The Trader's Path: 11 Dec 2014 AMC - Market sunk as Oil crashes to 2009 low

11 Dec 2014 AMC - Market sunk as Oil crashes to 2009 low

Jason's Commentaries

As the OPEC is starting to be divided between major oil producers like Saudi Arabia and smaller oil producing countries like Veneuzula, despite repeated request from the smaller countries to cut supply output. Saudi Arabia, is very likely to continue to the current supply rate to squeeze out all other competitors in the market such as US Shale Gas, Russia, China to dominate the oil market. With so much holding power, Saudi Arabia might emerge as the world's biggest winner, while dragging down the entire global economy. CHEAP OIL IS NEVER GOOD.

The decision from OPEC on the 4 Dec sparked a sell off in oil prices which caused the market to sell off ahead of the potential interest rate increase this coming Wednesday as FOMC is on track to raise interest rate. Without a doubt, the energy sector is sinking, dragging down the rest of the market. All internals were pointing towards the bearish side. As we might see a bounce in Oil as it hits the 2009 low at $35, the market might have a positive bounce after such heavy sell off last week. To add on to the bounce, the dollar index weakened for the past one week ahead of the FOMC rate decision.

In the coming week, the whole world will be watching the first rate hike since 2006. Hold on to your seatbelts as it's gonna get really rocky.

Market Summary

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

UK's FTSE: -2.2%
Germany's DAX: -2.4%
France's CAC: -1.8%
Spain's IBEX: -1.4%
Portugal's PSI: -1.7%
Italy's MIB Index: -1.8%
Irish Ovrl Index: -0.8%
Greece ASE General Index: + 0.3%

Before Market Opens

S&P futures vs fair value: -15.90. Nasdaq futures vs fair value: -23.50.

The S&P 500 futures trade 16 points below fair value.

Markets in the Asia-Pacific region ended Friday mostly lower, with only Japan managing to close in the green. The Nikkei's 1.0% gain can be widely attributed to the downward reversal seen in the yen during US hours versus the prior day. Comments from Japanese Finance Minister were glossed over by market participants after he indicated that there are no plans to delay the proposed consumption tax, scheduled to go into effect in 2017. In China, the Shanghai Composite fell 0.6% on another session lacking in macro data. A major theme coming out of the Mainland was news that the chairman of Fosun has gone missing (he is often referred to as the Warren Buffett of China). Separately, the CNY came into focus after the PBoC set the currency to its lowest level in 4 years. Elsewhere, gaming stocks took a hit after local press suggested regulators will investigate illegal transactions through UnionPay. After the Shanghai Composite closed, China released its November New Yuan Loans, which came in below expectations at CNY708.9 bln vs CNY735.0 bln expected.

In economic data:
- New Zealand's November Business PMI 54.7 (previous 53.3) and November FPI -0.2% month-over-month (expected -0.3%; previous 1.2%)
- South Korea's November Import Price Index -15.6% year-over-year (previous -14.9%) and Export Price Index -8.6% year-over-year (last -6.5%)
- India's Industrial Production +9.8% year-over-year (consensus 7.8%; previous 3.6%)

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Japan's Nikkei increased 1.0%. The Nikkei shot up shortly after the opening bell and maintained a steady bid for the duration of the session and closed near the session highs. Sectors leading the way were Health Care (+1.4%) and IT (+1.4%), while Energy (-0.1%) was the only sector to close negative. Shares of Sharp, saw a sharp move higher by 4.0% after reports the co may receive additional lending support. Not all stocks fared as well, considering Sekisui House fell 4.1% after the co reported its Q3 results.
Hong Kong's Hang Seng declined by 1.1%. As mentioned above, Gaming stocks were under fire with reports of crack downs on illegal UnionPay transactions. As such, Sands China fell by 1.9%, while Galaxy Entertainment was not far behind with a 1.7% decline. Some of the financial names were spooked by the news of the Fosun Chairman's disappearance. Trading chatter suggest shares of China Minsheng Banking Corp (-1.7%) fell in response to the news.
China's Shanghai Composite declined 0.6%. The index was underwater the whole session and closed right about where it started. A late day push to get the index over the unchanged level was refuted in the last hour. The jitters of the mysterious disappearance of the Fosun Chairman seemed to keep a steady lid on the market. Speculation was all over the map, with reports of foul-play to an alleged probe gave traders reason to refrain from aggressive buying. Fosun's shares were suspended following the reports. Among Fosun's holdings that saw weakness was Healthcare company Shandong Weigao Group Medical Polymer, which gave up 3.6% in response.

