27 May 2014 AMC - Market shrug of Sell in May Fear as Nasdaq led the market higher

27 May 2014 AMC - Market shrug of Sell in May Fear as Nasdaq led the market higher

Market Summary 

Before Market Opens 

S&P futures vs fair value: +7.00. Nasdaq futures vs fair value: +16.30.
S&P futures trade six points above fair value.

Markets ended mostly lower across Asia. Vietnam accused China of sinking a fishing boat in the disputed waters of the South China Sea. 

·         Economic data was limited: 

o    India's current account deficit shrank to $1.2 bln ($4.2 bln previous). 

o    Hong Kong's trade deficit widened to HKD55.3 bln (HKD50.4 bln previous). 

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·         Japan's Nikkei (+0.2%) rallied for a fourth straight day with trade climbing to a seven-week high. Exporters were bid as the yen saw early weakness with Honda Motor and Sony both gaining close to 1.0%. 

·         Hong Kong's Hang Seng (-0.1%) slipped amid a quiet trade. Wharf Holdings shed 3.5% after receiving a downgrade at a tier 1 firm on speculation Hong Kong may impose limits on the number of visitors from Mainland China. 

·         China's Shanghai Composite (-0.3%) slipped amid a lackluster session. Industrial shares were pressured ahead of tomorrow's earnings reports with Shanxi Coal International giving up 1.8%. 

In Europe, markets are higher across the board. EU Parliamentary elections saw anti-euro parties collect nearly one-third of the votes. Ukraine elected Petro Poroshenko. 

·         Data was light: 

o    Britain's BBA Mortgage Approvals fell short of estimates (42.2K actual v. 45.2K expected). 

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·         Germany's DAX (+0.3%) is firm. Financials lead the way with Commerzbank and Deutsche Bank up 1.4% and 0.9%, respectively. 

·         Britain's FTSE (+0.4%) holds solid gains. High-end retailer Burberry is a top performer, up 1.6%. 

·         France's CAC (unch) hovers little changed. Financials outperform with Credit Agricole and Societe Generale up 0.9% and 0.7%, respectively.

U.S. Equities

·         Futures suggest solid gains at the open with the S&P 500 set to open in record territory 

·         On Friday, the VIX (11.36) closed at its lowest level since March 2013 

·         Durable Orders (0.8% actual v. -1.3% expected)

·         Durable Orders -ex transportation (0.1% actual v. -0.2% expected)

·         Case-Shiller 20-city Index (12.4% actual v. 11.8% expected)

·         FHFA Housing Price Index (+0.7%)

o    S&P Futures +8 @ 1905

o    Dow Futures +72 @ 16,658

o    Nasdaq Futures +18 @ 3693

Asia

·         Markets ended mostly lower across Asia

·         Vietnam accused China of sinking a fishing boat in the disputed waters of the South China Sea

·         India's current account deficit shrank to $1.2 bln ($4.2 bln previous)

·         Hong Kong's trade deficit widened to HKD55.3 bln (HKD50.4 bln previous)

·         Japan's Nikkei (+0.2%) rallied for a fourth straight day with trade climbing to a seven-week high

·         Hong Kong's Hang Seng (-0.1%) edged lower amid a quiet trade

·         China's Shanghai Composite (-0.3%) slipped amid a lackluster session

·         India's Sensex (-0.7%) slid off record highs

·         Australia's ASX (unch) held just shy of six-year highs

Market Internals

Market Internals -Technical-
The Nasdaq closed up 51 (+1.22%) at 4237, the S&P 500 closed up 11 (+0.6%) at 1912, and the Dow closed up 69 (+0.42%) at 16676. Action came on slightly below average volume (NYSE 646 mln vs. avg. of 709; NASDAQ 1695 mln vs. avg. of 1902), with advancers outpacing decliners (NYSE 2147/991, NASDAQ 1994/687) and new highs outpacing new lows (NYSE 226/19, NASDAQ 100/24).

