31 Oct 2014 AMC - DMA is finally back as market caught the bears off guard and broke new highs!

31 Oct 2014 AMC - DMA is finally back as market caught the bears off guard and broke new highs!

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 1.3%

·         Germany's DAX: + 2.3%

·         France's CAC: + 2.2%

·         Spain's IBEX: + 2.1%

·         Portugal's PSI: + 2.0%

·         Italy's MIB Index: + 3.1%

·         Irish Ovrl Index: + 2.3%

·         Greece ASE General Index: + 1.0%

Before Market Opens 

S&P futures vs fair value: +20.10. Nasdaq futures vs fair value: +57.70.
The S&P 500 futures trade 20 points above fair value.

It was a sea of green across Asia as all of the major averages gained in response to the Bank of Japan unexpectedly increasing its bond buying program to an annual pace of JPY80 trillion from JPY50 trillion in a 5-4 vote. In addition, Japanese pension fund GPIF confirmed it was increasing its equity exposure to 25% while lowering its Japan debt allocation to 35%. 

·         In economic data: 

o    Japan's National CPI rose 3.2% year-over-year while Core CPI increased 3.0%. Both figures matched expectations. Tokyo CPI rose 2.5% (consensus 2.7%; prior 2.9%) and Tokyo Core CPI also increased 2.5%, as expected. Separately, Household Spending fell 5.6% year-over-year (expected -4.3%; previous -4.7%) and the Unemployment Rate ticked up to 3.6% from 3.5%, as expected. Finally, Housing Starts fell 14.3% year-over-year (consensus -17.5%; prior -12.5%). 

o    New Zealand's Building Consents fell 12.2% month-over-month (expected 1.0%; last -0.8%) 

o    Australia's PPI ticked up 0.2% quarter-over-quarter, as expected, while the year-over-year reading rose 1.2% (consensus 2.6%; last 2.3%) 

o    Singapore's Unemployment Rate ticked down to 1.9% from 2.0% (expected 2.0%) 

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·         Japan's Nikkei surged 4.8% to its best levels since November 2007. Real estate developers led the way as Mitsubishi Estate rallied 15.6% and Sumitomo Realty & Development climbed 12.5%. 

·         Hong Kong's Hang Seng added 1.3% to end at a five-week high, but was unable to retake the 50-day average. Casino names paced the advance as Galaxy Entertainment and Sands China gained 5.2% and 3.0%, respectively. 

·         China's Shanghai Composite rose 1.2%, gaining for a fourth straight session as trade put in its best monthly close since February 2012. Financials saw solid gains as Bank of China lifted 3.7% and Industrial & Commercial Bank of China jumped 2.2%. 

·         India's Sensex climbed 1.9% to a record high. Bharti Airtel was the lone decliner, sliding 2.1%, despite yesterday's better than expected quarterly results. 

Major European indices trade higher across the board with France's CAC (+2.3%) in the lead. The IMF cautioned Greece against a premature exit from its bailout program, which remains in effect for another year. This comes after yesterday's reports from Germany suggested Greece may not be allowed to apply for another round of bailout funds. 

·         Participants received several data points: 

o    Eurozone CPI ticked up to 0.4% from 0.3% while the Unemployment Rate held at 11.5%. Both figures matched expectations. 

o    Germany's Retail Sales fell 3.2% month-over-month (expected -1.0%; prior 1.5%) while the year-over-year reading rose 2.3% (consensus 0.8%; previous -0.7%) 

o    French PPI came in at 0.5% (consensus -0.1%; previous -0.3%) while Consumer Spending slipped 0.8% month-over-month (expected -0.3%; last 0.9%) 

o    Italy's Monthly Unemployment Rate ticked up to 12.6% from 12.5% (expected 12.4%) while CPI increased 0.1% year-over-year (expected -0.2%; previous -0.2%). Separately, PPI fell 1.7% year-over-year (expected -2.0%; prior -1.7%) 

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·         Great Britain's FTSE is higher by 1.1% with financials among the leaders. Royal Bank of Scotland, London Stock Exchange, and St James's Place are up between 3.0% and 4.1%. Miners Fresnillo and Randgold Resources lag with losses close to 2.0% apiece. 

