11 Jul 2014 AMC - Market found support after volatile week

11 Jul 2014 AMC - Market found support after volatile week

Market Summary 

Before Market Opens 

S&P futures vs fair value: -0.20. Nasdaq futures vs fair value: +6.70.
The S&P 500 futures have slipped to their pre-market lows and now trade in line with fair value.

Asian markets ended the final session of the week on a mostly lower note. A quiet night for news and data made for a rather lackluster session: 

o    Australia's Home Loans were unchanged month-over-month (expected -1.0%, previous -0.2%) 

o    New Zealand's FPI rose 1.4% month-over-month (previous 0.6%) 

------ 

·         Japan's Nikkei shed 0.3%, falling for a fifth straight session. Exporters remained under pressure due to the recent strength of the yen with Toyota Motor losing 0.7% and Toshiba falling 1.1%. 

·         Hong Kong's Hang Seng erased its early losses and settled little changed. Casino names finally saw some strength as Sands China and Galaxy Entertainment rallied 0.8% and 0.7%, respectively. 

·         China's Shanghai Composite added 0.4%, climbing off two-week lows. Automakers saw solid gains with SAIC Motor adding 1.6% following reports vehicle sales on the Mainland rose 8.4% during the first six months of the year.

European markets trade mostly higher with Portugal's PSI up 2.2% after yesterday's 4.2% plunge. Portugal's Prime Minister Pedro Passos Coelho said investors should not worry about the financial system and Bank of Portugal reiterated that BES has enough capital. 

·         In economic data: 

o    Germany's CPI rose 0.3% month-over-month, while the year-over-year reading increased 1.0%. Both figures met expectations. Separately, Wholesale Price Index slipped 0.1% month-over-month (expected 0.2%, previous -0.1%) 

o    Great Britain's CB Leading Index rose 0.5% month-over-month (previous 0.5%) 

o    French Current Account deficit widened to EUR3.10 from EUR2.30 billion 

o    Spain's CPI was unchanged month-over-month, while the year-over-year reading ticked up 0.1%. Both figures matched estimates 

------ 

·         Germany's DAX hovers at its flat line with exporters showing strength. BMW and Volkswagen are both up near 0.5%. HeidelbergCement is the weakest performer, down 2.6%. 

·         Great Britain's FTSE is higher by 0.1% with consumer names providing support. Coca-Cola, Imperial Tobacco, and ITV are up between 1.9% and 2.9%. Miners lag with Anglo American, Antofagasta, Fresnillo, and Randgold Resources down between 1.0% and 3.4%. 

·         In France, the CAC trades up 0.4%. Hotel operator Accor is the top performer, up 2.2%. On the downside, tech names Cap Gemini and Gemalto are down 1.0% and 1.7%, respectively.

U.S. Equities

·         Futures suggest little change at the open as the major averages look to repair the damage from yesterday's sell off. 

·         Financials are in focus after Wells Fargo (WFC) reported a top line beat. The investment banks will report next week

·         The VIX (12.59) closed yesterday's session near levels last seen at the end of May

o    S&P Futures unch @ 1958

o    Dow Futures -8 @ 16,834

o    Nasdaq Futures +6 @ 3880

Asia

·         Markets ended lower across most of Asia

·         A quiet night for news and data made for a rather lackluster session

·         Japan's Nikkei (-0.3%) fell for a fifth straight session

·         Hong Kong's Hang Seng (UNCH) erased its early losses and settled little changed

·         China's Shanghai Composite (+0.4%) climbed off two-week lows

·         India's Sensex (-1.4%) posted its lowest close in five weeks as traders continued to digest the budget

·         Australia's ASX (+0.4%) bounced off the 50 dma

·         Indonesia's Jakarta Composite (-1.3%) was pressured on news the presidential election result remains in limbo. Both candidates have declared victory

Market Internals

Market Internals -Technical-
The Nasdaq closed up 19 (+0.44%) at 4415, the Dow closed up 29 (+0.17%) at 16944, and the S&P 500 closed up 3 (+0.14%) at 1968. Action came on below average volume (NYSE 571 mln vs. avg. of 661; NASDAQ 1421 mln vs. avg. of 1693), with mixed advancers/decliners (NYSE 1710/1418, NASDAQ 1316/1324) and mixed new highs/lows (NYSE 109/19, NASDAQ 32/34).