Relative Strength: 
Biotechnology-XBI +3.53%, Italy-EWI +3.13%, Biotechnology-IBB +2.48%, Greece-GREK +2.33%, Austria-EWO +2.3%, Vietnam-VNM +2.04%, Natural Gas-UNG +1.93%, Germany-EWG +1.87%, Russel 2000-IWM +1.44%, Semiconductors-SMH +1.43%.

Relative Weakness: 
Junior Gold Miners-GDXJ -4.81%, Silver Miners-SIL -3.52%, Volatility-VXX -3.09%, Middle East and Africa-GAF -2.82%, Sugar-SGG -2.65%, India-INP -2.58%, South Africa-EZA -2.39%, Gold-GLD -2.14%, Russia-RSX -2.02%, Eastern Europe-ESR -1.93%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Summary: Bulls Make Another Record-Setting Stand
The stock market picked up where it left off Friday, riding the outperformance of the small-cap and momentum stocks to broad-based gains. In turn, a strong showing from the financial sector and continued strength in the transport stocks carried the S&P 500 and Dow Jones Transportation Average to new record highs.

The bulk of today's gains were achieved shortly after the opening bell. They followed on the heels of a generally positive showing from foreign markets for the two-day period that included the Memorial Day holiday in the US. That showing was underpinned by a seeming hint from ECB President Draghi that the ECB will be easing monetary policy soon and the Ukraine presidential election, which went the way of anti-separatist candidate Petro Poroshenko.

The early bullish bias was ultimately solidified by Pilgrim Pride's (PPC 25.52, +0.42) $6.4 bln cash offer for Hillshire Brands (HSH 45.19, +8.17), Bank of America's (BAC 15.21, +0.49) indication that it will be resubmitting its capital plan, and a batch of better-than-expected economic data out of the US. In particular: 

·         Durable orders rose 0.8% in April (Briefing.com consensus -1.3%). Excluding transportation, orders jumped 0.1% (Briefing.com consensus -0.2%).

·         The Case-Shiller Home Price Index showed prices up 12.4% year-over-year in March (Briefing.com consensus +11.8%); and

·         The Consumer Confidence Index for May edged up to 83.0 (Briefing.com consensus 82.7) from 81.7 in April.

From about 10:15 a.m. ET onward, it was mostly a sideways trade. That steady state, however, provided a glimpse of the prevailing bullish bias of late in the stock market as it would not give way to selling interest.

That resilience provided a measure of added support as it presumably left some participants fearful about missing out on another leg higher. The S&P 500 hit a new session high in the final 30 minutes of trading before tipping back below the 1912 level shortly ahead of the close.

The Nasdaq, meanwhile, went out at its high for the day and the Russell 2000 managed a late push to close above its 50-day moving average.

Every sector in the S&P 500 closed higher with the exception of the telecom services sector (-0.2%). The latter lagged throughout the day while the financial (+1.0%) and technology (+1.0%) sectors provided influential leadership. The utilities sector (+0.8%) was the other wining standout.

Frankly, there wasn't much that lagged badly today beyond some individual issues and precious metals. Gold prices dropped 1.9% to $1267.60/oz. while silver prices slipped 1.6% to $19.12/oz. That weakness was attributed to a lessening of geopolitical concerns surrounding Ukraine, although that view wasn't necessarily corroborated by the Treasury market.

The 10-yr note also settled near its best level of the day, up five ticks with its yield dipping two basis points to 2.52%. The strength in the Treasury market was all the more peculiar in light of the aforementioned economic data that produced a slate of headline surprises. A few items perhaps at work beneath the trading surface included the understanding that geopolitical strife is percolating in the South China Sea between China and Vietnam and that nondefense capital goods orders excluding aircraft -- a proxy for business investment -- slipped 1.2% in April after increasing 4.7% in March. Shipments of those goods, which factor into the GDP computation, declined 0.4%.

