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.Direction for the Wednesday 10 Dec, 2014; Up
Market had a heavy sell off as oil prices continue to fall. There was some short selling at the start before more to come during the second half of the trading session. Just to note, this is one of the worst trading day since October. Is that it or is it just the beginning?
Market Summary
Industry Watch
Strong:
Weak: Energy, Industrials, Materials, Technology, Telecom Services
Other Market Moving Factor:
- Crude oil under pressure after OPEC cuts demand forecast
- Dollar Index tracking third consecutive loss: euro and yen climbing
For the second day in a row, the major averages slumped at the start, but unlike yesterday, the key indices could not stage a comeback with a big drop in the energy sector (-3.1%) keeping the market under pressure throughout the session.
The energy sector widened its fourth-quarter loss to 15.9% with crude oil settling lower by 4.5% at $60.92/bbl. Today's slide took place after China reported its lowest year-over-year growth in CPI (1.4%) and OPEC cut its demand forecast. In addition, crude stockpiles showed an unexpected build. Following today's drop, the energy component is down 33.4% since the end of the third quarter.
However, the recent slump among commodities has not been isolated to just oil, but the weakness factored in more prominently today as misgivings about the pace of global economic growth and the potential spillover effect for the U.S. fueled a sense that the market has come too far too fast. Accordingly, today's selling interest hit far and wide with nine sectors losing more than 1.0%.
Similar to energy, the materials sector (-2.1%) spent the day at the bottom of the leaderboard. Growth concerns weighed on steelmakers, which sent Market Vectors Steel ETF (SLX 36.28, -1.29) lower by 3.4%.
Elsewhere, the industrial sector (-1.9%) slumped under the weight of Boeing (BA 124.64, -5.02). The Dow component lost 3.9% and fell below its 50-, 100-, and 200-day averages. The underperformance of the influential sector component masked the relative strength among airlines after International Air Transport Association's projection that the airline industry's collective global net profit after tax will increase to $25.00 billion in 2015 from an estimated $19.00 billion in 2014. Jetblue Airways (JBLU 15.15, +0.11), Southwest Airlines (LUV 41.48, +0.75), and United Continental (UAL 63.69, +1.17) jumped between 0.7% and 1.9%, helping the Dow Jones Transportation Average (-1.4%) finish a little ahead of the market.
Also of note, the consumer discretionary sector (-1.4%) settled ahead of the market, but that was no thanks to Yum! Brands (YUM 70.53, -4.69). The stock tumbled 6.2% after issuing disappointing guidance. In a way, the guidance from Yum! echoed global growth concerns. The company said that sales at its China division have not recovered from bad publicity over the summer as fast as the company had expected.
Growth concerns were also visible in the foreign exchange market with the Dollar Index (88.25, -0.45) recording its third consecutive decline. Notably, the retreat in the dollar gave a big boost to the yen and pressured the dollar/yen pair below yesterday's low (118.00).
Safe haven demand boosted Treasuries with the 10-yr yield falling six basis points to 2.16%.
The selloff invited above-average participation with more than 890 million shares changing hands at the NYSE floor.
Economic data was limited to the MBA Mortgage Index and the Treasury Budget:
- The weekly MBA Mortgage Index spiked 7.3% to follow last week's 7.3% decline
- The Treasury budget showed a deficit of $56.80 billion in November, down from a deficit of $135.2 billion in November 2013. The Treasury data are not seasonally adjusted, and the November data cannot be compared to the $121.7 billion deficit in October
- The Briefing.com Consensus expected a budget deficit of $59.0 billion
- The November deficit was slightly smaller than the CBO's forecast of a $59.0 billion deficit
from Briefing.com
- MBA Mortgage Index : 7.3% (Prior -7.3%)
- Crude Inventories : 1.454M (Prior -3.689M)
- Treasury Budget : -$56.8B vs -$59.0B (Prior -$135.2B)
TREASURY BUDGET
Highlights
- The Treasury budget showed a deficit of $56.8 bln in November, down from a deficit of $135.2 bln in November 2013. The Treasury data are not seasonally adjusted, and the November data cannot be compared to the $121.7 bln deficit in October. The Briefing.com Consensus expected a budget deficit of $59.0 bln.
Key Factors
- The November deficit was slightly smaller than the CBO's forecast of a $59.0 bln deficit.
- Total revenues increased by $9.0 bln to $191.4 bln in November 2014 from $182.5 bln in November 2013.
- Total outlays declined to $248.3 bln in November 2014 from $317.7 bln in November 2013, a drop of $69.4 bln
- .Fiscal year-to-date, the deficit is $178.5 bln, $47.3 bln less than the comparable period in FY14.
