21 Aug 2013 AMC

21 Aug 2013 AMC

Market Summary 

Market Internals

Market Internals
The Dow closed down 105 (-0.70%) at 14898, the S&P 500 closed down 10 (-0.58%) at 1643, and the Nasdaq closed down 14 (-0.38%) at 3600. Action came on below average volume (NYSE 657 mln vs. avg. of 744; NASDAQ 1395 mln vs. avg. of 1603), with decliners outpacing advancers (NYSE 839/2237, NASDAQ 807/1694) and mixed new highs/lows  (NYSE 29/150, NASDAQ 56/35). 

Relative Strength: 
Volatility-VXX +1.84%, Biotechnology-XBI +1.40%, Corn-CORN +1.25%, Grains-JJG +1.22%, Biotechnology-IBB +0.94%, Chinese Yuan-CYB +0.04%, British Pound-FXB +0.03%.

Relative Weakness: 
Turkey-TUR -5.46%, India-INP -5.08%, Cotton-BAL -4.79%, Gold Miners-GDX -4.62%, Thailand-THD -3.74%, Indonesia-IDX -3.35%, Silver Miners-SIL -2.98%, Indian Rupee-ICN -2.85%, Copper Miners-COPX -2.76%, Cocoa-NIB -2.36%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump Following FOMC Minutes
The S&P 500 settled lower by 0.6% despite making a brief appearance in positive territory following the release of the FOMC minutes. 

Although the minutes from the July meeting offered few changes from prior statements, they did indicate broad support for Chairman Bernanke's timeline, which would likely call for tapering as early as September. However, this was coupled with cautious comments regarding the labor market as the minutes noted, "The June employment report showed continued solid gains in payrolls. Nonetheless, the unemployment rate remained elevated, and the continuing low readings on the participation rate and the employment-to-population ratio, together with a high incidence of workers being employed part time for economic reasons, were generally seen as indicating that overall labor market conditions remained weak." 

Overall, the minutes did not provide a clear-cut signal regarding the Fed's tapering schedule and the mixed reaction across markets suggests a certain level of uncertainty remains present. 

The reaction in Treasuries was consistent with expectations of tapering in the near-term as the benchmark 10-yr yield jumped four basis points to 2.86%. Today's selling had the biggest impact on the belly of the curve as the 5-yr yield jumped more than 6 bps to 1.606%. However, the yield still managed to close just below Monday's two-year high. 

Meanwhile, equities sold off in a knee-jerk response, but the S&P followed the slide with a rally to fresh highs before returning into the red just ahead of the close. 

All ten sectors registered losses with rate-sensitive telecom services (-1.2%) and utilities (-1.2%) leading to the downside. 

Out of the ten sectors, only energy (-0.5%), health care (-0.5%), and technology (-0.1%) outperformed the broader market. The tech sector held up relatively well and despite today's loss, it is the only sector trading with an August gain (0.4%). 

The CBOE Volatility Index (VIX 15.93, +1.02) jumped to its highest level since July 5 as participants favored protection against volatility. 

Trading volume was the heaviest of the week, but at 658 million shares traded on the NYSE, it remained comfortably below average. 

Today's economic data focused on housing. The weekly MBA Mortgage Index remained in a downtrend with today's 4.6% fall marking the thirteenth decline out of the past fifteen readings including last week's 4.7% slide. 

In addition, July existing home sales rose 6.5% to 5.39 million from a downwardly revised 5.06 million (from 5.08 million) in June. The Briefing.com consensus expected existing home sales to increase to 5.10 million. Sales are at their highest point since November 2009 when the impending expiration of the homebuyer tax credit pulled forward a large number of existing home purchases. Excluding the stimulus measures, that was the most homes sold since March 2007. The big bump in sales was surprising considering both the Pending Home Sales Index and the Mortgage Bankers Association's Mortgage Purchasing Index declined notably in July and mortgage rates returned to two-year highs. 

Tomorrow, weekly initial claims will be reported at 8:30 ET while the June FHFA Housing Price Index and July Leading Indicators will be announced at 9:00 ET and 10:00 ET, respectively.

Commodities

NYMEX Energy Closing Prices

·         Oct crude oil fell $1.23 to $103.88/barrel 

o    Crude oil fell deeper into negative territory following inventory data that showed a draw of 1.428 mln barrels when a draw of 1.0-1.5 mln barrels was anticipated. A stronger dollar index also put pressure on the energy component. Crude oil pulled back from its session high of $105.07 and brushed a session low of $103.50 before settling with a 1.2% loss.