Major European indices trade lower across the board with Germany's DAX (-1.6%) at the bottom of the leaderboard. Greek officials have reportedly reached an agreement with EU representatives on a second set of reforms, but that has not alleviated any of the pressure seen in regional equity markets.

Economic data was limited:
- Germany's November CPI +0.1% month-over-month, as expected; +0.4% year-over-year, as expected
- France's October Current Account -EUR1.40 billion (previous surplus of EUR300 million)
- Italy's October Industrial Production +0.5% month-over-month (expected 0.3%; previous 0.2%); +2.9% year-over-year (consensus 2.0%; last 1.8%). Separately, Quarterly Unemployment Rate 11.7% (expected 11.9%; previous 12.3%)

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Germany's DAX is lower by 1.6% with all 30 components trading in the red. Heavyweights Deutsche Bank, Daimler, BMW, Commerzbank, and BASF are down between 2.0% and 3.5%. Meanwhile, countercyclical names like Fresenius and Beiersdorf trade ahead of their peers, but both are down near 1.0% apiece.
France's CAC trades down 1.3% amid broad weakness. Renault has tumbled 4.9% while ArcelorMittal, Valeo, Airbus, Michelin, and Carrefour trade a bit ahead with losses between 2.3% and 3.1%.
UK's FTSE outperforms with a loss of 1.3%, but that has not stopped all but two components from trading in the red. Miners and energy names have paced the slide as commodities remain weak. Anglo American, BHP Billiton, and Royal Dutch Shell are down between 2.9% and 4.9%.

Market Internals

DOW down to 17265 ( -1.76%). Nasdaq down to 4933 ( -2.21%). S&P500 down to 2012 ( -1.94%). Action came on higher than average volume (NYSE 987 mln vs avg. of 909 mln; Nasdaq 1910 mln vs avg. of 1733 mln) , w/ decliners outpacing advancers (NYSE 1545/1588, NASDAQ 1536/1327) and new lows outpacing new highs (NYSE 9/368, NASDAQ 15/215) .

Relative Strength:

S&P 500 VIX ST Furtures-VXX +15.015%, Copper Sub-JJC +2.23%, 20+ Year Treasury Bond-TLT +1.687%, Base Metals -DBB +1.1486%, Gold Miners-GDX +0.95%, Japanese Yen-FXY +0.607%, Swiss Franc-FXF +0.5222%, British Pound Ster-FXB +0.423%, Emerging Markets Eastern Eur-ESR +0%, Egypt -EGPT +0%

Relative Weakness:

U.S. Diesel-Heating-UHN -6.4451%, South Africa-EZA -5.94%, Alerian MLP-AMJ -5.93%, Emerging Middle East & Africa-GAF -5.61%, S&P Oil & Gas Expl & Prod-XOP -4.82%, Turkey-TUR -4.55%, Indonesia-IDX -4.36%, Coffee-JO -4.3527%, Coal-KOL -4.05%, Philippines-EPHE -3.77%

Leaders and Laggards

Technical Updates

Commentaries

Closing Market Summary: Stocks Slide Ahead of Fed Week

The stock market ended a defensive week on a woeful note with the S&P 500 (-1.9%) diving below its 100-day moving average (2,031). The benchmark index lost 3.8% since last Friday, while the Nasdaq (-2.2%) underperformed, falling 4.1% for the week.

The bulk of today's weakness unfolded during the first half of the day while afternoon action saw the key indices slip to fresh lows. The early weakness followed an overnight session, which featured news from China, indicating the People's Bank of China nudged the yuan to a four-year low against the dollar (6.4553). This stoked up concerns about China's deflation being exported to other economies while continued weakness in commodities compounded those worries.

