Confusion might be the word to the market at the moment. Market started off with more short selling but the bullish momentum began to pick up after 12pm ET. NASDAQ managed to end the session with a gain while S&P ended flat and DOW is still lagging behind.
Market Summary
Industry Watch
Strong: Energy, Utilities
Weak: Consumer Discretionary, Financials, Health Care, Industrials, Telecom Services
Other Market Moving Factor:
- Growth concerns resurface: China's Shanghai Composite plunges 5.4% after People's Bank of China tightens liquidity conditions and Germany's November imports (-3.1%; consensus -1.5%) drop at fastest rate in almost two years
- Greek Prime Minister Antonis Samaras calls for presidential election shortly after receiving two-month extension to meet bailout conditions
- Dollar Index pulls back: dollar/yen drops more than 200 pips, to 118.00, before rebounding
Equity futures were pressured this morning after the overnight session featured a 5.4% plunge in China's Shanghai Composite, which endured its biggest one-day decline since 2009. The dive occurred after the index soared 25.0% in a month and was catalyzed by the People's Bank of China taking measures to tighten liquidity conditions. The central bank fixed the USDCNY exchange rate at its highest level since July and imposed stricter collateral rules on short-term loans.
The cautious sentiment carried over to the European session with Greece's ASE Index sinking 12.8% while the country's 10-yr yield surged 91 basis points to 7.95% after Prime Minister Antonis Samaras called for a presidential election. This took place right after the country was granted a two-month extension to meet its bailout requirements and the early indications suggest the election could put the Coalition of the Radical Left (Syriza) in power, which rattled markets. Adding insult to injury, Germany reported a 3.1% decline in November imports, which was the biggest drop in almost two years.
Despite the global weakness, U.S. equities did not spend much time near their early lows. In fact, the Russell 2000, which led the rebound, marked its low five minutes into the session and never looked back. Since most stocks in that arena are domestically-oriented, they benefited from the consideration that the difficulties for Greece and China make the U.S. economy (and market) look comparatively better. It didn't hurt either that the NFIB Small Business Optimism Index for November hit its highest level (98.1) since February 2007.
The strength among small caps emboldened investors to delve into some other high-beta areas like biotechnology and chipmakers. The iShares Nasdaq Biotechnology ETF (IBB 314.92, +1.13) gained 0.4%, but the health care sector (-0.4%) underperformed throughout the session.
However, biotechnology did help the Nasdaq make it into the green while chipmakers climbed off their opening lows with the PHLX Semiconductor Index returning to its flat line. Large cap components of the technology sector (+0.5%) also displayed some strength with Apple (AAPL 114.13, +1.73), Google (GOOGL 536.11, +5.38), and Oracle (ORCL 41.87, +0.50) adding between 1.0% and 1.5%.
Outside of technology, energy (+0.9%), materials (+0.3%), and industrials (+0.1%) were the only other advancers on the cyclical side. The energy sector ended in the lead while crude oil jumped 1.1% to $63.82/bbl.
Although biotechnology and chipmakers contributed to the rebound, another high-beta group—transport stocks—did not play along. The Dow Jones Transportation Average (-0.6%) ended in the middle of its intraday range with airlines showing broad weakness after Spirit Airlines (SAVE 73.77, -10.70) issued disappointing guidance in reaction to increased promotional activity among its peers. Shares of SAVE plunged 12.7% while DJTA components Delta Air Lines (DAL 46.33, -1.01) and United Continental (UAL 62.52, -1.73) lost 2.1% and 2.7%, respectively.
Treasuries rallied in the morning, but surrendered a portion of their gains into the close. The 10-yr yield fell four basis points to 2.22%.
Also of note, the Dollar Index (88.73, -0.31) posted its second consecutive decline with the dollar giving ground to the yen. The dollar/yen pair was down as much as 300 pips and tested the 118.00 level before recovering to 119.60 into the afternoon.
Participation was a bit ahead of average with more than 810 million shares changing hands at the NYSE floor.
