5 Aug 2014 AMC - Market gave way once again as bearishness looms

5 Aug 2014 AMC - Market gave way once again as bearishness looms

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.1%

·         Germany's DAX: + 0.4%

·         France's CAC: + 0.4%

·         Spain's IBEX: -1.4%

·         Portugal's PSI: -0.7%

·         Italy's MIB Index: -1.6%

·         Irish Ovrl Index: -0.2%

·         Greece ASE General Index: -2.8%

Before Market Opens 

S&P futures vs fair value: -7.60. Nasdaq futures vs fair value: -18.00.
The S&P 500 futures trade eight points below fair value.

Asian markets ended the session on a mostly lower note. In central bank news, the Reserve Bank of India kept its repo rate on hold at 8.00% and talked tough on inflation, while the Reserve Bank of Australia also held its key rate steady at 2.50%, while suggesting the Aussie dollar remains too strong. 

·         In economic data: 

o    China's HSBC Services PMI fell to 50.0 from 53.1 

o    Hong Kong's Manufacturing PMI ticked up to 50.4 from 50.1 

o    Australia's trade deficit narrowed to $1.68 billion from $2.04 billion (expected deficit of $1.90 billion) as imports declined 1.0% (previous -1.0%) and exports held steady (last -5.0%). Separately, AIG Services Index improved to 49.3 from 47.6 

o    Indonesia's GDP rose 2.5% quarter-over-quarter (expected 2.6%, previous 1.0%), while the year-over-year reading increased 5.1% (expected 5.3%, previous 5.2%) 

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·         Japan's Nikkei lost 1.0%, falling for a fourth straight session. Toyota Motor finished unchanged ahead of its earnings report. 

·         Hong Kong's Hang Seng added 0.2%, holding near its best levels of 2014. Internet gaming co Tencent Holdings led the advance, tacking on 3.3%. 

·         China's Shanghai Composite shed 0.2%, slipping from its best levels in eight months. Real estate shares were pressured as Poly Real Estate and China Vanke surrendered 1.7% and 2.1%, respectively. 

Major European indices trade mostly higher, while Italy's MIB (-0.8%) and Spain's IBEX (-0.6%) underperform. In general, the markets have been supported by upbeat earnings, while regional PMI readings were mixed. 

·         Participants received several data points: 

o    Eurozone Retail Sales ticked up 0.4% month-over-month, as expected, while the year-over-year reading increased 2.4% (consensus 1.2%, previous 0.6%). Separately, Services PMI slipped to 54.2 from 54.4 (expected 54.4) 

o    Germany's Services PMI ticked up to 56.7 from 56.6 (expected 56.6) 

o    Great Britain's Services PMI rose to 59.1 from 57.7 (expected 57.9) 

o    French Services PMI held steady at 50.4, as expected 

o    Italy's Services PMI slipped to 52.8 from 53.9 (consensus 54.0) 

o    Spain's Services PMI jumped to 56.2 from 54.8 (forecast 55.1) 

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·         Great Britain's FTSE is higher by 0.2%. Weir Group leads with a gain of 2.6% after ending its broker agreement with Bank of America/Merrill Lynch. The move has led to speculation about a potential takeover. Meggitt is the weakest performer, down 6.7% after lowering its guidance. 

·         In France, the CAC trades up 0.5% with Credit Agricole in the lead. The stock is higher by 4.1% in reaction to upbeat earnings. Industrial names lag with Airbus and Renault down 1.7% and 1.3%, respectively. 

·         Germany's DAX holds an advance of 0.5%. Deutsche Post leads with an earnings-driven gain of 2.6%, while financials lag. Deutsche Bank and Commerzbank are both down near 1.5%. 

·         Italy's MIB trades down 0.8% amid weakness in blue chip names. Telecom Italia is lower by 4.5% after Spain's Telefonica made an offer for Brazil's GVT.

U.S. Equities

·         Futures suggest a heavy open

·         Yesterday's gain was the first in five days

o    S&P Futures -9 @ 1923

o    Dow Futures -55 @ 16431

o    Nasdaq Futures -16 @ 3881

Asia

·         Markets lost ground across much of Asia

·         China's HSBC Services PMI fell to 50.0 (53.1 previous)

·         The Reserve Bank of India kept its repo rate on hold at 8.00% and talked tough on inflation

·         The Reserve Bank of Australia held its key rate steady at 2.50% while suggesting the Aussie dollar remains ‘too strong' 

·         Australia's trade deficit narrowed to AUD1.68 bln (AUD2.00 bln expected, AUD2.04 bln previous)