Furthermore, reports of trouble in the junk bond arena weighed on sentiment after it came to light that Third Avenue Management is liquidating its high-yield Focused Credit Fund and barring investor withdrawals while it is doing so. This invited fears about other bond funds with similar exposure while junk bonds faced daylong pressure that sent the iShares iBoxx $ High Yield Corporate ETF (HYG 79.52, -1.62) to its lowest close since July 2009.

All ten sectors ended the day in negative territory and the market saw no dip-buying during the afternoon. To be fair, the lack of an afternoon rebound was not a shock considering the Federal Reserve is likely to introduce another wrinkle into the fold next week when the central bank is widely expected to announce the first fed funds rate hike since June 2006.

The continued weakness in commodity prices took its toll on cyclical energy (-3.4%) and materials (-2.7%) sectors. The energy space widened this week's loss to 6.5% while crude oil also struggled, falling 3.2% to $35.62/bbl, to end the week lower by 10.9%.

Meanwhile, the remaining cyclical sectors fared a bit better, but that was a small victory considering the "best" performing growth-sensitive sector still lost 1.6%. The industrial sector settled just a step ahead of the broader market thanks to strength in select railroad names after it was reported Berkshire Hathaway (BRK.B 130.31, -1.40) is considering a bid for NorfolkSouthern (NSC 89.53, +1.85). On a related note, the Dow Jones Transportation Average ended in line with the S&P 500.

The 1.9% gain in the shares of NSC represented one of few bright spots in the market as declining issues at the NYSE outpaced advancers by a 7:1 margin.

Treasuries rallied throughout the day, ending on their highs with the 10-yr yield sliding ten basis points to 2.13%.

The Friday retreat invited above-average volume as nearly a billion shares changed hands at the NYSE floor.

Economic data included PPI, Retail Sales, Michigan Sentiment, and Business Inventories:

The Producer Price Index report for November produced some better than expected readings, with both total PPI and core PPI, which excludes food and energy, increasing 0.3%
- The median estimate of economists polled by Briefing.com called for a 0.1% decline in total PPI and a 0.1% increase in core PPI
- On a year-over-year basis, the index for final demand is down 1.1%, which is the tenth consecutive 12-month decline. Core PPI is up 0.5%
The November Retail Sales report showed a below-consensus increase of 0.2% (Briefing.com consensus +0.3%), yet sales excluding autos (+0.4%) were stronger than expected (Briefing.com consensus +0.3%) while core retail sales, which exclude autos, gasoline station, and building materials sales, were up a healthy 0.6%
- Core retail sales factor into the goods component of personal consumption expenditures in the GDP report, so this November data can be thought of as a positive input
The preliminary reading for the University of Michigan Index of Consumer Sentiment for December was 91.8, which was up slightly from the final November reading of 91.3 and nearly matched the Briefing.com consensus estimate of 91.6
- The improvement stemmed from a better feeling about current conditions, evidenced by a jump in the Current Economic Conditions Index to 107.0 from 104.3
Total business inventories were unchanged in October following a downwardly revised 0.1% increase (from 0.3%) in September
- The Briefing.com consensus expected business inventories to be up 0.1%
- Manufacturer inventories (-0.1%) and merchant wholesaler inventories (-0.1%) were already known. Retailer inventories were the only unknown and they increased 0.1% in October on top of a 0.8% increase in September

Investors will not receive any economic data on Monday.

Nasdaq Composite +4.2% YTD
S&P 500 -2.3% YTD
Dow Jones Industrial Average -3.1% YTD
Russell 2000 -6.6% YTD

Week in Review: Stocks and Commodities Slide

The major averages began the trading week on a cautious note with the Dow (-0.7%), Nasdaq (-0.8%), and S&P 500 (-0.7%) registering comparable losses. Equity indices retreated through the first two hours of the Monday session and the lack of intraday bargain hunting kept the key averages near their lows into the afternoon. The S&P 500 erased a third of its advance from Friday, but managed to settle above its 200-day moving average (2,065). Cyclical sectors were at the forefront of the retreat with energy (-3.7%) diving to the bottom of the leaderboard at the start of the trading day. The growth-sensitive group accelerated its slide during the late morning as crude oil cracked a new low for the year, dipping beneath the $38.00/bbl mark. The energy component settled lower by 5.9% at $37.63/bbl after sliding from its overnight high near $39.75/bbl.

