Monday, 22 Dec 2014 - AMC

Dow +154.64 at 17959.44, Nasdaq +16.04 at 4781.41, S&P+7.89 at 2078.55

This week is quite rewarding for me as the market seems to give out some present prior to Christmas Day...

Next week we will be having the Christmas week. Statistically speaking we should expect the market to go up. So are we having a Santa Claus rally? I suppose it has already started.

Enjoy your holiday and Merry Christmas to everyone. 

Direction for Monday 22 Dec, 2014; Up

There was no major economic data releasing on Monday as such market feels not so active to me. Maybe it is because of Christmas period too. Despite so all three indices managed to get higher for the fourth consecutive sessions.     

Market Summary

Industry Watch

Strong: Industrials, Consumer Discretionary, Consumer Staples, Technology, Telecom Services

Weak: Energy, Health Care, Materials

Other Market Moving Factor:

• Weakness in energy and health care stocks
• Expectations of year-end rally
• Blue-chip leadership

[BRIEFING.COM] Remember last week's rally effort following the pronouncement from the FOMC that it will be patient in raising the fed funds rate?  Well, it's not over yet.  The stock market on Monday continued its winning ways with each of the major indices adding to their gains.  Both the Dow Jones Industrial Average and S&P 500 closed at new all-time highs.

Throughout Monday's trading, there was a clear preference for owning Dow Jones Industrial Average stocks.  Our sense of things is that participants were favoring these names for their liquidity, which is optimal in the event positions need to be exited quickly, and for their appeal as conservative options to participate in further upside should the year-end rally continue.

Either way, it was a good day for the price-weighted average, which saw 27 of its 30 components advance.  IBM (IBM 161.45, +2.94) was the biggest price mover while Intel (INTC 37.22, +0.85), up 2.3%, was the biggest percentage gainer.

Those stocks helped lead the information technology sector (+1.1%), which was the best-performing sector in the S&P 500.  Its gains helped offset weakness in the health care (-1.2%) and energy (-1.0%) sectors.

Health care was weak due in large part to a large loss in Gilead Sciences (GILD 92.90, -15.55), which followed reports that pharmacy benefits manager Express Scripts (ESRX 82.34, +1.37) is going to displace Gilead's hepatitis C drug, Sovaldi, in favor of a less expensive offering from AbbVie (ABBV 66.96, -0.75), Viekira Pak, which recently won FDA approval and will become the exclusive option in the formulary for patients with genotype 1 hepatitis C.

Essentially, the decision by Express Scripts created some angst about potential pricing pressures for the drug makers.  Not all drug makers were weak on Monday, yet Merck (MRK 58.95, -0.63) was one of Dow's three losers, which also included Chevron (CVX 112.05, -0.88), and ExxonMobil (XOM 93.31, -0.33).

The energy sector traded in negative territory throughout the day, pressured by a renewed drop in oil and natural gas prices.  WTI crude futures dipped 3.3% to $55.27/bbl while natural gas futures, hit with forecasts for warmer winter temperatures ahead in the northeast, plunged 8.2% to $3.18/btu.

Commodities in general were weak on Monday with a stronger dollar pressuring some of the action.  To that end, gold futures slipped 2.0% to $1172.60/troy ounce; meanwhile, copper futures fell 0.4% to $2.87/lb.

There didn't appear to be any abject concerns in the stock market about the weakness in commodity prices signaling economic trouble ahead.  Granted the materials sector (0.05%) underperformed, yet the industrials (+0.9%), consumer discretionary (+0.9%), and financial (+0.6%) sectors outperformed.

Interestingly, the 10-yr Treasury note battled back from modest losses and went out at its highs for the day as stocks were advancing into the close to finish at their best levels of the session.  The highs weren't that high for the Treasury market.  The 10-yr note was unchanged at 2.165%, yet its steady state didn't necessarily reflect the same amount of confidence in the outlook that the stock market's continued gains did.

A weaker-than-expected Existing Home Sales report for November, which showed a 6.1% decline in homes sold from October to an annualized rate of 4.93 million units (Briefing.com consensus 5.20 mln), lent a measure of support to the Treasury market.

Tuesday will feature an extensive lineup of economic releases that includes the Durable Orders, Third Estimate for Q3 GDP, Personal Income and Spending, University of Michigan Consumer Sentiment, and New Home Sales reports.

