As price of oil keeps falling, market continues to sell off after a bearish week despite managed to went slightly higher at the opening. While the second half session was rather flat. Are we seeing a pullback soon? For that we have to look at crude oil. As oil price remains volatile, I suppose market is going to be somewhat affected as well...
Market Summary
Industry Watch
Strong: Industrials, Technology, Telecom Services
Weak: Consumer Discretionary, Energy, Financials, Health Care, Utilities
Other Market Moving Factor:
- Crude oil unable to rebound from Friday's dive, leading global markets lower: S&P 500 testing 50-day moving average (2001)
- PetSmart (PETM) and Riverbed Technology (RVBD) acquired by private equity firms
- Shinzo Abe's LDP coalition wins supermajority in Japan's Lower House election, as expected
After plunging nearly 4.0% on Friday and inviting questions about macroeconomic implications of the continued weakness, crude oil enjoyed an overnight rebound before resuming its downtrend. The energy component ended the pit session lower by 3.2% at $55.96/bbl and continued its retreat into the $55.50/bbl area in electronic trade.
Similar to oil, European equities and U.S. equity futures rebounded in overnight action, but accelerated their retreat from highs once the U.S. cash market opened. All ten sectors finished the day in negative territory with heavily-weighted financials (-0.9%), health care (-0.9%), and consumer discretionary (-0.6%) keeping the market under pressure.
Notably, financials and health care finished at the bottom of the leaderboard with the health care sector enduring significant weakness in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 297.66, -8.44) plunged 2.8% and contributed to the underperformance of the Nasdaq.
Although the Nasdaq finished behind the broader market, the tech-heavy index was prevented from sliding deeper into the red by relative strength among some influential components like Accenture (ACN 81.88), Oracle (ORCL 41.11, +1.16), and Qualcomm (QCOM 70.37, -0.21). Of the three, Oracle rallied 2.9% after Morgan Stanley upgraded the stock to ‘Overweight.'
Elsewhere, the energy sector (-0.9%) held up well during morning action, but retreated to lows after crude oil locked in a decline for the day. Dow component ExxonMobil (XOM 86.90, +0.30) bucked the trend, climbing 0.4% after BMO Capital Markets upgraded the stock to ‘Market Perform' from ‘Underperform.'
When the dust settled, the industrial sector (-0.3%) represented the top performer on the cyclical side. The sector benefitted from gains among transport stocks with the group likely responding to cheaper fuel. The Dow Jones Transportation Average ended just above its flat line with Alaska Air (ALK 57.65, +1.84) climbing 3.3%.
Likewise, retailers rallied in response to lower oil prices as evidenced by a 0.2% advance in the SPDR S&P Retail ETF (XRT 92.47, +0.19). However, the broader discretionary sector ended in-line with the market as quick-service restaurants weighed. McDonald's (MCD 88.46, -2.16) and Yum! Brands (YUM 70.63, -2.22) lost 2.4% and 3.1%, respectively.
Treasuries ended the day modestly lower with the 10-yr yield higher by two basis points at 2.12%. On a related note, the Dollar Index registered a slim gain of 0.1%, but the greenback retreated more than 100 pips against the yen to 117.70.
Participation was ahead of average with more than 940 million shares changing hands at the NYSE floor.