The stock market endured a shaky session on Tuesday, but the key indices managed to recover a portion of their losses by the close. The S&P 500 settled in the middle of its trading range, surrendering 0.7%, while the Nasdaq Composite (-0.1%) outperformed throughout the day. Equities began the day under heavy pressure after the overnight session featured some disappointing economic data from China. Specifically, the country's November trade surplus narrowed to $54.10 billion from $61.64 billion (expected surplus of $63.30 billion) as exports fell 6.8% year-over-year (consensus -5.0%; previous -6.9%) and imports declined 8.7% (expected -12.6%; last -18.8%). The smaller than expected trade surplus re-invited the same global growth concerns that have been plaguing the market throughout the year. Accordingly, commodities retreated with crude oil falling more than 2.0% before pulling back. The energy component made a brief appearance in the green, but could not avoid a lower close, slipping 0.3% to $37.51/bbl after marking a session low near $36.64/bbl. The rebound in crude helped alleviate some of the pressure in the stock market, but the S&P 500 could not return above its 200-day moving average (2,064), which served as resistance.

On Wednesday, the market ended on a broadly lower note with the S&P 500 surrendering 0.8% after being up 0.8% in the early going. The benchmark index returned below its 200-day moving average (2,064) while the Nasdaq (-1.5%) underperformed throughout the day. The early portion of the midweek session appeared to have the makings of a rebound, but the opening strength was entirely due to significant gains in two commodity-related sectors. The materials space (+3.1%) ended comfortably in the lead after it was reported that Dow Chemical (DOW 56.97, +6.07) and DuPont (DD 74.49, +7.89) are in advanced merger talks. Both names surged 11.9% with DuPont's strength keeping the Dow ahead of the broader market.

Thursday ended on a higher note with the market putting an end to its three-day skid. The S&P 500 climbed 0.2%, but could not hold posture above its 50-day moving average (2,054). Meanwhile, the Dow (+0.5%) and Nasdaq (+0.4%) settled ahead of the benchmark index. The Thursday advance did not occur without some theatrics as the S&P 500 marked a morning high during the first 90 minutes of the day and followed that with a return to its flat line. The benchmark index charged to a fresh high in the early afternoon, but backtracked from that level to end in the lower third of today's range. Equity indices spent the first hour of action near their flat lines, but the energy sector (+0.6%) displayed relative strength from the start, which underpinned the advance. The sector narrowed this week's loss to 3.2%, ending in the lead even though crude oil fell 1.0% to $36.80/bbl. The energy component continued sliding in electronic trade, which forced some backtracking in the sector and the broader market.

Commodities

Energy closing prices

January Crude Oil futures fell $1.18 (-3.2%) to $35.62/barrel
January Natural Gas closed $0.03 lower (-1.5%) at $1.99/MMBtu
January RBOB Gasoline closed +0.2% higher at $1.28/gallon
January Heating oil futures closed $0.08 lower at $1.15/gallon

Agricultural closing prices

March corn closed $0.03 lower at $3.76/bushel
March wheat closed $0.05 lower at $4.91/bushel
January soybeans closed $0.07 lower at $8.72/bushel
March Sugar #11 closed $0.03 cents higher at 14.58 cents/lb

Metals closing prices

February gold ended today's session $3.80 higher (+0.4%) at $1076.00/oz
March silver closed today's session $0.22 lower (-1.6%) at $13.90/oz
March copper closed $0.05 higher (+2.7%) at $2.12/lb