Economic data was limited to wholesale inventories and JOLTS:
- Wholesale inventories increased 0.4% for a second consecutive month in October after an upward revision to the September data (from 0.3%) while the Briefing.com consensus expected an increase of 0.2%
- Durable inventory levels were flat in October after increasing 0.7% in September with increases in hardware (1.6%) and machinery (0.4%) offsetting declines in autos (-1.4%) and professional equipment (-0.7%)
- Nondurable inventories increased 1.2% in October after being unchanged in September with petroleum inventories falling 1.9%, which was more than offset by gains in farm products (3.6%), drugs (3.2%), and groceries (1.1%)
- The Job Openings and Labor Turnover Survey for October indicated job opening increased to 4.834 million from 4.685 million
from Briefing.com
WHOLESALE INVENTORIES
Highlights
- Wholesale inventories increased 0.4% for a second consecutive month in October after an upward revision to the September data (from 0.3%). The Briefing.com Consensus expected wholesale inventories to increase 0.2%.
Key Factors
- Durable inventory levels were flat in October after increasing 0.7% in September. Increases in hardware (1.6%) and machinery (0.4%) offset declines in autos (-1.4%) and professional equipment (-0.7%).
- Nondurable inventories increased 1.2% in October after being unchanged in September. Energy price declines caused petroleum inventories to fall 1.9%. That loss, however, was more than offset by gains in farm products (3.6%), drugs (3.2%), and groceries (1.1%).
- Wholesale sales edged up 0.2% in October after no growth in September. Durable goods sales increased 0.8%. Nondurable goods sales fell 0.3%, which was mostly the result of a 5.8% decline in petroleum sales.
- The inventory-to-sales ratio remained at 1.19 for a third consecutive month.
Big Picture
- Wholesale inventories are just one component of total business inventories. Manufacturing and retail inventories make up the rest of total business inventories. The market ignores this release and doesn't pay much attention to the full business inventory release that comes a few days later. Improved inventory management in recent years has reduced the economic swings associated with inventories and has helped produce a long-term downtrend in the inventory-to-sales ratio.
Market Internals
NYSE:
Higher Volumes than the day before – 834.2M vs 813.7M
Advancers outpaced Decliners (adv/dec): 1889 / 1240
New Lows outpaced New Highs (highs/lows): 102 / 242
NASDAQ:
Lower Volumes than the day before – 1937.2M vs 1956.1M
Advancers outpaced Decliners (adv/dec): 1889 / 882
New Lows outpaced New Highs (highs/lows): 90 / 170
VOLATILITY S&P500 (VIX)
14.89 +0.68 (+4.79%)
Internals are showing a mixed response. VIX broke above 15 at the opening but went lower to test the support and closed below 15.
Technical Updates
17,801.20 -51.28 (-0.29%)
Volume: 100,401,054 (above average of 90,854,950)
Range: 17,629.57 - 17,847.37
4,766.47 +25.77 (+0.54%)
Volume: 484,643,904 (below average of 495,032,830)
Range: 4,674.38 - 4,768.41
S&P 500 INDEX (SPX: CBOE)
2,059.82 -0.49 (-0.02%)
Volume: 530,054,000 (below average of 537,095,859)
Range: 2,034.17 - 2,060.60
Looking at technicals, the indices are having a reversal pattern. However we still have to see how the market reacts on Wednesday for confirmation. On the other hand, MACD is showing a divergence also.
Commodities, Currencies and Bonds
Currency: Dollar Recoups Some Losses
- The Dollar Index nears its best levels of U.S. trade as action looks to retake the 88.65 level.
- The greenback saw early selling probe the 88.20 level before buying emerged in defense of support.
- EURUSD is +65 pips @ 1.2380 as trade tests its lowest levels since this morning. The euro neared the 1.2450 region after the larger than expected build in U.S. wholesale inventories, but has been batted off those highs following dovish commentary from ECB board member Peter Praet suggesting the central bank would have cut rates at the last meeting if it had not already been on the zero bound. The recent lows near 1.2300 remain in focus. Eurozone data scheduled for tomorrow is limited to French industrial production.