·         Japan's Nikkei (-1.0%) fell for a fourth straight session

·         Hong Kong's Hang Seng (+0.2%) held near its best levels of 2014

·         China's Shanghai Composite (-0.2%) slipped off its best levels in eight months

·         India's Sensex (+0.7%) ended just shy of record highs 

Market Internals

Market Internals -Technical-
The S&P 500 closed down 19 (-0.97%) at 1920, the Dow closed down 140 (-0.84%) at 16429, and the Nasdaq closed down 31 (-0.71%) at 4353. Action came on slightly above average volume (NYSE 688 mln vs. avg. of 665; NASDAQ 1746 mln vs. avg. of 1687), with decliners outpacing advancers (NYSE 902/2238, NASDAQ 1129/1564) and new lows outpacing new highs (NYSE 23/79, NASDAQ 27/78).

Relative Strength: 
Volatility-VXX +7.12%, Junior Gold Miners-GDXJ +1.6%, Natural Gas-UNG +1.09%, Biotechnology-XBI +0.71%, Gold Miners-GDX +0.58%, Indian Rupee-ICN +0.28%, Egypt-EGPT +0.24%, Vietnam-VNM +0.19%, Chinese Yuan-CYB +0.12%, British Pound-FXB +0.1%.

Relative Weakness: 
Greece-GREK -4.6%, Italy-EWI -4.2%, Russia-RSX -3.37%, Turkey-TUR -3.26%, Copper Miners-COPX -3.25%, Spain-EWP -3.22%, Oil and Gas Exploration-XOP -2.72%, Energy-IYE -2.24%, Energy-XLE -2.19%, Oil Services-OIH -2.09%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Succumb to Broad-based Profit Taking
The stock market ended the Tuesday session on a broadly lower note. The S&P 500 lost 1.0% with all ten sectors ending in the red. The Russell 2000 outperformed, but still shed 0.3%.

Equity indices were on the defensive from the get-go with the early weakness attributed to disappointing data from overseas. China got the ball rolling overnight with a disappointing HSBC Services PMI report (50.0 from 53.1), which fell to its lowest level on record. Things looked a little bit better in Europe, where Services PMI readings from Germany, Great Britain, and Spain improved, but the overall eurozone reading unexpectedly slipped to 54.2 from 54.4.

Another item that kept dip-buyers on the sidelines was disappointing guidance provided by Target (TGT 58.03, -2.67). The retailer lost 4.4% after priming the market for below-consensus results that will include a $148 million expense stemming from the data breach that occurred last year.

Staying on the earning theme, apparel retailer Coach (COH 35.80, +1.49) rallied 4.3% after reporting better than expected earnings and revenue. For its part, the overall consumer discretionary sector (-0.7%) ended a bit ahead of the broader market.

Outside of the discretionary space, the industrial sector (-0.6%) was the only other cyclical group that was able to finish ahead of the broader market. Dow component Boeing (BA 121.27, +1.34) added 1.1%, which contributed to the relative strength. Transport stocks were not as fortunate with the Dow Jones Transportation Average falling 1.1%.

Other heavily-weighted sectors were not as fortunate with financials (-1.0%) and technology (-0.9%) ending in line with the S&P 500, while energy (-2.1%) lagged throughout the session. Pioneer Natural Resources (PXD 209.98, -12.43) pressured the sector, falling 5.6%, in reaction to below-consensus revenue. Marathon Oil (MRO 38.46, -0.76) also slumped, losing 1.9%, despite its better than expected earnings. Crude oil, meanwhile, fell 1.0% to $97.33/bbl.

Afternoon action saw equities extend their losses with the slide attributed to comments from Polish Foreign Minister Radoslaw Sikorski, who said Russia is poised to pressure or invade Ukraine. However, it is worth noting that the comments did not introduce anything new as Russian troop movements along the border with Ukraine have been watched for months. In all likelihood, the headline was a convenient excuse to take some money off the table after the market could not erase its early loss.

Also of note, the afternoon remarks helped Treasuries recover their intraday losses. The 10-yr note ended flat with its yield at 2.48% after the benchmark yield notched a session high just north of 2.52%.

Participation was a bit below average with fewer than 690 million shares changing hands at the NYSE.