·         Germany's DAX has jumped 2.0% with all but one component trading higher. Infineon Technologies leads with a gain of 4.9% while BMW and Volkswagen are both up near 2.5%. Linde trades down 2.6% after cutting its profit forecast. 

·         In France, the CAC trades up 2.3%. Financials lead with BNP Paribas and Societe Generale up 3.8% and 3.0%, respectively.

U.S. Equities

·         Equity futures point to strong gains at the open with the S&P 500 set to test all-time highs

·         Futures have been boosted by the unexpected Bank of Japan easing

·         The VIX (14.52) ended yesterday's session on support helped by the 50, 100, and 200 dma and is likely to see significant pressure at the open

·         Personal Income (0.2% actual v. 0.3% expected)

·         Personal Spending (-0.2% actual v. 0.1% expected)

·         PCE Prices - Core (0.1% actual v. 0.1% expected)

·         Employment Cost Index (0.7% actual v. 0.5% expected)

o    S&P Futures +22 @ 2010

o    Dow Futures +176 @ 17,290

o    Nasdaq Futures +63 @ 4153

Asia

·         It was a sea of green across Asia as all of the major averages gained in response to the Bank of Japan unexpectedly increasing its bond buying program to an annual pace of JPY80 trln (JPY50 trln previous) in a 5-4 vote

·         Yesterday, Japanese pension fund GPIF announced it was increasing its equity exposure to 25% while lowering its Japan debt allocation to 35%

·         Japan's household spending (-5.6% YoY actual v. -4.0% YoY expected) was weak while Tokyo core CPI (2.5% YoY) came out in-line

·         Australia's PPI (0.2% QoQ) matched estimates

·         Taiwan's GDP improved to 3.8% YoY (3.7% YoY) previous

·         Japan's Nikkei (+4.8%) surged to its best levels since November 2007

·         Hong Kong's Hang Seng (+1.3%) ended at a five-week high, but was unable to retake the 50 dma

·         China's Shanghai Composite (+1.2%) gained for a fourth straight session as trade put in its best monthly close since February 2012

·         India's Sensex (+1.9%) climbed to a record high

·         Australia's ASX (+0.9%) gained for the 11th time in 14 sessions

Earnings/Guidance

·         AbbVie (ABBV) beats by $0.12, beats on revs; raises FY14 EPS above consensus 

·         Aon (AON) beats by $0.17, beats on revs 

·         Chevron (CVX) beats by $0.42, misses on revs

·         Citigroup (C) adjusts Q3 results lower due to $600 mln in legal accruals 

·         Clorox (CLX) beats by $0.07, beats on revs; reaffirms FY15 guidance

·         Dominion (D) misses by $0.02; guides Q4 EPS in-line 

·         Eastman (EMN) beats by $0.09, reports revs in-line

·         Exxon Mobil (XOM) beats by $0.17, beats on revs

·         Expedia (EXPE) beats by $0.19, beats on revs

·         Fluor (FLR) beats by $0.05, misses on revs; guides FY14 EPS in-line; guides FY15 EPS in-line 

·         GoPro (GPRO) beats by $0.04, beats on revs; guides Q4 EPS and revs above consensus

·         Groupon (GRPN) beats by $0.02, beats on revs; guides Q4 EPS below consensus, rev midpoint below consensus 

·         LinkedIn (LNKD) beats by $0.05, beats on revs; guides Q4 below consensus  

·         Mylan Labs (MYL) beats by $0.03, beats on revs; guides Q4 EPS above consensus; raises FY14 EPS guidance above consensus, lowers FY14 rev guidance in-line with consensus

·         Newell Rubbermaid (NWL) beats by $0.03, misses on revs; guides FY14 EPS in-line; guides FY15 EPS in-line; will pursue the sale of its Endicia online postage and Calphalon retail outlet stores

·         Newmont Mining (NEM) beats by $0.34, beats on revs

·         Rockwell Collins (COL) beats by $0.03, beats on revs; guides FY15 EPS in-line, revs in-line 

·         Sony (SNE) beats by JPY31.82, beats on revs; reaffirms FY15 revs guidance

·         Starbucks (SBUX) beats by $0.03, misses on revs; guides Q1 EPS below consensus; guides FY15 EPS below consensus, revs above consensus