Relative Strength: 
Junior Gold Miners-GDXJ +4.28%, Silver Miners-SIL +2.15%, Poland-EPOL +1.39%, Australia-EWA +1.07%, Livestock-COW +1.03%, Turkey-TUR +1%, Metals and Mining-XME +0.99%, Biotechnology-XBI +0.97%, Japan-EPP +0.85%, Singapore-EWS +0.81%.

Relative Weakness: 
Grains-JJG -2.52%, Corn-CORN -2.25%, Oil-USO -1.95%, Gasoline-UGA -1.67%, Oil and Gas Exploration-XOP -1.48%, India-INP -1.41%, Egypt-EGPT -0.94%, Indonesia-IDX -0.93%, South Korea-EWY -0.9%, Emerging Markets Small Cap-EWX -0.86%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Down Week on Modestly Higher Note
The stock market finished the Friday session on a modestly higher note, but the slim gains could not prevent the key indices from finishing the week in the red. The S&P 500 added 0.2%, trimming its weekly loss to 0.9%, while the Nasdaq Composite (+0.4%) finished the week with a 1.6% decline. Small caps had a tough time keeping up as the Russell 2000 shed 0.1% today to widen its weekly loss to 3.9%.

Equities slipped at the open amid weakness in two cyclical sectors. Energy (-0.8%) and financials (+0.1%) were down in excess of 0.5% in short order, while the other sectors held much closer to their flat lines.

The opening weakness in the financial sector followed an in-line quarterly report from Wells Fargo (WFC 51.49, -0.32). The stock ended lower by 0.6%, while the overall sector managed to recover its loss during the afternoon when the S&P 500 returned into the green.

Meanwhile, the energy sector was pinned to its lows throughout the session with the two top-weighted components—Chevron (CVX 128.47, -1.78) and ExxonMobil (XOM 101.74, -0.83)—pressuring the sector. The two lost 1.4% and 0.8%, respectively. In all likelihood, the sector's inability to rebound alongside the broader market was related to the daylong weakness in crude oil futures. The energy component fell 2.1% to $100.79/bbl.

Elsewhere, other cyclical sectors like consumer discretionary (+0.3%), industrials (+0.6%), and technology (+0.4%) rallied in the afternoon, which sent the S&P 500 to a fresh high.

The industrial sector drew strength from a couple of its top-weighted components. Boeing (BA 128.09, +1.30) and General Electric (GE 26.55, +0.35) posted respective gains of 1.0% and 1.3%, while the PHLX Defense Index advanced 0.7%. Transports also rallied with airlines and railroads in the lead. United Continental (UAL 45.70, +0.53) rose 1.2%, Norfolk Southern (NSC 103.95, +1.54) jumped 1.5%, while the Dow Jones Transportation Average added 0.4%.

Also of note, the relative strength of the technology sector contributed to the outperformance of the Nasdaq Composite. Google (GOOGL 586.65, +6.61) and Facebook (FB 66.34, +1.47) spiked 1.1% and 2.3%, respectively, but the top-weighted sector component—Apple (AAPL 95.22, +0.19)—surrendered the bulk of its gain into the close. On the earnings front, Infosys (INFY 54.22, -1.43) lost 2.6% despite beating earnings estimates.

Similar to the cyclical sectors, most countercyclical groups were able to finish in the green. Consumer staples (+0.1%), health care (+0.1%), and telecom services (+0.8%) posted gains, while the utilities sector (-0.7%) ended in the red.