- GBPUSD is +10 pips @ 1.5660 after giving up most of its early gains. Sterling ticked to its best levels of the day near 1.5715 after NIESR GDP Estimate held at 0.7%, but has slipped over the remainder of the session. Support in the 1.5600 region remains under close watch. Britain's trade balance will be released tomorrow.
- USDCHF is -50 pips @ .9710 after trimming its early losses. Trade tested the .9650 support area before weakness in the euro provoked a rebound.
- USDJPY is -120 pips @ 119.45 as money moves into the yen amid the weakness in global equity markets. Aggressive selling provided a test of 118.00 support, but action has seen a strong rebound off the level as the major bourses fight to regain the flat line. Japan's BSI Manufacturing Index will cross the wires this evening.
- AUDUSD is +15 pips @ .8305 as the bulls look to halt the losing streak at eight days. The hard currency appeared to be on its way to a ninth straight loss following the weakness in China, but buyers stepped in to defend support in the .8200 area that corresponds with the 2009/2010 lows. Australia's Westpac Consumer Sentiment and home loans are due out tonight. Chinese data set for tonight includes CPI and PPI.
- USDCAD is -40 pips @ 1.1435 as action slips off its best levels since July 2009. Early strength made for a test of 1.1500 before sellers emerged at the psychological hurdle.
Bonds: 30Y Settles at 2.875%, Lowest Since May 2013
- Treasuries ended with modest gains, putting in the fourth advance in five sessions.
- The complex drifted little changed into the cash open despite the weakness in global equity markets, but caught a bid as traders began to settle into their desks and Greece plunged further into chaos.
- Steady buying persisted into the equity open with trade pressing to its best levels of the day shortly after the larger than anticipated build in wholesale inventories (+0.4% actual v. +0.2% expected).
- Action held near the highs into this afternoon's average $25B 3Y note auction. The auction drew 1.066% and a 3.24x bid/cover. A strong indirect bid (42.2%) provided support as directs (10.1%) were a bit light. Primary dealers ended up with just 47.7% of the supply.
- Post-auction selling ran yields off the lows, but they were unable to reclaim their respective breakeven lines.
- Up front, the 2Y eased -2.4bps to 0.608%. The yield continues to ease off Friday's close of 0.640%, which was the highest since April 2011.
- In the belly, the 5Y slid -3.8bps to 1.626%. Today's bid pushed action back below both the 50 and 100 dma.
- The 10Y fell -3.7bps to 2.220%. The benchmark yield probed the important 2.200% mark, but was unable to put in a close below the level.
- Buying at the long end dropped the 30Y -2.6bps to 2.875%. The yield on the long bond posted its lowest close since May 2013.
- A flatter curve persisted as the 2-10-yr spread narrowed to 161bps.
- Precious metals saw strong gains as gold climbed $34 to $1229 and silver surged $0.80 to $17.08.
- Data: Initial and continuing claims, retail sales, import/export prices (8:30), and business inventories (10).
- Auction: $21B 10Y note reopening.
Treasury Yields:
- 2 Year Note 0.64% UNCH
- 5 Year Note 1.63% -0.04
- 10 Year Note 2.22% -0.04
- 30 Year Bond 2.87% -0.03
2/30 Spread: 223 bps ( -3 ) … 2/10 Spread: 158 bps ( -4 )
Preview for Wednesday 10 Dec, 2014
Summary
Sell off continued at the opening and reached a bottom before the dip buyers came in to push up the market. Could that be a short covering? After all we have not seen any confirmation sign that market is going up yet.
Coming to the mid-week if the market opens lower on Wednesday, I suppose we are going to see more bearishness for the week.
Coming to the mid-week if the market opens lower on Wednesday, I suppose we are going to see more bearishness for the week.
Direction for the Wednesday 10 Dec, 2014; Up
Daily Directional Accuracy (from 25 November 2014): 5/10 (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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