·         Tesoro (TSO) beats by $0.91

·         Western Union (WU) beats by $0.06, reports revs in-line, raises FY14 GAAP EPS guidance 

·         Weyerhaeuser (WY) beats by $0.03, reports revs in-line

Market Internals

Market Internals -Technical-
The Nasdaq closed up 65 (+1.41%) at 4631, the S&P 500 closed up 23 (+1.17%) at 2018, and the Dow closed up 195 (+1.13%) at 17391. Action came on above average volume (NYSE 1025 mln vs. avg. of 748; NASDAQ 2210 mln vs. avg. of 1812), with advancers outpacing decliners (NYSE 2447/746, NASDAQ 1930/822) and new highs outpacing new lows(NYSE 359/58, NASDAQ 243/49).

Relative Strength: 
Japan-EWJ +4.96%, Semiconductors-SMH +3.98%, Social Media-SOCL +3.65%, Smart Grid Infrastructure-GRID +3.18%, Clean Energy-PBW +2.9%, Pacific Index-VPL +2.71%, India-INP +2.59%, Italy-EWI +2.34%, Egypt-EGPT +1.79%.

Relative Weakness: 
Junior Gold Miners-GDXJ -6.46%, Silver Miners-SIL -4.12%, Brazilian Real-BZF -3.41%, Japanese Yen-FXY -2.74%, Volatility-VXX -2.63%, Sugar-SGG -1.27%, South Korea-EWY -1.25%, Greece-GREK -1.18%, Biotechnology-XBI -1.14%, Russia-RSX -1.13%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks Soar After Bank of Japan Steps Up Easing Efforts
The stock market finished the month of October with a broad rally that sent the S&P 500 higher by 1.2%. The benchmark index extended its October advance to 2.3% and ended at a fresh record high, while the Nasdaq Composite (+1.4%) outperformed to end October with a 3.1% gain.

Stocks soared out of the gate after the Bank of Japan boosted its asset purchasing program to JPY80 trillion from JPY50 trillion. The central bank said it will now target average maturities between seven and ten years (up from 7 years) and buy ETFs up to an annual amount of JPY3 trillion (up from JPY1 trillion).

The developments sent the yen into a tailspin with the dollar/yen pair surging to a session high just below the 112.50 level. The pair retreated into the 112.25 area by the end of the session, but that still represented a 2.7% advance for the dollar at the expense of the yen.

The greenback strength boosted the Dollar Index (86.87, +0.72) past its September high to its best level since the middle of 2010. This weighed on crude oil, but the energy component was able to narrow its loss to 0.6% by the close. WTI crude ended the pit session at $80.53/bbl after dipping below the $80/bbl level in the morning.

Meanwhile, the energy sector (+2.0%) began the session in the red, but was able to end the day ahead of the broader market. Better than expected earnings from Chevron (CVX 119.95, +2.75) and ExxonMobil (XOM 96.71, +2.26) sent both stocks higher by 2.4%, but the advance could not keep the growth-sensitive sector from ending the month with a 3.0% decline.

Similar to energy, the top-weighted technology sector (+1.8%) ended well ahead of the broader market amid broad strength. LinkedIn (LNKD 228.96, +26.06) and GoPro (GPRO 77.10, +8.85) surged 12.8% and 13.0%, respectively, after reporting above-consensus earnings while chipmakers also provided a significant boost. The PHLX Semiconductor Index jumped 3.9% to wipe out its October loss after being down nearly 15.0% for the month on October 15.

Interestingly, the strength in one high-beta area did not translate into comparable gains in the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 296.62, -0.08) was up 2.2% at the start of the session, but a steady retreat throughout the day caused the ETF to settle just below its flat line.

Also of note, the financial sector (+1.2%) ended ahead of the broader market with Citigroup (C 53.53, +0.38) climbing 0.7% despite news indicating the company will adjust its Q3 results to reflect a $600 million legal charge. The sector added 2.9% for the month.

Treasuries ended in the red with the 10-yr yield up three basis points at 2.33%.

Participation was ahead of average with more than a billion shares changing hands at the NYSE.