Treasuries posted modest gains with the 10-yr note adding five ticks to send its yield lower by two basis points to 2.52%.

Participation was well below average with just 571 million shares changing hands at the NYSE floor.

Economic data was limited to the Treasury Budget for June, which posted a surplus of $70.50 billion versus a surplus of $116.50 billion in June 2013. The Treasury data are not seasonally adjusted so the June data cannot be compared with the $130.00 billion deficit from May. Fiscal year-to-date, the deficit is $365.90 billion, $144.00 billion less than the comparable period for FY13.

There is no economic data on Monday's schedule. 

·         S&P 500 +6.5% YTD 

·         Nasdaq Composite +5.7% YTD 

·         Dow Jones Industrial Average +2.2% YTD 

·         Russell 2000 -0.3% YTD

Commodities

Closing Commodities: Grains Fall Notably On USDA Report

·         Grains ended the day sharply lower driven by the USDA's WASDE report

·         Sept wheat lost 4.3% to $5.25/bushel, Sept corn -2.3% at $3.77/bu, Aug soybeans -3% at $11.96/bu

·         Precious metals chopped around in negative territory today as the dollar index traded slightly higher.

·         Aug gold pulled back from its session high of $1340.30 per ounce set at pit trade open and brushed a session low of $1334.60 per ounce in morning action. It eventually settled with a 0.2% loss at $1337.30 per ounce, booking a gain of 1.3% for the week.

·         Sep silver retreated from its session high of $21.55 per ounce and traded slightly below the unchanged line. It touched a session low of $21.42 per ounce and settled with a 0.3% loss at $21.45 per ounce. Today's decline cut weekly gains to 1.5%.

·         Aug crude oil fell deeper into negative territory after retreating from its session high of $102.26 per barrel set a floor trade open. It traded as low as $100.35 per barrel before settling with a 2.1% loss at $100.79 per barrel. Today's decline brought losses for the week to 3.1%.

·         Aug natural gas lifted from its session low of $4.11 per MMBtu in morning action and recovered into positive territory. It held on to the gain and settled at its session high of $4.15 per MMBtu, or 0.7% higher. Despite today's advance, the energy component fell 5.9% over the week

COMEX Metals Closing Prices

  Aug gold fell $2.20 to $1337.30/oz 

·         Gold pulled back from its session high of $1340.30 set at pit trade open and chopped around in negative territory as the dollar index traded slightly higher. It brushed a session low of $1334.60 in morning action and eventually settled with a 0.2% loss, booking a gain of 1.3% for the week. 

  Sep silver fell $0.06 to $21.45/oz 

·         Silver also traded slightly below the unchanged line after retreating from its session high of $21.55. It touched a session low of $21.42 and settled with a 0.3% loss. Today's decline cut weekly gains to 1.5%. 

  Sep copper settled unchanged at $3.27/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn fell 9 cents (-2.3%) to $3.77/bushel

·         Sep wheat fell 23 cents (-4.3%) to $5.25/bushel

·         Aug soybeans fell 36 cents (-3.0%) to $11.96/bushel

·         Sep ethanol fell 2 cents to $2.01/gallon 

·         Sep sugar (#16 (U.S.)) fell 0.26 of a penny to 24.75 cents/lbs

NYMEX Energy Closing Prices

  Aug crude oil fell $2.13 to $100.79/barrel 

·         Crude oil fell deeper into negative territory after retreating from its session high of $102.26 set at floor trade open. It traded as low as $100.35 before settling with a 2.1% loss. Today's decline brought losses for the week to 3.1%. 

  Aug natural gas rose 3 cents to $4.15/MMBtu 

·         Natural gas lifted from its session low of $4.11 in morning action and recovered into positive territory. It managed to hold on to gains and settled at its session high, or 0.7% higher. Despite today's advance, natural gas fell 5.9% over the week. 

