ukraine, and Israel launching a ground assault in Gaza.  The confluence of those reports led to a 1.2% decline in the S&P 500, which marked the first 1.0% move on a closing basis for the blue-chip average in 62 sessions.

Thursday was a day riddled with uncertainty and the capital markets reflected as much.  Gold prices went up, oil prices went up, longer-dated Treasury prices went up, stocks went down, and the CBOE Volatility Index soared 32% (albeit from a depressed base).  There were more questions than answers, and with so much uncertainty, there was a broad-based profit-taking move in the stock market.

What fell apart on Thursday, though, was quickly put back together on Friday.  Emboldened by a sense that worst-case scenarios would be avoided on all fronts, the stock market stormed back in a short-covering rally that saw all ten S&P 500 economic sectors trade higher.  Friday's trade quickly became the reverse image of Thursday.  Gold prices went down, oil prices went down, longer-dated Treasury prices went down, stocks rallied, and the CBOE Volatility Index plummeted 16%.

The gains that were logged on Friday proved to be the difference that enabled the S&P 500 and Nasdaq Composite to finish the week higher.  The Dow, which was up 0.2% for the week entering Friday, simply extended its gains and ended atop the leaderboard for the major indices.  The Russell 2000, which was down as much as 2.5% for the week on Thursday, closed that gap with a big 1.6% gain on Friday.   

Next Week In View





Economic Commentaries

Economic Summary: Michigan Sentiment and Leading Indicators miss expectations
Economic Data Summary:

·         July Michigan Sentiment 81.3 vs Briefing.com consensus of 84.0; June was 82.5

o    Typically, sentiment levels follow changes in employment, gasoline prices, equity prices, and media reports. All of those factors have been strongly positive so far in July. The S&P 500 reached all-time highs, gasoline prices began a slow move downward, and layoff levels have fallen into a new lower range. All in all, the improvements should have resulted in a large upward tick in sentiment.

·         June Leading Indicators 0.3% vs Briefing.com consensus of 0.5%; May was 0.5%

o    Since 8 of 10 components of the index are known prior to the release, the differences between the actual and consensus is generally small. In this case, the consensus expected the building permits data declined in June whereas the consensus forecasted a 4.6% gain. 

Upcoming Economic Data:

·         June CPI due out Tuesday at 8:30 (Briefing.com consensus of ; May was 0.4%)

·         June Core CPI due out Tuesday at 8:30 (Briefing.com consensus of ; May was 0.3%)

·         May FHFA Housing Price Index due out Tuesday at 9:00 (Briefing.com consensus of ; April was 0.0%)

·         June Existing Home Sales due out Tuesday at 10:00 (Briefing.com consensus of ; May was 4.89 M )

Jason's Commentaries

As expected, the market headed for the weekend, short covering started happening in case any unexpected news happens during the weekend. During the weekend, it was rather peaceful. The day started with a upwards bullish sentiment which lasted throughout the session. The healthcare is the strongest sector which lead the market higher together with Financials and Technologies. Google was one of the main factor why the market rallied with a gain of 3.72%. However, there were some divergence in the market as well.

I'm expecting the this week to be rather volatile as the Energy sector and the Industrials are likely to lag due to the European and US sanctions on Russia. However, the strong performance from the banks are likely to keep the market afloat. On the technical side, we're likely to head sideways for a while.

Market Call: FLAT to DOWNSIDE

Date: 24 Feb 2014