Whatever the case may be, it is safe to say that the Treasury market continued to defy fund flow expectations. Tomorrow's economic calendar features only the latest update for the weekly mortgage applications index. Volume at the NYSE was again on the light side of things, but higher than last week. 646 mln shares traded hands, which is below a recent average of 709 mln shares.

·         S&P 500 +3.4% YTD

·         Nasdaq +1.4% YTD

·         Dow Jones Industrial Average +0.6% YTD

·         Russell 2000 -2.0% YTD

Commodities

Closing Commodities: Gold Drops 2%, Silver Falls 1.8%

·         Precious metals extended Friday's losses as better-than-expected economic data weighed on the space. Durable orders for April increased 0.8% while the Briefing.com consensus expected a 1.3% decline.

·         In addition, the Consumer Confidence Index increased to 83.0 in May from a downwardly revised 81.7 (from 82.3) in April vs the Briefing.com consensus of 82.7.

·         June gold pulled back from its session high of $1279.00 per ounce set at pit trade open and dipped as low as $1264.30 per ounce, its lowest level since early February. It settled at $1265.40 per ounce, booking a loss of 2.0%. July silver also traded in negative territory, falling as low as $19.02 per ounce. Unable to gain momentum, it settled with a 1.8% loss at $19.06 per ounce.

·         July crude oil chopped around in negative territory today, dipping to a session low of $103.57 per barrel just after equity markets opened. It touched a session high of $104.30 per barrel and settled with a 0.2% loss at $104.13 per barrel.

·         June natural gas, on the other hand, lifted off its session low of $4.37 per MMBtu and broke into positive territory in early morning action. It trended higher to a session high of $4.52 per MMBtu and settled with a 2.3% gain at $4.50 per MMBtu.

COMEX Metals Closing Prices

  June gold fell $26.20 to $1265.40/oz 

·         Gold extended Friday's losses as better-than-expected economic data weighed on precious metals. Durable orders for April increased 0.8% while the Briefing.com consensus expected a 1.3% decline. In addition, the Consumer Confidence Index increased to 83.0 in May from a downwardly revised 81.7 (from 82.3) in April vs the Briefing.com consensus of 82.7. The yellow metal pulled back from its session high of $1279.00 set at pit trade open and dipped as low as $1264.30, its lowest level since early February. It settled slightly above that level, booking a loss of 2.0%. 

  July silver fell $0.35 to $19.06/oz 

·         Silver also traded in negative territory, falling as low as $19.02. Unable to gain momentum, it settled with a 1.8% loss. 

  July copper rose 1 cent to $3.18/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Price

·         July corn fell 7 cents to $4.70/bushel 

·         July wheat fell 10 cents to $6.42/bushel 

·         July soybeans fell 27 cents to $14.89/bushel 

·         June ethanol fell 1 cent to $2.32/gallon 

·         July sugar (#16 (U.S.)) rose 0.58 of a penny to 25.25 cents/lbs

NYMEX Energy Closing Prices

  July crude oil fell $0.23 to $104.13/barrel 

·         Crude oil chopped around in negative territory today, dipping to a session low of $103.57 moments after equity markets opened. It touched a session high of $104.30 and settled with a 0.2% loss. 

  June natural gas rose 10 cents to $4.50/MMBtu 

·         Natural gas, on the other hand, lifted off its session low of $4.37 and broke into positive territory in early morning action. It trended higher to a session high of $4.52 and settled with a 2.3% gain. 

  July heating oil fell 2 cents to $2.94/gallon 

  July RBOB fell 3 cents to $2.98/gallon
 Treasuries

Treasuries Post Second Day of Gains: 10-yr: +03/32..2.520%..USD/JPY: 101.97..EUR/USD: 1.3637

·         Treasuries closed on session highs, supported by a post-auction bid. Click here to see an intraday yields chart.

·         The complex hovered little changed into the cash open and retested its overnight lows following the stronger than anticipated headline durable orders (0.8% actual v. -1.3% expected). 