  Aug heating oil fell 3 cents to $2.86/gallon 

  Aug RBOB fell 5 cents to $2.91/gallon

Treasuries

Yields Test Support: 10-yr: +05/32..2.517%..USD/JPY: 101.33..EUR/USD: 1.3607
The Week in Review

·         Treasuries saw solid gains this week, supported by weakness in equities, a dovish Fed, and fears over the health of the Portuguese banking system. Click here to see an intraweek yields chart.

·         Traders returned from their 4th of July holiday weekend to two days of selling for equities, which provided a boost for Treasuries early on in the week. 

·         Wednesday's dovish FOMC minutes provided a mid-week boost as the Committee reiterated they were in no rush to raise the Fed Funds Rate, and that asset purchases could still be boosted, if necessary. Notable was the suggestion the Fed could increase the taper to $15 bln at the October meeting to end the taper one meeting earlier than some were expecting.

·         Late-week buying came following reports out of Portugal indicating the parent company of the country's second largest bank, Banco Espirito Santo, may possibly default on its debt.

·         Data was low impact with the most notable releases being the mixed initial (304K actual v. 311K expected) and continuing (2584K actual v. 2567K expected) claims numbers.

·         This week's auctions were average at best.

·         Tuesday's $27 bln 3y note drew 0.992% (WI 0.996%) and a slightly better than average 3.38x bid/cover. A solid showing from indirect bidders (38.2%) helped offset the tepid direct bid (12.7%). Primary dealers ended up with 49.1% of the supply.

·         Wednesday's sloppy $21 bln 10y reopening drew 2.597% (WI 2.585%) and a light 2.57x bid/cover. Indirect (39.6%) and direct (13.9%) bids were below their 12-auction averages, but primary dealers were left with 46.5% of the supply. 

·         Thursday's $13 bln 30y bond reopening drew 3.369% (WI 3.362%) and a 2.40x bid/cover. Indirect bidders (53.3%) helped offset the weak demand from direct bids (11.1%), leaving primary dealers with just 35.6% of the supply. 

·         Up front, the 2y eased -7bps to 0.456%. The yield began the week at levels last seen during the debt ceiling debate back in September before ending the week on support in the 0.450% area. 

·         In the belly, the 5y fell -12bps to 1.641%. Action ended the week on support guarded by both the 50 and 100 dma.

·         The 10y shed -14bps to 2.520%. The benchmark yield tested support in the 2.500%/2.520% area into the weekend, but could not break the level. 

·         At the long end, the 30y erased -14bps to 3.343%. Trade probed 3.340% support, but the bulls were unable to produce a test of  the May lows.  

·         Curve flattening won out as the 2-10-yr spread narrowed to 206.5bps and the 5-30-yr spread tightened to 170bps.

The Week Ahead 

·         There is no data on Monday. 

·         Tuesday will see retail sales, Empire Manufacturing, import/export prices (8:30), and business inventories (10). 

·         Wednesday's data is heavy as the weekly MBA Mortgage Index (7), PPI (8:30), Net Long Term TIC Flows (9), industrial production, capacity utilization, the NAHB Housing Market Index (10), and the Fed's Beige Book (14) are due out. 

·         Data continues to flow on Thursday with initial and continuing claims, housing starts, building permits (8:30), and the Philly Fed (10). STL's Bullard discusses the U.S. economy and monetary policy (13:35). 

·         Data slows on Friday with just Michigan Sentiment (9:55) and leading indicators (10) crossing the wires.

On other news.... 

SDA WASDE out at noon EST today... corn and wheat futures are at session lows ahead of WASDE report, corn and wheat at 4-year lows

·         Grains have been weak recently on some favorable weather in the U.S., which is expected to help boost stockpile estimates for this crop year in grains... that is, ending stocks for this crop year

·         Corn and wheat futures are currently sitting at session lows, while soybeans future are flat ahead of the USDA WASDE report

·         Currently, Sept corn is -0.9% at $3.83/bushel, Sept wheat is -1.4% at $5.41/bu and Aug soybeans are -0.1% at $12.31/bu

·         Separate from the ending stocks forecast, which are found in the WASDE reports, is the quarterly update from the USDA, which show how much physical corn is currently sitting on-farm and off-farm in the U.S.In the June 30 report (for Q2), the USDA reported that corn stocks (inventory) in all positions rose 39% from 2Q13 to 3.85 billion bushels

·         This has helped weigh on corn prices, which are down 12% since the quarterly grain stocks report came out (closing price the day before the report came out was $4.42/bu).