Economic data was limited to Factory Orders and the ISM Services Index: 

·         Factory orders increased 1.1% in June following a downwardly revised 0.6% decline (from -0.5%) in May 

o    The Briefing.com consensus expected factory orders to increase 0.5% 

o    Durable goods orders increased 1.7% in June after declining 0.9% in May, representing a significant upward revision from the advance release (+0.7%) 

o    Excluding transportation, durable goods orders rose 1.9% in June, up from an originally reported 0.8% increase in the advance release 

·         The ISM Non-manufacturing Index increased to 58.7 in July from 56.0, while the Briefing.com consensus expected an increase to 56.5 

o    That was the highest reading since the ISM reformulated the index in January 2008 

§  Including the old survey methods, the index reached its highest level since late 2005 

Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET, while the June Trade Balance (Briefing.com consensus -$45.20 billion) will be released at 8:30 ET. 

·         S&P 500 +3.9% YTD 

·         Nasdaq Composite +4.2% YTD 

·         Dow Jones Industrial Average -0.9% YTD 

·         Russell 2000 -3.5% YTD

Commodities

Closing Commodities: Crude Oil Falls 1%, Nat Gas Rallies 1.6%, Precious Metals Decline

·         Precious metals extended yesterday's losses as a stronger dollar index weighed on prices.

·         Dec gold slipped into negative territory after pulling back from a session high of $1291.20 per ounce in early morning action. It brushed a session low of $1283.30 per ounce and settled with a 0.3% loss at $1285.10 per ounce

·         Sep silver fell as low as $19.78 per ounce after retreating form a session high of $20.19 per ounce. Unable to find buying support, it settled at $19.83 per ounce, or 1.6% lower.

·         Sep crude oil trended lower into negative territory ahead of tomorrow's inventory data. A stronger dollar index also pressured prices.

·         The energy component pulled back from its session high of $98.15 per barrel and brushed a session low of $97.00 per barrel. It eventually settled with a 1.0% loss at $97.33 per barrel. 

·         Sep natural gas, on the other hand, rose from its session low of $3.84 per MMBtu set in early morning action and traded in a consolidative pattern near the $3.90 per MMBtu level for the remainder of the session. It touched a session high of $3.91 per MMBtu and settled at $3.90 per MMBtu, booking a gain of 1.6%.

 COMEX Metals Closing Prices

  Dec gold fell $3.90 to $1285.10/oz 

·         Gold extended yesterday's losses as a stronger dollar index weighed on prices. The yellow metal slipped into negative territory after pulling back from a session high of $1291.20 in early morning action. It brushed a session low of $1283.30 and settled with a 0.3% loss. 

  Sep silver fell $0.41 to $19.83/oz 

·         Silver also traded lower today. It fell as low as $19.78 after retreating from a session high of $20.19 set when floor trade opened. Unable to find buying support, it settled with a 2.0% loss. 

  Sep copper fell 4 cents to $3.20/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn fell 3 cents to $3.56/bushel 

·         Sep wheat rose 7 cents to $5.52/bushel 

·         Nov soybeans fell 15 cents to $10.65/bushel 

·         Sep ethanol fell 5 cents to $1.96/gallon 

·         Sep sugar (#16 (U.S.)) fell 0.27 of a penny to 24.78 cents/lbs

 NYMEX Energy Closing Prices

  Sep crude oil fell $0.94 to $97.33/barrel 

·         Crude oil trended lower into negative territory ahead of tomorrow's inventory data. A stronger dollar index also pressured prices. The energy component pulled back from its session high of $98.15 and brushed a session low of $97.00. It eventually settled with a 1.0% loss. 

  Sep natural gas rose 6 cents to $3.90/MMBtu 

·         Natural gas, on the other hand, rose from its session low of $3.84 set in early morning action and traded in a consolidative pattern near the $3.90 level for the remainder of the session. It touched a session high of $3.91 and settled just below that level, booking a gain of 1.6%. 

  Sep heating oil fell 2 cents to $2.85/gallon

  Sep RBOB fell 2 cents to $2.71/gallon


Treasuries

Treasuries Finish Little Changed: 10-yr: unch..2.481%..USD/JPY: 102.55..EUR/USD: 1.3375

·         Treasuries ended mixed. Click here to see an intraday yields chart.

·         The complex trade flat into the cash open before better than expected ISM Services (58.7 actual v. 56.5 expected, 56.0 previous) and factory orders (1.1% actual v. 0.5% expected) data dropped maturities to their lows. 

·         Treasuries would spend the better part of the morning and early afternoon trade repairing the early damage before climbing to their best levels of the session in response to comments from Polish Foreign Minister Radoslaw Sikorski suggesting Russia was ready to invade Ukraine. After a test of their overnight highs, maturities drifted near their best levels of the session for the remainder of the day.

·         Up front, the 2y eased -0.8bps to 0.460%. Action closed on key support that dates back to the middle of June. 