·         A choppy trade would persist following the Case-Shiller 20-city Index (12.4% actual v. 11.8% expected) and FHFA Housing Price Index (01.7%) releases with trade pressing to session lows in response to the consumer confidence (83.0 actual v. 82.7 expected) beat. 

·         However, a steady bid would develop following the average $31 bln 2y note auction. 

·         The auction drew 0.392% (WI 0.390%) and a 3.52x bid/cover. A tepid indirect (18.8%) takedown was balanced out by a strong direct (25.2%) bid. Primary dealers were left with 56% of the supply. 

·         Buying had the biggest impact on the long end as the 30y shed -3.1bps to 3.367%. Today's close was the lowest in a week, and has the yield on the long bond just a couple of bps above its lowest finish in more than 11 months. 

·         The 10y slipped -1.8bps to 2.518%. Many participants continue to monitor key support in the 2.500% area that dates back to June 2013. 

·         The 5y ended flat @ 1.529%, stuck on support in the area helped by the 200 dma. 

·         A flatter curve prevailed as the 5-30-yr spread tightened to 184bps. 

·         Precious metals were pressured as gold fell $25 to $1267 and silver slid $0.32 to $19.10. 

·         Data: MBA Mortgage Index (7). 

·         Auction: $35 bln 5y notes.

On other news.... 

Grains lower ahead of weekly USDA crop progress report
Grains such as corn and wheat have been sliding lower in recent sessions as U.S. planting progress has been moving along nicely. Soybeans have only pulled back modestly.

However, this follows a notable rally that occurred so far this year.

·         Between Jan 10-May 9, July corn rallied 23% to $5.20/bushel

·         Between Jan 29-May 6, July wheat rallied 32.2% to $7.39/bu

·         Between Jan 30-May 22, July soybeans rallied 23.5% to $15.31/bu

Today, corn, wheat and soybeans are lower again ahead of today's weekly USDA crop progress report, which will be released at 4pm EST today due to the Memorial Day holiday, instead of at 4pm EST on Monday as usual.

In recent trade...
Overall, July corn is down 9.2% since May 9 and July wheat is down 13% since May 6.

Ukraine/Russia tension has also eased somewhat, which applies further downside on wheat... Ukraine/Russia tension is a catalyst for wheat prices (WEAT = wheat ETF), since Ukraine is one of the largest exporters of wheat and disruptions may affect wheat supply in the Black Sea region.

Corn
In the last U.S. planting progress report from the USDA, which was released on Monday, May 19, 2014, the agency showed that U.S. farmers planted 73% of the total U.S. corn crop, which was ahead of last year's progress of 65%, but slightly behind the 5-year average of 76%. So far, 1/3 of corn planted has emerged out of the ground.

Wheat
Spring wheat planting, however, remains behind last year's progress and the 5-year average. In last week's report, the USDA showed that farmers have planted 49% of the total wheat crop, worse than last year's progress of 64% and the 5-year average of 68%. So far, 24% of wheat planted has emerged.

Soybeans:
Planting completed was labeled at 33% last week, ahead of last year's progress of 21%, but behind the 5-year average of 38%.

In current trade and ahead of the weekly crop progress report:

·         Corn futures -1.2% at $4.72/bu

·         Wheat -1.4% at $6.44/bu

·         Soybeans -0.8% at $15.04/bu

Currencies

Dollar Tests 200 DMA: 10-yr: +03/32..2.517%..USD/JPY: 102.01..EUR/USD: 1.3626

·         The Dollar Index holds on session highs near 80.45 as trade fights for its highest close in seven weeks. Click here to see a daily Dollar Index chart.

·         Traders continue to monitor resistance in the 80.50 area that is helped by the 200 dma. 

·         EURUSD is -20 pips @ 1.3625 as trade presses lower for the eleventh time in fifteen sessions. Today's losses have pushed the single currency back below its 200 dma, and has action on track to close at its lowest level in three and a half months after ECB head Mario Draghi continued his dovish rhetoric. Eurozone data is heavy as M3 money supply and private loans accompany French consumer spending and German unemployment change.