Economic data included Personal Income/Spending, Core PCE Prices, Employment Cost Index, Chicago PMI, and Michigan Sentiment: 

·         Personal income increased 0.2% in September, down from a 0.3% increase in August, while the Briefing.com consensus expected an increase of 0.3% 

o    Personal spending declined 0.2% in September after increasing 0.5% in August, while the consensus expected an increase of 0.1% 

o    Core PCE prices rose 0.1%, which is what the Briefing.com consensus expected. 

·         Employment Cost Index rose 0.7% in Q3 2014 after increasing by the same amount in the second quarter, while the Briefing.com consensus expected an increase of 0.5% 

o    Wages and salaries accelerated, up 0.8% in the third quarter after a 0.6% gain in the second quarter o Benefits spending rose 0.6% in Q3 after increasing 1.0% in Q2 

·         Chicago PMI for October slipped to 60.5 from 60.5, while the Briefing.com consensus expected a decrease to 60.0 

·         The University of Michigan Consumer Sentiment report for October came in at 86.9, while the Briefing.com consensus expected the reading to be hold at 86.4 

Monday's data will be limited to the September Construction Spending report (Briefing.com consensus 0.7%) and the ISM Index for October (consensus 56.2). Both data points will cross the wires at 10:00 ET. 

·         Nasdaq Composite +10.9% YTD 

·         S&P 500 +9.2% YTD 

·         Dow Jones Industrial Average +4.9% YTD 

·         Russell 2000 +0.8% YTD 

Commodities

Closing Commodities: Oil and Metals Slide While Nat Gas Rallies

·         Gold traded lower overnight and took another leg down on the personal income/personal spending data released this morning; futures hit a LoD of 1160.5, but have recovered slightly, now trading around an important level of support ~1170. Futures are now down 2.3% to $1170.60/oz. 

·         Silver continues to trade at a 4.5 year low following yesterday's big tumble, and futures today traded below $16, briefly hitting a LoD of 15.635. Futures are currently down 1.9% to $16.12/oz. 

·         Crude breached $80 a barrel for a short time today, hitting a LoD of $79.55 shortly after the personal spending/income data was released. Since then, futures have been mostly rangebound. Futures are currently down 0.7% to $80.59/barrel. 

·         Natural gas reached a HoD of $3.955 in early morning trading, but futures have since trended lower, breaking down to another leg lower about an hour ago but bounced off a level of support ~3.834. Futures are now higher by 1.2% to $3.871.

Metals price action

  Gold is down $26.70 (-2.2%) to $1171.90/oz

o    Gold traded low overnight, and took yet another leg down on the personal income/personal spending data released this morning; futures hit a LoD of 1160.5, but have recovered slightly.

  Silver is down 33 cents (-2% to $16.09/oz

·         Silver is still trading at a 4.5 year low following yesterday's big tumble, and shares today traded below $16, briefly hitting a LoD of 15.635. 

  Copper is down 1.55 cents (-0.5%) to $3.047/lb

Energy price action

  Crude oil fell 59 cents (-0.7%) to $80.53/barrel

·         Crude breached $80 a barrel today, hitting a LoD of $79.55 shortly after the personal spending/income data was released. Since then, futures have been mostly rangbound, with a late spike to a pit session HoD of $80.65. 

  Natural gas rose 4.2 cents (+1.1%) to $3.869/MMBtu

·         Natural gas reached a HoD of $3.955 in early morning trading, but futures have sense trended lower, currently breaking down to another leg lower approaching some support ~3.834. 

  Heating oil rose 0.87 cents (+0.4%) to $2.52/gallon

  RBOB fell 2.1 cents (-1%) to $2.1745/gallon

Agricultural price action

·         Corn rose 2.25 cents (+0.60%) to $3.7625/bushl

·         Wheat fell 4.25 cents (-0.8%) to $5.3175/bushel

·         Soybeans rose 12.75 cents (+1.2%) to 10.425/bushel

·         Ethanol fell 0.7 cents (-0.4%) to $1.83/gallon

·         Sugar #11 fell 1.8% to 16.01 cents/lb

Treasuries

Long Bond Leads as Fed Ends QE: 10Y: -09/32..2.337%..USD/JPY: 112.20..EUR/USD: 1.2530
The Week in Review

·         Most maturities gained this week as the Fed ended is historic QE program at Wednesday's FOMC meeting. Click here to see an intraweek yields chart.