Economic data included Empire Manufacturing, Industrial Production, and NAHB Housing Market Index:
- The Empire Manufacturing Survey for December registered a reading of -3.6, which was below the prior month's reading of 10.2 and below the Briefing.com consensus estimate, which was pegged at 14.0
- Industrial production increased 1.3% in November after increasing an upwardly revised 0.1% (from -0.1%) while the Briefing.com consensus expected an increase of 0.7%
- That was the largest increase since a 1.6% gain in May 2010 o Manufacturing production increased a solid, and perhaps unexpected, 1.1% in November after increasing an upwardly revised 0.4% (from 0.2%) in October
- Capacity utilization exceeded 80% for the first time since March 2008 and increased to 80.1% in November from 79.3% in October
- The NAHB Housing Market Index for December slipped to 57 from 58 while the Briefing.com consensus expected the reading to hold at 58
from Briefing.com
- Empire Manufacturing : -3.6 vs 14.0 (Prior 10.2)
- Industrial Production : 1.3% vs 0.7% (Prior 0.1%)
- Capacity Utilization : 80.1% vs 79.3% (Prior 79.3%)
- NAHB Housing Market Index : 57 vs 58 (Prior 58)
- Net Long-Term TIC Flows : -$1.4B (Prior $164.3B)
INDUSTRIAL PRODUCTION & CAPACITY UTILIZATION
Highlights
- Industrial production increased 1.3% in November after increasing an upwardly revised 0.1% (from -0.1%) in October. The Briefing.com consensus expected industrial production to increase 0.7%.
- Capacity utilization exceeded 80% for the first time since March 2008 and increased to 80.1% in November from 79.3% in October.
Key Factors
- That was the largest increase in industrial production since a 1.6% gain in May 2010.
- Manufacturing production increased a solid, and perhaps unexpected, 1.1% gain in November after increasing an upwardly revised 0.4% (from 0.2%) in October. That was the largest increase in manufacturing production since February.
- The regional Federal Reserve manufacturing surveys were mixed and the national ISM Production Index revealed a slight deceleration in manufacturing growth. Given the results from the surveys, manufacturing production was expected to be flat or only slightly upward trending.
- Motor vehicle production ended three consecutive months of declines and increased 5.1% in November. Total motor vehicle assemblies increased to 12.02 mln SAAR in November from 11.14 mln SAAR in October. Truck assemblies increased to 7.52 mln SAAR from 7.17 mln SAAR and auto assemblies rose to 4.49 mln SAAR from 3.97 mln SAAR. Motor vehicle assemblies are at their highest level since 13.24 mln SAAR vehicles were assembled in July.
- Excluding motor vehicles, manufacturing growth was still robust but at a slightly weaker 0.9% growth rate.
- The coldest November since 2000 boosted heating demand. As a result, utilities production increased 5.1% in November after declining 0.7% in October.
- Falling oil prices have had an adverse effect on mining production. Production fell 0.1% in November after declining 1.0% in October.
Big Picture
- Even though the ISM production numbers decelerated in November, the index had gone through substantial growth over the previous few months. Those gains, which had not shown up in the hard industrial production data, finally caught up in November.
Market Internals
NYSE:
Higher Volumes than the day before – 979.7M vs 963.6M
Decliners outpaced Advancers (adv/dec): 750 / 2368
New Lows outpaced New Highs (highs/lows): 30 / 361
NASDAQ:
Higher Volumes than the day before – 2135.9M vs 1874.7M
Decliners outpaced Advancers (adv/dec): 810 / 1984
New Lows outpaced New Highs (highs/lows): 41 / 216
VOLATILITY S&P500 (VIX)
20.42 -0.66 (-3.13%)
Internals are still looking bearish yet VIX closed lower. So does this means we are seeing more bulls to come in soon?
Technical Updates
17,180.84 -99.99 (-0.58%)
Volume: 114,050,376 (above average of 93,104,495)
Range: 17,115.28 - 17,403.54
4,605.16 -48.44 (-1.04%)
Volume: 568,376,995 (above average of 498,710,972)
Range: 4,592.43 - 4,690.58
S&P 500 INDEX (SPX: CBOE)
1,989.63 -12.70 (-0.63%)
Volume: 670,000,000 (above average of 547,963,738)
Range: 1,982.26 - 2,018.69
Both DOW and S&P went below their 50 MAs. Also, all three indices are at the lower bound of their Bollinger bands and sitting on their support level respectively. I guess that would bring in some dip buyers... But if the support does not hold, we should be seeing more downside in the market.
Commodities, Currencies and Bonds
Currency: Dollar Ticks Higher
- The Dollar Index holds small gains as trade holds near 88.50.
- The greenback is higher against most of its major peers.