Volume was on the lighter side of recent averages as 772 million shares traded at the NYSE.

Macroeconomic Data

Economic Data

from Briefing.com

• Existing Home Sales : 4.93M vs 5.20M (Prior 5.25M)

EXISTING HOME SALES

Highlights

• Existing home sales fell 6.1% in November to 4.93 mln SAAR from a downwardly revised 5.25 mln SAAR (from 5.26 mln SAAR). The Briefing.com consensus expected sales to fall to 5.20 mln SAAR.

Key Factors

• Even though sales declined on a monthly basis, they did manage to increase on a year-over-year basis for a second consecutive month. Before last month’s year-over-year gain, sales levels had consistently declined year-over-year since October 2013.
• Over the past few months, the labor sector has strengthened significantly and mortgage rates have fallen. Affordability conditions have materially improved. Yet, we have not seen steady acceleration in sales growth during this time. There is still a disconnect between general economic conditions and trends in home demand.
• There is some hope for a change in these disappointing trends.
• First-time home buyers accounted for 31% of all sales. That was up from 29% in October and was the largest contribution since October 2012. While that is still down from 40%, which is needed for normal market conditions, gains in the first-time home buyers’ market will pass through and allow current home owners to step up into larger and more expensive housing.
• The National Association of Realtors is partially blaming the decline in sales as a result of low supply issues. Inventory levels fell 6.7% in November to 2.090 mln from 2.240 mln. That represents 5.1 months’ supply. 
• Low inventory levels were also responsible for a 5.0% y/y increase in the median existing home price, which was the 33rd consecutive month of year-over-year price gains.
• Investor demand was unchanged and accounted for 15% of total sales. All cash sales accounted for 25% of total sales in November, down from 27% in October.

Big Picture

• Existing home sales declined in November even though affordability conditions continue to improve.

Market Internals

NYSE:

Lower Volumes than the day before – 790.5M vs 2467.2M 


Advancers outpaced Decliners (adv/dec): 1822 / 1293

New Highs outpaced New Lows (highs/lows): 190 / 21

NASDAQ:

Lower Volumes than the day before – 1705M vs 2863.7M

Advancers outpaced Decliners (adv/dec): 1696 / 1090

New Highs outpaced New Lows (highs/lows): 146 / 47

VOLATILITY S&P500 (VIX)

15.25 -1.24 (-7.52%)

The internals still remain bullish at the moment. VIX continues to sit above the 15.00 support level. That is going to determine whether the rally is going to last depending VIX breaks below... 

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,959.44 +154.64 (+0.87%)

Volume: 98,467,317 (above average of 95,064,106)

Range: 17,812.25 - 17,962.78

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,781.42 +16.04 (+0.34%)

Volume: 450.8M (below average of 505,450,716)

Range: 4,757.81 - 4,781.93

S&P 500 INDEX (SPX: CBOE)

2,078.54 +7.89 (+0.38%)

Volume: 550.8M (below average of 562,458,594)

Range: 2,069.28 - 2,078.76 

Another step closer to a new high for the three indices. MACD is showing some confidence on the bullish momentum. However I am still feeling a bit skeptical on whether the rally will last...     

Commodities

Closing Commodities: Natural Gas Futures Tank

• Natural gas began to recover in the afternoon session.
• However, this reversed and natural gas closed close to today’s low
• Jan nat gas finished today’s session down 33 cents to $3.14/MMBtu
• Crude oil sold off today as well, coming off its overnight night now, ending the day $1.72 lower at $55.38/barrel
• Precious metals declined as well
• Feb gold finished lower, closing below $1200/oz, while Mar silver ended under $16/oz

Energy price action

• Jan crude oil fell $1.72/barrel, closing today’s pit session at $55.38/barrel
• Natural gas fell 33 cents to $3.14/MMBtu
• RBOB Gasoline fell 2 cents to $1.54/gallon
• Heating oil fell 2 cents to $1.91/gallon

Agricultural price action

• Mar Corn closed unchanged at $4.11/bushel
• Mar wheat fell 8 cents to $6.25/bushel
• Jan soybeans rose 7 cents at $10.37/bushel
• Ethanol fell 1 cent to $1.61/gallon
• Sugar #11 fell 0.12 cents to 14.86 cents/gallon

Metals price action

• Feb gold ended today’s session $16.90 lower at $1179.10/oz
• Mar silver also ended $0.35 lower at $15.68/oz
• Mar copper fell 1 cent to $2.87/lb.