·         Corn prices fell 25 cents or -6% on June 30 alone.

·         Corn and wheat futures are currently at 4-year lows and soybean futures are near a 4-yr low (at a level not seen since early Oct 2010)

·         Forecasts for the next 10 days in key growing areas in the U.S. call for ideal weather for the corn crop

·         In the WASDE report today, yields and ending will be key metrics to focus on

Currencies

Dollar Gains Amid Lackluster Trade: 10-yr: +05/32..2.517%..USD/JPY: 101.32..EUR/USD: 1.3605

·         The Dollar Index trades on the highs near 80.20 as a sleepy session nears the close. Click here to see a daily Dollar Index chart.

·         A lackluster trade has seen the Index limited to a tight five cent range for much of the day. 

·         EURUSD is flat @ 1.3605 as trade continues to test support in the area. A quiet day for news and data has kept the single currency in a 30 pip range. Eurozone data due out Monday is limited to industrial production. ECB head Mario Draghi will speak in Strasbourg, France. French banks are closed on Monday in observance of National Day.

·         GBPUSD is -20 pips @ 1.7110 as light selling takes hold for a second session. Today's weakness has sterling looking at its lowest close of July, and has kept minor support in the 1.7100 area in focus. A breakdown of that level puts the more important 1.7000 area on the table. 

·         USDCHF is flat @ .8925 as trade continues to test resistance in the area guarded by the 50 and 200 dma. Today's sleepy session has seen action limited to a tight 20 pip range.

·         USDJPY is unchanged @ 101.30. Any negative close would be the lowest since February as the bears continue their efforts to push action below the key 101.25 level. 

·         AUDUSD is -5 pips @ .9385 as a lackluster session draws to a close. Minor resistance near .9400 has posed a problem for the bulls over the past couple of sessions, but the bears have been unable to break .9350 support and the 50 dma. 

·         USDCAD is +75 pips @ 1.0725 as action nears three-week highs. Today's advance comes after Canada's employment change (-9.4K actual v. 20.7K expected) fell short of estimates, causing the unemployment rate to tick up to 7.1% (7.0% expected, 7.0% previous). Resistance in the 1.0820 area is also home to both the 50 and 200 dma.

Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries


Week in Review: Small Caps Slide

The stock market opened the first full week of July on a cautious note with small caps pacing the retreat. The Russell 2000 and Nasdaq Composite posted respective losses of 1.7% and 0.8%, while the S&P 500 fell 0.4% with seven sectors ending in the red. Equities spent the duration of the trading day in negative territory with the opening weakness taking place amid cautious action in Europe. A disappointing Industrial Production report from Germany (-1.8% versus expected 0.2%) weighed on sentiment, which contributed to the profit-taking. Back in the U.S., profit-taking was also the theme of the day with some of the recent leaders seeing larger losses than the broader market. Specifically, the Nasdaq and Russell 2000 led the slide after entering the session with respective gains of 9.9% and 6.3% over the last three months.

On Tuesday, the major averages registered their second consecutive decline that sent the S&P 500 lower by 0.7% with nine sectors ending in the red. Small-cap stocks underperformed once again with the Russell 2000 and Nasdaq Composite posting respective losses of 1.2% and 1.4%. In many ways, the session resembled Monday's affair as stocks began the trading day on a cautious note amid weakness in European equities. On Monday, a disappointing Industrial Production report from Germany contributed to the cautious posture, while Tuesday's losses followed the largest monthly decline in UK's Industrial Production (-0.7%) since January 2013. With participants receiving another warning sign about the strength of economic growth in the eurozone, the stage was set for another day of profit taking.