·         GBPUSD is -50 pips @ 1.6790 as trade flirts with its lowest close in two weeks. Sterling saw an early bid provide a test of the 1.6900 level, but that was quickly rebuffed following the BBA Mortgages miss. Britain's CBI Realized Sales will cross the wires tomorrow. 

·         USDCHF is +30 pips @ .8975 as trade presses its best levels in three and a half months. Resistance in the .9000 area remains in focus, and is helped by the 200 dma. 

·         USDJPY is +15 pips @ 102.10 as buyers remain in control for a fifth session. The recent rally has run the pair 130 pips off its recent lows and has trade looking at its best close in two weeks. Resistance in the 102.25 area is guarded by the 50 dma. Bank of Japan head Haruhiko Kuroda will speak in Tokyo. 

·         AUDUSD is +5 pips @ .9245 amid a rather uneventful session. Early strength ran the hard currency to nearly .9280 before sellers emerged to defend resistance helped by the 50 dma. Australian data is limited to construction work done. 

·         USDCAD is +10 pips @ 1.0865 as a sleepy session drifts towards the finish. Early selling provided a test of the May lows, but it appears this morning's bid will prevent the pair from closing at its lowest level in four and a half months.

Next Week In View





Economic Commentaries

Economic Summary: Durable orders show unexpected gain; Consumer Confidence roughly in line with expectations
Economic Data Summary:

·         Weekly Durable Goods 0.8% vs Briefing.com consensus of -1.3%; Last Week was revised to 3.6% from 2.9%

o    However, the data showed that total aircraft orders only fell 0.8%. Almost the entire reported decline was offset by seasonal adjustments. Excluding transportation, durable goods orders increased 0.1% in April after increasing 2.9% in March. The consensus expected these orders to fall 0.2%. Demand was in-line with the national ISM report, which was unchanged at 55.1 in April. The increase in these orders was mostly the result of stronger fabricated metal products (3.4%), electrical equipment (1.1%), and other durable goods (1.5%). The remaining sectors all declined. 

·         Weekly Durable Goods Ex-Transportation 0.1% vs Briefing.com consensus of -0.2%; Last Week was revised to 2.9% from 2.4%

·         March Case Schiller 20 City Index 12.4% vs Briefing.com consensus of 11.8%; February was 12.9%

·         March FHFA Housing Price Index 0.7% vs Briefing.com consensus of ; February was 0.4%

·         May Consumer Confidence 83.0 vs Briefing.com consensus of 82.7; April was revised to 81.7 from 82.3

o    The Expectations Index increased to 84.8 from 83.9. Unlike the preliminary reading of the University of Michigan's Consumer Sentiment Index for May, consumer attitudes about the economy strengthened in May. Recent gains in equity prices and employment levels likely offset an upward move in gasoline prices. The increase in consumer confidence does not necessarily mean that consumption growth will also improve.

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Last Week was 0.9%)

Upcoming Fed/Treasury Events:

·         Atlanta Fed President Dennis Lockhart (not a voting FOMC member, typically moderate) to speak tomorrow at 20:10

Other International Events of Interest

·         Germany's GfK Consumer Climate held steady at 8.5 (expected 8.5).

Jason's Commentaries

It came as a surprise that market actually staged a up Friday up Tuesday. As Nasdaq broke out from it's resistance, it rallied for 3 days straight already. Volumes were standing at 657.8m shares traded on the NYSE. Google, Apple, Amex, Bank of America are the main issues that propelled the market up higher. The market started last night with a bullish intent, had a little profit taking session last night at 11am ET. However, the market held higher all the way throughout the session without much heavy selling off. It seems that the bullish strength is strong. The Tech and Financials were the main leaders of the sectors last night. S&P500 propelled up high once again. The market may be shrugging off the fears of sell in May.

Market Call: FLAT

Date: 28 May 2014