Currencies

Dollar Erases Losses, Ticks into Positive Territory:

• The Dollar Index has recouped its early losses and has ticked into positive territory. 
• Overnight weakness dropped the greenback below the 89.40 level, but steady buying over the course of the session has run action to session highs near 89.65. 
• Any positive close will cause the Index to post its best settlement since April 2006. 
• EURUSD is +15 pips @ 1.2240 as trade fights to hold onto its gains. The single currency saw a bid from the get go as buyers stepped in to defend key support near 1.2200. Eurozone data set for is limited to French consumer spending, but much of the focus will be on round two of the Greek presidential election. 
• GBPUSD is -20 pips @ 1.5605 as action presses critical support in the 1.5600 region. Sterling has been trapped between 1.5600/1.5800 for nearly two months with a breakdown setting up the lowest print since August 2013. British data scheduled for tomorrow is heavy as current account, BBA Mortgage Approvals, and Final GDP are due out. 
• USDCHF is -5 pips @ .9830 as trade holds at 28-month highs. Today's choppy action comes as the franc has recoupled with the euro.
• USDJPY is +45 pips @ 119.90 as buyers remain in control for a fourth day. Action ticked up to 120.00, but struggled to take out minor resistance at the level. The recent highs near 122.00 remain under close watch. Japanese banks are closed for the Emperor's Birthday. 
• AUDUSD is -5 pips @ .8135 after surrendering its early gains. The hard currency has been reeling as of late, losing ground in 14 of the previous 17 sessions. A breakdown of .8100 will have action at a fresh 54-month low.
• USDCAD is +35 pips @ 1.1635 as trade threatens last week's highs near 1.1675. Any close above that level would be the best since July 2009.

Bonds

Afternoon Bid Lifts Treasuries to Highs:

• Treasuries closed on their highs. 
• The complex drifted little changed into the cash open and slipped to session lows ahead of this morning's data. 
• Buyers emerged in response to the disappointing existing home sales (4.93 mln actual v. 5.20 mln expected) number, causing maturities to rally back to their respective breakeven lines into the average $27B 2Y note auction. 
• The auction drew 0.703% (WI 0.708%) and a light 3.21x bid/cover. A solid indirect bid (35.7%) provided support as directs (14.5%) fell short of their 12-auction averages. Primary dealers were left with 49.8% of the supply. 
• Post-auction buying ran Treasuries back into positive territory, pushing yields onto the overnight lows ahead of the cash close.
• Up front, the 2Y ticked up +1.5bps to 0.655%. The yield flirts with its best print since April 2011. 
• In the belly, the 5Y edged up +0.5bps to 1.659%. The level remains in focus as both the 100 and 200 dma lurk in the vicinity. 
• The 10Y slipped -1.4bps to 2.162%. The 2.200% level remains a headwind as action tested and failed there in each of the past three sessions. 
• Outperformance at the long end dropped the 30Y -2.4bps to 2.750%. Focus remains on the recent lows near 2.700%. 
• Curve flattening persisted as the 2-10-yr spread narrowed to 150.5bps, the tightest since May 2013. 
• Also notable was the flattening in the 5Y/30Y spread as action tightened to 109bps, last seen in December 2008. 
• Precious metals went off on the lows with gold -$23 @ $1173 and silver -$0.42 @ $15.61. 
• Data: Durable orders, GDP - Third Estimate (8:30), FHFA Housing Price Index (9), Michigan Sentiment - Final (9:55), personal income and spending, PCE Prices - Core, and new home sales (10). 
• Auction: $35B 5Y notes.

Treasury Yields:

• 2 Year Note 0.71% +0.04
• 5 Year Note 1.67% +0.01
• 10 Year Note 2.17% UNCH
• 30 Year Bond 2.75% -0.02

2/30 Spread: 204 bps ( -6 ) …  2/10 Spread: 146 bps ( -4 )

Preview for Tuesday 23 Dec, 2014

Summary

Tuesday have quite a number of economic data out and it is likely to shake the bullishness up a bit. It is important to look into the transport sector meanwhile as they are an good indicator on whether the economy is likely to pick up or soften. 

At last, I think the play in the market remains cautious.  

Direction for Tuesday 23 Dec, 2014; Up

Daily Directional Accuracy (from 25 November 2014): 9/16 (56.25%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)