The major averages snapped their two-day losing streak on Wednesday with the Nasdaq Composite leading the charge. The tech-heavy index rose 0.6%, while the S&P 500 advanced 0.5% with nine sectors posting gains. Equity indices displayed opening strength, but the early advance was a bit shaky as the Russell 2000 (+0.1%) had a tough time keeping pace with the broader market. The small-cap index underperformed throughout the session, while the other key indices powered to new highs after the Federal Reserve released the minutes from the June FOMC meeting. Most notably, the minutes revealed the belief among officials that investors have displayed too much complacency with regard to risk. Furthermore, the minutes indicated that the committee has discussed its exit strategy tools with the general expectation of a final $15 billion taper taking place in October if the current outlook holds up.

Equities stumbled on Thursday, but a daylong rebound off the opening lows helped the major averages erase the bulk of their losses. The Russell 2000 was the weakest performer, falling 1.1%, while the S&P 500 settled lower by 0.4% after being down as much as 1.0% at the open. The early stumble was not brought upon by any specific headline, but rather a series of developments that caused investors to reduce their exposure to equities. In Asia, China reported below-consensus exports (7.2% versus expected 10.6%) and imports (5.5% versus expected 5.8%), while Japan's Core Machinery Orders tumbled 19.5% against the expectations of an uptick of 0.7%. As the night continued, news from Europe caused an exodus from regional equities (mainly financials) amid worries about Portugal's banking system after the parent company of Banco Espirito Santo missed a bond payment. Portugal's PSI 20 fell 4.2%, while Germany's DAX and Spain's IBEX lost 1.5% and 2.0%, respectively. Domestically, participants received a sliver of good news on the economic front as weekly initial claims decreased to 304,000 (Briefing.com consensus 311,000); however, headlines out of the corporate world were not nearly as upbeat. Shares of Potbelly (PBPB) plunged 25.1% to a new record low after the company said it expects its revenue to come in below estimates, while also guiding for a 1.6% decline in comparable store sales.

Next Week In View





Economic Commentaries

Economic summary: Fed's Plosser remains hawkish while Evans remains dovish -- Treasury Budget due out in < 4 minutes
Economic Data Summary:

·         None

Fed/Treasury Events Summary:

·         Philadelphia Fed President Charles Plosser reiterated his hawkish stance, saying that the Fed may raise rates sooner than the market anticipates.

·         Meanwhile, those comments were offset by Chicago Fed President Charles Evans who reiterated his dovish stance, saying that inflation will likely remain below 2% for a 'couple years'.

Upcoming Economic Data:

·         June Treasury Budget Friday at 14:00 (Briefing.com consensus $70.0 bln vs. $116.5 bln in May)

·         Nothing Monday morning... June Retail Sales, Import/Export prices, May Business Inventories and July Empire Manufacturing on Tuesday morning.

Upcoming Fed/Treasury Events:

·         Fed Chair Yellen will testify before the Senate Banking Committee on Tuesday, July 15.

Jason's Commentaries

Right after Thursday's test on the support levels on the Dow, at 16800 points, the market started to bounce a little. The volatility has been pretty scary, as the market started lower on Friday, which subsequently reversed into the closing which scored a up Friday last week. Volumes were exceptionally weak at 523.7m shares traded on the NYSE. Internals were showing a flat day where the bulls and bears are not really involved in the trading. The energy sector were the main loser of the session, together with Utilities. It seems that the Utilities are the only sector lagging so far as the market is still retaining its bullishness. I highly doubt that the market will head down any further now. On the weekly technicals, i believe the market might be entering into a volatile zone where Dow is likely to be trapped above 16800. If the support level is broken then we're likely to head down to at least 16600 level.

Market Call: FLAT to upside

Date: 15 Jul 2014