·         Sep natural gas rose 2 cents to $3.46/MMBtu 

o    Natural gas, on the other hand, spent its entire pit session in the black. It traded in a narrow range between $3.46 and $3.49 and settled with a 0.6% gain. 

·         Oct heating oil fell 1 cent to $3.08/gallon 

·         Oct RBOB gasoline closed unchanged at $2.82/gallon

CBOT Agriculture and Ethanol Closing Prices

·         Dec corn rose 8 cents to $4.83/bushel 

·         Sep wheat rose 5 cents to $6.39/bushel 

·         Nov soybeans rose 12 cents to $13.02/bushel 

·         Sep ethanol rose 5 cents to $2.30/gallon

Treasuries

Treasuries on session lows
2-yr -01/32 @ 99 24/32
3-yr -04/32 @ 99 18/32
5-yr -12/32 @ 98 25/32
7-yr -18/32 @ 98 03/32
10-yr -17/32 @ 96 22/32
30-yr -28/32 @ 95 01/32

 

Treasuries Slide Post-FOMC Minutes: 10-yr: -15/32..2.869..USD/JPY: 97.78..EUR/USD: 1.3364
Treasuries ended with sizable losses as sellers took control following the release of the minutes from the July FOMC meeting. The complex saw steady buying ahead of the minutes drop yields back to their respective flat lines, but aggressive selling developed as the minutes were digested. In reality, the minutes did not offer anything new, and left traders confused as to whether or not a taper is coming in September. Today's selling had the biggest impact on the belly of the curve as the 5-yr yield jumped more than 6 bps to 1.606%. However, the yield still managed to close just below Monday's two-year high. Elsewhere along the curve, the 10-yr yield climbed 4 bps to 2.855% while the 30-yr added 3 bps to 3.882%. Curve steepening developed on the weakness with the 2-10-yr spread widening to 249 bps. Precious metals were little changed with gold and silver ending at $1371 and $23.10, respectively. The Kansas City Fed's Jackson Hole Symposium begins tomorrow, and will continue through Saturday, with traders hoping for more clues to emerge as to if/when Fed tapering will begin. Initial and continuing claims (8:30), the FHFA Housing Price Index (9), and leading indicators (10) will cross the wires tomorrow.

Next Day In View 

On other news.... 

Hewlett-Packard down over 5% following earnings; Notes from conference call: PC market remains difficult (25.38 -0.46)

Wells Fargo: Headlines crossing, bank saying layoffs in mortgage due to a decline in refis; refi has dropped 50% and could fall further if rates continue to rise

Wells Fargo: Headlines that sources say co will cut 2300 mortgage lending jobs-- Bloomberg TV (42.36 -0.23)

FOMC Minutes Key Comments

·         In support of the Committee's longer-run planning for improvements in the implementation of monetary policy, the Desk report also included a briefing on the potential for establishing a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates.

·         Consumer price inflation slowed markedly in the second quarter, likely restrained in part by some transitory factors, but measures of longer-term inflation expectations remained stable.

·         The unemployment rate was 7.6 percent in June, little changed from its level in the prior few months. The labor force participation rate rose slightly, as did the employment-to-population ratio. The rate of long-duration unemployment decreased somewhat, but the share of workers employed part time for economic reasons moved up; both of these measures remained relatively high. Forward looking indicators of labor market activity in the near term were mixed: Although household expectations for the labor market situation generally improved and firms' hiring plans moved up, initial claims for unemployment insurance were essentially flat over the inter meeting period, and measures of job openings and the rate of gross private-sector hiring were little changed.

·         The recent rise in mortgage rates did not yet appear to have had an adverse effect on housing activity.

·         Foreign economic growth appeared to remain subdued in comparison with longer-run trends. Nonetheless, there were some signs of improvement in the advanced foreign economies.

·         The data received since the forecast was prepared for the previous FOMC meeting suggested that real GDP growth was weaker, on net, in the first half of the year than had been anticipated. Nevertheless, the staff still expected that real GDP would accelerate in the second half of the year.

·         In their discussion of the economic situation, meeting participants noted that incoming information on economic activity was mixed.

·         In addition, subpar economic activity abroad was a negative factor for export growth.

·         A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June; factors cited in this regard included recent increases in mortgage rates, higher oil prices, slow growth in key U.S. export markets, and the possibility that fiscal restraint might not lessen.

·         The June employment report showed continued solid gains in payrolls. Nonetheless, the unemployment rate remained elevated, and the continuing low readings on the participation rate and the employment-topopulation ratio, together with a high incidence of workers being employed part time for economic reasons, were generally seen as indicating that overall labor market conditions remained weak.