·         The Fed tapered its bond buying program to zero, but will continue to rollover maturing Treasury securities. 

·         As the Fed ended its asset purchases the Bank of Japan ramped up theirs to an annual pace of JPY80 trln (JPY50 trln previous).

·         Plenty of data topped estimates as GDP-Adv. (3.5% actual v. 3.0% expected), Case-Shiller 20-city Index (5.6% actual v. 5.5% expected), consumer confidence (94.5 actual v. 87.2 expected), Employment Cost Index (0.7% actual v. 0.5% expected), Chicago PMI (66.2 actual v. 60.0 expected), and Michigan Sentiment - Final (86.9 actual v. 86.4 expected) all posted better than expected results.

·         Durable orders (-1.3% actual v. 0.6% expected), personal income (0.2% actual v. 0.3% expected), and personal spending (-0.2% actual v. 0.1% expected) fell short of estimates. 

·         This week's auctions started off average and got worse into and after the FOMC meeting.

·         Tuesday's $29 bln 2Y note auction drew 0.425% and a light 3.11x bid/cover. A strong indirect bid (36.6%) provided support as direct bids (16.2%) were light. Primary dealers were stuck with 47.2% of the supply. 

·         Wednesday's tepid $35 bln 5Y note auction drew 1.567% (WI 1.552%) and a weak 2.36x bid/cover. Indirect (47.8%) and direct (10.5%) bids were a tad light, and left primary dealers with 41.7% of the supply. 

·         Thursday's $29B 7Y note auction drew 2.018% (WI 2.008%) and a light 2.42x bid/cover. Indirect (46.6%) bids provided support as direct bids (15.4%) fell short of their 12-auction averages. Primary dealers ended up with just 38% of the supply.

·         This week's action had the biggest impact up front. The 2Y rallied +10bps to 0.505%. Action held support early in the week and finished Friday's trade near key resistance. 

·         In the belly, the 5Y climbed +9bps to 1.613%. Resistance in the 1.650% region remains under close watch as the 50, 100, and 200 dma lurk in the vicinity. 

·         The 10Y added +4bps to 2.335%. Traders continue to monitor resistance in the 2.350% area. 

·         A flat week at the long end held the 30Y @ 3.060%. The 3.050%/3.100% resistance band remains in focus.

·         A flatter curve developed as the 2-10-yr spread narrowed to 183bps and the 5-30-yr spread tightened to 144.5bps.    

The Week Ahead 

·         Monday's data includes ISM Index, construction spending (10), and auto/truck sales (14). Chicago's Evans makes opening remarks at the "Infrastructure and Economic Growth: Measuring the Impact of Funding Models" conference (9:30) before Dallas' Fisher discusses "Preparing to Normalize Monetary Policy" (12:40). 

·         Tuesday will see the trade balance (8:30) and factory orders (10) cross the wires. 

·         Data continues to flow on Wednesday as the weekly MBA Mortgage Index (7), ADP Employment Change (8:15), and ISM Services (10) are due out. Minny's Kocherlakota talks on "Clarifying the Objectives of Monetary Policy" (9:15); Richmond's Lacker discusses "Committing to Financial Stability" (9:30); and Boston's Rosengren takes part in the Ninth High Level Meeting on Global Banking Standards and Regulatory and Supervisory Priorities in the Americas (10). 

·         Thursday's data is heavy as Challenger Job Cuts (7:30), initial and continuing claims, productivity-prel., and unit labor costs (8:30) are all released. Chicago's Evans makes opening remarks at the "The New International Financial System: Analyzing the Cumulative Impact of Regulatory Reform" conference (10:40) before Fed Governor Powell speaks (TBA); and Cleveland's Mester discusses "Federal Reserve Communications and Forward Guidance" (19:05).

·         Friday's data is the most anticipated of the week as nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek (8:30), and consumer credit are all on the calendar. Chicago's Evans makes welcoming remarks at the 10th Annual Community Bankers Symposium (9:15).

On other news.... 




Currencies 

Dollar Surges to Best Levels Since June 2010: 10Y: -05/32..2.323%..USD/JPY: 112.13..EUR/USD: 1.2532

·         The Dollar Index continues to hold solid gains as trade flirts with its first close above 87.00 since June 2010. Click here to see a monthly Dollar Index chart.