Closing Commodities: WTI Closes Below $36/Barrel Despite A Weakened Dollar

The dollar trended under pressure all session, with the index extending losses following a steep fall in morning trade.
- The index's initial fall came shortly after the release of relatively in-line US PPI, Retail Sales and Michigan Consumer sentiment data sets
Going into the commodity closes, the index held losses and is now -0.4% to 97.55
Gold saw a lift in early trade on the dollar's weakness, while silver caught little/no positive momentum from the move. Both commodities extended those trends throughout the session and into the close, with gold finishing +0.4% to $1076/oz and silver closing -1.6% to $13.90/oz
Crude broke below the $36/barrel level in mid-morning trade, following the release of an IEA forecast speculating that oversupply of crude would extend through late 2016.
Mid-day Baker Hughes rig count data did little to firm up WTI's weakness (showing a drop of 28 oil/natural gas rigs), and crude ended up closing -3.2% to $35.62/barrel
Natural gas closed at moderate losses, down 1.5% to $1.99/MMBtu following continued calls for warm weather patterns in the Midwest and NE US.
Copper closed +2.7% to $2.12/lb

Read more: http://www.briefing.com/Platinum/InDepth/InPlay.htm#ixzz3uAyBZV3e

Treasuries

Treasury Market Summary

Treasuries Rip Higher

The U.S. Treasury complex moved higher today in an almost one-way trade, shrugging off higher-than-expected growth in the producer price index and instead focusing on stress in the high-yield bond market and jitters in share prices. WTI crude fell again, notching its worst weekly loss since March, and that may have convinced investors that the PPI would move back to the previously prevailing level rather quickly. The highly anticipated December FOMC rate decision will be released on Wednesday of next week
Yield Check:
- 2-yr: -5 bps to 0.90%
- 5-yr: -11 bps to 1.56%
- 10-yr: -10 bps to 2.13%
- 30-yr: -9 bps to 2.87%

News:
- The headline producer price index (PPI) grew 0.3% m/m in November, beating the Briefing.com consensus for a decline of 0.1%. The headline PPI fell 0.4% in October
  - The core PPI also climbed 0.3% in November, ahead of the Briefing.com consensus of 0.1% and exceeding October's decline of 0.3%
- Retail sales grew 0.2% m/m in November, slightly missing the Briefing.com consensus of 0.3%. The October change was 0.1%
  - Retail sales excluding automobiles rose 0.4% in November, better than the Briefing.com consensus of 0.3% and the prior reading of 0.1% (revised down from 0.2%)
- Business inventories were unchanged in October after rising 0.1% (revised down from 0.3%) in September. The Briefing.com consensus was for 0.1% growth
  - Retailer inventories were the only unknown and they increased 0.1% in October on top of a 0.8% increase in September. The breakdown of retailer inventories showed increases for building materials (+1.1%), food and beverage stores (+0.3%), and general merchandise stores (+0.3%). There were inventory declines registered for motor vehicles (-0.4%), furniture and home furnishings (-0.7%), and clothing stores (-0.1%)
- The University of Michigan's Consumer Sentiment Index fell to 91.8 in December from 93.1 in November. The Briefing.com consensus estimate was 91.6
  - The improvement stemmed from a better feeling about current conditions, evidenced by a jump in the Current Economic Conditions Index to 107.0 from 104.3
- Mutual fund company Third Avenue Management barred investors in a high-yield bond fund from redeeming their shares on Thursday. The company will liquidate the fund, but found that it couldn't meet redemption requests except at fire-sale prices

Commodities:
- WTI crude: -3.02% to $35.65/bbl.
- Gold: +0.53% to $1,077.40/troy oz.
- Copper: +1.79% to $2.1095/lb.

Currencies:
- EUR/USD: +0.51% to $1.0993
- USD/JPY: -0.94% to 120.80

Week Ahead:
- Monday: No scheduled events
- Tuesday: November CPI and Core CPI (08:30 ET); December Empire Manufacturing (08:30 ET); December NAHB Housing Market Index (10:00 ET); October Net Long-Term TIC Flows (16:00 ET)
- Wednesday: MBA Mortgage Purchase Index for the week ending 12/12 (07:00 ET); November Building Permits and Housing Starts (08:30 ET); November Capacity Utilization and Industrial Production (09:15 ET); Crude Inventories for the week ending 12/12 (10:30 ET); December FOMC Rate Decision and Press Conference(14:00 ET)
- Thursday: Initial Jobless Claims for the week ending 12/12 and Continuing Jobless Claims for the week ending 12/5 (08:30 ET); Q3 Current Account Balance (08:30 ET); December Philadelphia Fed (08:30 ET); November Leading Indicators (10:00 ET); Natural Gas Inventories for the week ending 12/12 (10:30 ET); $16 bln 5-year TIPS auction reopening (results at 13:00 ET)
- Friday: Richmond Fed President Lacker (FOMC voter in 2015) participates in panel discussion on economy (12:30 ET)

Read more: http://www.briefing.com/Platinum/InDepth/InPlay.htm#ixzz3uAyFO6Rh

On other news....