- EURUSD is -25 pips @ 1.2435 amid a mostly uneventful session. Action has spent the majority of the day hovering just below the breakeven line as the only noteworthy news were comments from ECB member Nowotny suggesting sovereign bond purchases could occur under certain conditions. Eurozone data is heavy tomorrow as Flash Manufacturing and Services PMI data from across the region are released before German ZEW Economic Sentiment.
- GBPUSD is -75 pips @ 1.5635 as trade revisits the November/December lows. Support in the 1.5600 will be tracked closely as British bank stress test results and the Bank of England Financial Stability Report are scheduled ahead of CPI, PPI Input, and RPI. Bank of England Governor Mark Carney will speak on the Financial Stability Report.
- USDCHF is +20 pips @ .9655 as trade continues to piggyback the fluctuations in the euro. Today's cooler than expected PPI print was looked at as a non-event.
- USDJPY is -90 pips @ 117.80. Prime Minister Shinzo Abe's LDP Party won a super majority in the Lower House elections, but trade was unable to break above 119.00 as the results were already priced in.
- AUDUSD is -30 pips @ .8215 as action slides to a fresh 56-month low. The hard currency failed to attract bids after Moody's kept its ‘Aaa' sovereign rating and ‘stable' outlook. The latest Reserve Bank of Australia minutes will cross the wires this evening. China's HSBC Flash Manufacturing PMI and foreign direct investment are due out tonight.
- USDCAD is +75 pips @ 1.1655 as trade presses to its best levels since July 2009. Canada's manufacturing sales and foreign securities purchases will be announced tomorrow.
Bonds: Selling Up Front, Buying at the Long End
- Treasuries finished mixed.
- The complex held modest losses ahead of the cash open and retested its lows after industrial production (1.3% actual v. 0.9% expected) and capacity utilization (80.1% actual v. 79.4% expected) numbers outpaced estimates.
- However, buying developed at the long end as crude oil came under further selling pressure and equities erased their early gains.
- Up front, the 2Y added +4.8bps to 0.593% as traders began to price in a possible change to the ‘considerable period' language at Wednesday's FOMC meeting. The yield tested 0.550% support early before grinding higher in afternoon trade.
- In the belly, sellers were in control as the 5Y climbed +4.7bps to 1.577%. The yield reclaimed the 50 dma and is looking at a retest of the key 1.650% area that is home to both the 100 and 200 dma.
- The 10Y edged up +1.3bps to 2.116%. The benchmark yield flirted with its lowest close in 18 months before the afternoon selling took hold.
- The long bond continued its recent outperformance with the 30Y slipping -1.1bps to 2.745%. The yield on the long bond settled at its lowest levels since December 2012.
- Curve flattening caused the 2-10-yr spread to narrow to 152.5bps.
- Precious metals succumbed to afternoon selling as gold tumbled -$25 to $1197 and silver slid -$0.72 to $16.34.
- Data: Housing starts and building permits (8:30).
Treasury Yields:
- 2 Year Note 0.60% +0.04
- 5 Year Note 1.58% +0.05
- 10 Year Note 2.12% +0.02
- 30 Year Bond 2.74% -0.01
2/30 Spread: 214 bps ( -5 ) … 2/10 Spread: 152 bps ( -2 )
Preview for Tuesday 16 Dec, 2014
Summary
Market seems to be at their respective support level. I suppose tomorrow session will decide if the market is likely to pullback or continue to go down more.
Looking at the yield curve, I have noticed that it has been flattening as there is more doubt in the market given the fact that oil prices have not found a bottom yet and geopolitical situation at Euro, China and Japan.
On Tuesday we will have building permits out and that could be a market mover too.
Looking at the yield curve, I have noticed that it has been flattening as there is more doubt in the market given the fact that oil prices have not found a bottom yet and geopolitical situation at Euro, China and Japan.
On Tuesday we will have building permits out and that could be a market mover too.
Direction for the Tuesday 16 Dec, 2014; Up
Daily Directional Accuracy (from 25 November 2014): 6/12 (50.00%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)
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