·         The belly lagged with the 5y ticking up +0.6bps to 1.664%. The yield was unable to penetrate support at the level, and finished on the 50 and 100 dma.

·         The 10y slipped -0.8bps to 2.483%. Traders continue to watch support in the 2.460% area, which protects the May closing low of 2.434%. 

·         Outperformance at the long end dropped the 30y -1.6bps to 3.279%. The yield on the long bond ended just a handful of bps off its lowest close in 13 months. 

·         An unchanged curve saw the 2-10-yr spread hold @ 202.5bps.

·         Precious metals saw a mixed session with gold +$3 @ $1292 and silver -$0.37 @ $19.86. 

·         Data: MBA Mortgage Index (7) and the trade balance (8:30).

On other news.... 

Currencies 

Dollar Contends with 11-Month Highs: 10-yr: +01/32..2.477%..USD/JPY: 102.53..EUR/USD: 1.3373

·         The Dollar Index has slipped off session highs, and now holds small gains near 80.50. Comments from Poland's foreign minister suggesting Russia may be ready to invade Ukraine has sparked some selling. Click here to see a daily Dollar Index chart.

·         EURUSD is -45 pips @ 1.3375 as action flirts with its lowest close since the middle of September. The single currency has been pressured throughout the session as the steady downtrend that has been in place over the past three weeks continues. Eurozone data scheduled for includes German factory orders and Italian preliminary GDP; however, traders remain more interested in Thursday's European Central Bank rate decision. 

·         GBPUSD is +20 pips @ 1.6880 as buyers remain in control for a second day. The two-day bid comes amid a turnaround in data out of the UK as Construction PMI and Services PMI outperformed estimates. Support near 1.6800 has held, allowing action to reclaim the 100 dma (1.6863). Britain's manufacturing production and NIESR GDP Estimate will cross the wires tomorrow. 

·         USDCHF is +35 pips @ .9095 as trade contends with its best levels of 2014.A quiet day in Switzerland has left the pair at the mercy of the euro. Swiss data scheduled for tomorrow is limited to CPI. 

·         USDJPY is flat @ 102.55 after surrendering its early gains. The pair neared the 103.00 level in early trade, but selling over the course of U.S. trade has slowly wiped away those gains. A lower close would mark a fourth straight day of losses. 

·         AUDUSD is -35 pips @ .9295 as sellers have been for most of the day. The hard currency popped to session highs near .9350 after the RBA kept policy on hold, but sellers would emerge at the resistance level and push trade back below the 100 dma. Action is contending with its lowest close in two months. 

·         USDCAD is +60 pips @ 1.0965 as action flirts with its best close since the beginning of May. Canada's trade balance is due out tomorrow.

Next Week In View




Economic Commentaries

Economic Summary: Factory Orders & ISM Services top expectations
Economic Data Summary:

·         June Factory Orders 1.1% vs Briefing.com consensus of 0.5%; May was revised to -0.6% from -0.5%

o    That is a significant upward revision from the advance release, which showed durable goods orders up only 0.7% in June. Excluding transportation, durable goods orders rose 1.9% in June, up from an originally reported 0.8% increase in the advance release. Investment demand also strengthened in the latest report. Orders of nondefense capital goods excluding aircraft increased 3.3% in June as opposed to the 1.4% increase reported in the advance release. Shipments, which factor into second quarter GDP revisions, fell 0.3% in June. 

·         July ISM Services 58.7 vs Briefing.com consensus of 56.5; June was 56.0

o    The Business Activities Index rose to 62.4 in July from 57.5 in June. The gain was the result of stronger new orders demand (64.9 vs. 61.2 in June). Order backlogs were unchanged at 53.0.

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Last Week was -2.2%)

·         June Trade Balance due out Wednesday at 8:30 (Briefing.com consensus of -$45.2 bln; May was -$44.4 bln)

Other International Events of Interest

·         The Reserve Bank of Australia held its key rate steady at 2.50% while suggesting the Aussie dollar remains ‘too strong' 

Jason's Commentaries

As expected, the bearishness in the market is not over yet. The market gave way immediately at the start of the opening bell which attempted to recover the losses at 10am ET, but the attempt failed by mid day which the support broke by lunch time. All indices now found a support and might be hovering there for a while. I doubt the market will break down today as the indices are likely to hold their support. The biggest laggard was the Energy sector followed by the utilities. Only Staples managed to hold on to some mild losses. While on the internals, the volumes were at 702.9m shares traded on the NYSE. The internals were definitely pointing towards the bearish side of the market. And the convergence is getting more and more consistent. We're likely to end up flat to the downside today.








Market Call: FLAT to downside

Date: 6 Aug 2014