·         A number of participants mentioned that, by the end of the intermeeting period, market expectations of the future course of monetary policy, both with regard to asset purchases and with regard to the path of the federal funds rate, appeared well aligned with their own expectations.

·         While participants viewed the future path of purchases as contingent on economic and financial developments, one participant indicated discomfort with the contingent plan on the grounds that the references to specific dates could be misinterpreted by the public as suggesting that the purchase program would be wound down on a more-or-less preset schedule rather than in a manner dependent on the state of the economy.

·         Nonetheless, several participants were willing to contemplate lowering the unemployment threshold if additional accommodation were to become necessary or if the Committee wanted to adjust the mix of policy tools used to provide the appropriate level of accommodation.

·         A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases. At the same time, a few others pointed to the contingent plan that had been articulated on behalf of the Committee the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan

Currencies 

Dollar Holds Key Support: 10-yr -11/32..2.862%..USD/JPY: 97.90..EUR/USD: 1.3365
The Dollar Index jumped to session highs near 81.40 as an initial response to the latest FOMC minutes, but has since pulled back from it best levels. The initial response seems to be that the minutes are a bit more hawkish than was anticipated, but in reality the Fed's action or inaction at the September meeting remains up in the air. The 81.70 area is setting up for a fight as the 200-day moving average lurks at the level. Click here to see a daily Dollar Index chart.

·         EURUSD is -70 pips at 1.3345 as trade has now given up most of yesterday's gains. Today's selling has dropped the single currency off its best levels in six months, and has action testing near-term support in the 1.3325 region. Should that level give way, a move into the 1.3250 area looks promising. Eurozone data is heavy tomorrow as Flash Manufacturing and Services PMI data from across the region will be released. 

·         GBPUSD is +10 pips at 1.5670 as trade looking to post its fifth advance in the past six sessions. Early buying ran sterling above the 1.5700 level, but the area was unable to hold as sellers stepped in to defend the June highs. A push back below 1.5650 sets up a test of support in the 1.5530 area that is helped by the 200-day moving average.

·         USDCHF is +60 pips at .9230 as trade has managed to reclaim the key .9200 support level. Minor resistance rests in the .9250 region with .9325 being the more important level as the 50- and 200-day moving averages lurk in the vicinity. 

·         USDJPY is +50 pips at 97.80 with trade running to session highs following the release of the FOMC minutes. Traders remain focused on the 98.50/99.00 area as trendline resistance is helped by both the 50- and 100-day moving averages. 

·         AUDUSD is -65 pips at .9000 today's selling has action testing support in the area. This level will be under careful scrutiny in the days ahead as a breakdown will result in a test of three-year lows near .8900. Australia's CB Leading Index will cross the wires tonight. China's HSBC Flash Manufacturing PMI will also be released. 

·         USDCAD is +75 pips at 1.0470 with trade on track to close at its best level in six weeks. Bulls will now look to the 1.0425 area for support as they look to retest the July highs near 1.0575. Canada's retail sales are due out tomorrow.

Jason's Commentaries

Since I can't sleep, I decided to write my DMA early. 
 

Told you guys about the volatility when the FOMC minutes comes out? Market started the day with a bearish bias already which went sideways after 11am ET ahead of the FOMC minutes which is supposed to be released 2pm ET. When the FOMC Minutes came out, the market went into huge swings. The market dropped initially a 100 points on the Dow then went back up 140 points then by 3am ET, market sold off all its gains and closed back down 100 points on the Dow. While we should not be looking at the first 15 mins of the market movement right after the Minutes release, all 3 indices had the major gyration. The market turned into a sea of red once again. In the sector performance, Utilities led the drop of -1.14% followed by the Consumer Discretionary. However, in the S&P500, there are many heavy laggards like Verizon, AT&T, Goldman Sachs, Citi, Johnson & Johnson, Pfzier ,Intel and HP, each down at least 1%. Volumes were decent at 657.2m shares traded on the NYSE with a clear indication of the bearishness revealed by the internals. On the technical perspective, we can see that the Dow already broke its 100MA and it's sitting at the support of 14,900 points. Given the sentiment of the FOMC minutes ahead of the tapering fear, market could use this reason for a sell off. The treasuries sold off considerably after the FOMC minutes. If there could be any impact by the FOMC decisions, the bond market will be its first recipient. With HP announcing disappointing earnings, Wells Fargo cutting jobs, they could drag their sector considerably the next trading session. I'm not very bullish about the market right now.

Market Call: DOWN

Date: 22 Aug 2013