·         EURUSD is -80 pips @ 1.2530 as trade contends with its worst close in over two years. The single currency pierced the 1.2500 level for the first time since August 2012, but has regained the mark after an unnamed source hinted the Fed is taking note of the weakness in the single currency. Traders will continue to watch 1.2500 into Monday's Italian and Spanish Manufacturing PMI figures. 

·         GBPUSD is -5 pips @ 1.6000 as trade continues to test support in the area. Early weakness pushed sterling below 1.5900 for the first time in two weeks, but action now holds near its best levels of the day. A breakdown of 1.5900 will have action at its lowest levels since September 2013. Britain's Manufacturing PMI is due out Monday.

·         USDCHF is +60 pips @ .9620 as action nears the October highs. Trade has been whipped around as action remains tightly correlated to the euro. 

·         USDJPY is +285 pips @ 112.10 as action presses to its best levels since December 2007. The pair has surged amid today's trade after the Bank of Japan increased its bond buying program to an annual pace of JPY80 trln (JPY50 trln previous). Japanese banks are closed Monday for Culture Day. 

·         AUDUSD is -45 pips @ .8795 after failing to reclaim the important .8850 level. The hard currency broke out above that level earlier in the week, but it proved to be a bull trap that has caught many leaning the wrong way. A move to the lower end of the range near .8650 cannot be ruled out. Australian data scheduled for Sunday evening includes building approvals and ANZ Job Advertisements. China's Manufacturing PMI will be released late tonight while Non-Manufacturing PMI and HSBC Final Manufacturing PMI will cross the wires Sunday evening.

·         USDCAD is +95 pips @ 1.1280 as buying developed in response to the Canadian GDP (-0.1% MoM actual v. 0.0% MoM expected) miss. The pair crossed 1.1300 for the first time in two weeks, but has slipped back below the level. Bank of Canada Governor Stephen Poloz will speak Monday in Toronto.

Weekly Analysis




Technical Updates

Briefing's Commentaries


Week in Review: Stocks Reclaim October Losses 

The stock market began the last week of October on a cautious note. The S&P 500 slipped below its 100-day moving average (1962) and settled lower by 0.2% while the Dow Jones Industrial Average (+0.1%) outperformed throughout the session. Equity indices faced selling pressure at the start, but the source of the early weakness was isolated to the two commodity-linked sectors that spent the entire session at the bottom of the leaderboard. The energy sector (-2.0%) suffered from a Goldman Sachs downgrade of several major industry players, which stemmed from expectations that crude oil would trade between $70-$80/bbl. On that note, the energy component fell below the $80/bbl level in the morning, but narrowed its decline to just 0.1% by the pit close ($80.94/bbl).

Equities rallied on Tuesday with the S&P 500 climbing 1.2%. Small cap names had an even better showing, sending the Russell 2000 higher by 2.9%. The key indices climbed steadily throughout the day with the S&P 500 turning positive for the month of October. The index ended the day with an October gain of 0.6% after being down as much as 5.6% for the month on October 15. All ten sectors finished in the green with Monday's laggard—energy (+2.3%)—ending in the lead. The sector enjoyed a relief rally with support from BP (BP) after the industry giant reported a bottom-line beat.

The market ended the midweek session on a modestly lower note. The Nasdaq Composite (-0.3%) was the weakest performer while the S&P 500 shed 0.1% with seven sectors ending in the red. The benchmark index held a slim gain at the start, but spent the day in a slow retreat that featured a brief afternoon spike to lows after the Federal Open Market Committee released its latest policy statement. As expected, the statement called for the final $15 billion taper, thus putting a stop to scheduled purchases of Treasuries and mortgage-backed securities. Meanwhile, the commentary on rates was little changed from previous directives with the Fed maintaining its reference to keeping the fed funds rate at its current level for a ‘considerable time.' Minneapolis Fed President Kocherlakota was the lone dissenter, voting to keep the asset purchase program intact. Equities handled the initial impact of the announcement relatively well with the S&P 500 finishing about two points above its pre-FOMC levels. Treasuries, meanwhile, ended mixed. The FOMC announcement sent the complex to lows, but the 30-yr bond surged to new highs ahead of the close to pressure its yield one basis point to 3.05%. The 2-yr note settled near its low with its yield higher by six basis points at 0.49%.