Currencies

Currency Market Summary

Dollar and Commodity Producers Fall

The greenback fell against all major currencies but those of commodity producers today, as sharp declines in Treasury yields reduced the attraction of holding U.S. dollars. While the economic data out of the U.S. was mixed, the producer price index showed green shoots of the inflation that the Fed has been trying to guide back up to 2% since the financial crisis
U.S. Dollar Index: -0.37% to 97.57
EUR/USD: +0.43% to $1.0984
- Both Germany's consumer price index (CPI) and its harmonized index of consumer prices (HICP) rose 0.1% m/m in November, as expected and in line with October's readings
- Italian unemployment fell to a better-than-expected 11.7% in the third quarter from a downwardly revised 12.3% in Q2
  - Italian industrial production climbed 0.5% m/m in October, better than both economists' expectations and the 0.2% growth in September
- The French current account balance swung to a deficit in October of EUR 1.40 bln from a surplus of EUR 0.30 bln in September
GBP/USD: +0.54% to $1.5233
- Inflation expectations in the U.K. remain at 2.0% according to a Bank of England survey
USD/CHF: -0.62% to 0.9828
USD/JPY: -0.98% to 120.74
USD/CAD: +0.69% to 1.3742
AUD/USD: -0.85% to $0.7199
NZD/USD: -0.46% to $0.6717
- New Zealand's Business NZ purchasing managers' index jumped to 54.7 in November from 53.3 in October
USD/RUB: +2.22% to 70.27
- Russia's central bank left its main policy rate unchanged at 11.00%, citing continuing inflationary pressure

Next Week In View

Economic Commentaries

Economic Summary: Retail sales roughly in-line; PPI higher than expected; Fed expected to hike rates next Wednesday

Economic Data:

November retail sales grew 0.2% vs. the +0.3% Briefing.com Consensus
November retail sales ex-autos grew 0.4% vs. the +0.3% Briefing.com Consensus
- Sales were up in in most areas. The exceptions there were motor vehicles (-0.4%), furniture and home furnishings (-0.3%), building materials (-0.3%), gasoline stations (-0.8%), and health and personal care stores (0.0%). All other areas, including clothing (+0.8%) and nonstore retailers (+0.6%), saw monthly sales gains ranging from 0.6% to 0.8%.
November PPI was up 0.3% vs. the +0.1% Briefing.com Consensus from -0.4%
Core PPI (ex-food and energy) +0.3% vs. the +0.1% Briefing.com Consensus from -0.3%
December Michigan Consumer Sentiment 91.8 vs. 91.6 Briefing.com Consensus and 91.3 in November.
- The Current Economic Conditions Index to 107.0 from 104.3. The Index of Consumer Expectations, meanwhile, dipped to 82.0 from 82.9, as respondents generally felt less optimistic about the prospects for the national economy in 2016.
October Business Inventories 0.0% vs. +0.1% Briefing.com Consensus and +0.3% in September.
- The inventory-to-sales ratio held steady at 1.38; however, that is up noticeably from the same period a year ago when it stood at 1.31.

Upcoming economic data:

CPI Empire Manufacturing and NAHB Housing Market data will be released on Tuesday morning

Fed officials are in a quiet period ahead of next Wednesday's FOMC meeting (December 16) where the Fed is widely expected to raise rates (25 bps) for the first time since June of 2006. The odds of the Fed moving will creep lower if the markets continue to collapse early next week. The Fed funds target was cut to 0.00-0.25% in December of 2008 in the midst of the financial crisis.

Market Call:Volatile to the Upside

Date: 14-18 Dec 2015

The Trader's Path

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Saturday 12 December 2015

11 Dec 2014 AMC - Market sunk as Oil crashes to 2009 low

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