The major averages ended the Thursday session on a higher note with the Dow Jones Industrial Average (+1.3%) spending the entire day in the lead. However, the strength among blue chips masked the underperformance of high-beta chipmaker and transport stocks. Furthermore, defensively-oriented health care (+1.8%) and utilities (+2.1%) finished in the lead, suggesting a lack of strong conviction. Shortly before the open, the advance reading of Q3 GDP revealed growth of 3.5% while the Briefing.com consensus expected an increase of 3.0%. The news contributed to a rebound in the futures market, which had been pressured by early weakness in European equities. However, markets across Europe were able to erase their losses before ending for the day. The Dow held the lead from the start thanks to a surge in its top-weighted component. Shares of Visa (V) soared 10.2% in reaction to a bottom-line beat and news of a $5 billion buyback.

Next Week In View





Economic Commentaries

Economic Summary: Personal Income & Spending lower than expected; Chicago PMI above estimates; Michigan Sentiment roughly in line with estimates
Economic Data Summary:

·         September Personal Income 0.2% vs Briefing.com consensus of 0.3%; August was 0.3%

·         September Personal Spending -0.2% vs Briefing.com consensus of 0.1%; August was 0.5%

o    The September personal income and spending data were already incorporated in yesterday's Q3 2014 GDP release. The only new information was how revisions to the July and August data would impact the September growth rate. In this case, both spending and income growth in July and August were revised modestly higher. The size of the revisions, however, was not enough to alter the rounded growth rates. 

·         September PCE Prices -- CORE 0.1% vs Briefing.com consensus of 0.1%; August was 0.1%

·         Third Quarter Employment Cost Index 0.7% vs Briefing.com consensus of 0.5%; Second Quarter was 0.7%

·         October Chicago PMI 66.2 vs Briefing.com consensus of 60.0; September was 60.5

o    Production levels improved as the related index increased to 68.4 in October from 64.9 in September. Gains in backlogs (56.4 from 52.5) should bolster production growth over the next few months. New orders demand also strengthened as the related index rose to 73.6 in October from 60.0 in September. 

·         October Michigan Sentiment 86.9 vs Briefing.com consensus of 86.4; September was 86.4

o    Since the preliminary reading was released, the equity markets have surged while gasoline prices continued to trend lower and employment conditions continued to improve. All three factors played a strong role in boosting sentiment. 

Fed/Treasury Events Summary:

·         Fed's Kocherlakota said Fed risks losing credibility by not addressing worse inflation outlook; Fed needs to reach inflation target as soon as possible

o    Briefing.com Note: Mr. Kocherlakota is viewed as one of the more dovish members of the Fed due to his concern over inflation. He was the lone dissenter to the 'hawkish' FOMC statement on Wednesday.

Upcoming Economic Data:

·         September Pending Home Sales due out Tuesday at 10:00 (Briefing.com consensus of 0.5%; August was -1.0%)

Upcoming Fed/Treasury Events:

·         Eurozone CPI ticked up to 0.4% from 0.3% while the Unemployment Rate held at 11.5%. Both figures matched expectations. 

·         Germany's Retail Sales fell 3.2% month-over-month (expected -1.0%; prior 1.5%) while the year-over-year reading rose 2.3% (consensus 0.8%; previous -0.7%)

Jason's Commentaries

My dear readers! I'm finally back doing my DMA! DMA will be slowly transiting to another new website soon.

While I'm writing this DMA, Dow, S&P500, Nasdaq all broke the highs and definitely caught the bears offguard as everyone has been shorting the market since the start of Sep. Since earnings have been relatively good, there's not much reasons for the market to short the stocks down. The heavy weights counters like Apple, Goldman, Visa have broke new hights which evenutally led to the higher movements in the indices. However, the Rusells has been lagging the bigger companies. This is some divergence in the market. I reckon the market is likely to rinse the bears away.

As the market rallies, volumes is dropping again. I believe the market is not bullish in the bigger picture and i believe the market is definitely not in a sustainable up trend. I believe the next few weeks might have some retracement again before preparing to go long in the Santa Claus rally.

Right now, the market has been overcooked. Time to have some retracement today.

Market Call: DOWN

Date: 3 Nov 2014