Big Picture
- Raw data available at http://www.fms.treas.gov/mts/index.html
Market Internals
NYSE:
Higher Volumes than the day before – 915.1M vs 834.2M
Decliners outpaced Advancers (adv/dec): 559 / 2580
New Lows outpaced New Highs (highs/lows): 104 / 260
NASDAQ:
Lower Volumes than the day before – 1839.1M vs 1937.2M
Decliners outpaced Advancers (adv/dec): 496 / 2269
New Lows outpaced New Highs (highs/lows): 88 / 123
VOLATILITY S&P500 (VIX)
18.53 +3.64 (+24.45%)
Everything is pointing towards bearishness at this point in time. VIX spiked up to more than 18.00 in just one session. Judging from this, I think VIX might go up some more...
Technical Updates
17,533.15 -268.05 (-1.51%)
Volume: 115,101,946 (above average of 91,444,582)
Range: 17,508.10 - 17,797.99
4,684.03 -82.44 (-1.73%)
Volume: 481,568,638 (below average of 495,720,810)
Range: 4,679.25 - 4,766.64
S&P 500 INDEX (SPX: CBOE)
2,026.14 -33.68 (-1.64%)
Volume: 619,378,000 (above average of 539,945,169)
Range: 2,024.26 - 2,058.86
Indeed we are having the reversal. All three indices broke lower of their 20MAs. For DOW and S&P, they are sitting on their respective support and the lower bound of their Bollinger bands. Given the increase in volume, I think there would be more sellers coming in...
Commodities, Currencies and Bonds
Currency: Dollar Sees Third Day of Selling
- The Dollar Index trades on session lows, pressing the 88.25 region.
- Today marks a third day of selling in the greenback, and has action sliding into a test of support in the 87.50/88.00 area.
- EURUSD is +65 pips @ 1.2440 as trade continues its climb off key support in the 1.2300 region. The single currency will be in focus tomorrow morning as the results from the second round of TLTROs are scheduled for release.
- GBPUSD is +45 pips @ 1.5705 as buying persists for a third session. Sterling has seen support following some initial selling that developed in response to the slightly larger than expected trade deficit. Support in the 1.5600 area has held up for past month.
- USDCHF is -40 pips @ .9670 as trade continues to track the euro. Tomorrow's Swiss National Bank policy decision is likely to produce more commentary from Chairman Thomas Jordan indicating the central bank will defend its EURCHF floor with the utmost importance.
- USDJPY is -140 pips @ 118.30 as action presses to its worst levels of the session. Today's slide has the pair revisiting near-term support in the 118.00 area that survived its first test early yesterday. That level will be in focus into tonight's core machinery orders and Tertiary Industry Activity data.
- AUDUSD is flat @ .8290 as the pair fights to end its nine-day streak without gains. The recent lows near .8250 will be under the microscope as MI Inflation Expectations and Australian jobs data cross the wires tonight. The pair could see some additional volatility as the neighboring Reserve Bank of New Zealand opines this afternoon.
- USDCAD is +50 pips @ 1.1495. The pair has found buying following comments from the Bank of Canada suggesting high home prices remain the biggest headwind to the economy and as oil threatens to break below the $60 per barrel mark. Bank of Canada Governor Stephen Poloz speaks in New York ahead of tomorrow's New Home Price Index release.
Bonds: 10Y Settles at 2.169%, Lowest Since October
- Treasuries finished on their highs as an afternoon scramble for safety developed in response to the heavy selling of equities.
- The complex held small gains in to the cash open and put in its best levels of the morning as equities opened up weak.
- Trade chopped around in a tight range into this afternoon's solid $21B 10Y note reopening. The reopening drew 2.214% (WI 2.213%) and a 2.97x bid/cover. Indirect bids (53.8%) provided support as directs (6.9%) were light. Primary dealers were left with 39.3% of the supply.
- Some light selling developed as an initial response to the auction, but buyers quickly emerged as equity markets rolled over in afternoon trade.
- Helping the cause was a report the five largest Chinese banks will hike their deposit rate by 20%.
- Up front, the 2Y fell -4.4bps to 0.564%. Support in the 0.550% region will be in focus over the coming days.
- Today's aggressive bid had the biggest impact on the belly as the 5Y slid -5.7bps to 1.569%. The yield presses back below the 50 dma and closed at a one-week low.
- The 10Y shed -5.1bps to 2.169%. The benchmark yield broke below key support in the 2.200% region before settling at a two-month low.
- At the long end, the 30Y eased -4bps to 2.835%. The yield on the long bond closed at its lowest level since May 2013 and is now down -17bps over the past week.
- An unchanged curve saw the 2-10-yr spread hold @ 160.5bps.
- Precious metals slipped as gold fell -$4 to $1228 and silver shed -$0.02 to @ $17.11.
- Data: Initial and continuing claims, retail sales, import/export prices (8:30), and business inventories (10).
- Auction: $13B 30Y bond reopening.
Treasury Yields:
- 2 Year Note 0.59% -0.05
- 5 Year Note 1.58% -0.05
- 10 Year Note 2.18% -0.04
- 30 Year Bond 2.83% -0.04
2/30 Spread: 224 bps ( +1 ) … 2/10 Spread: 159 bps ( +1 )
Preview for Thursday 11 Dec, 2014
Summary
We are going to see some retail sales out as well as unemployment claims tomorrow 8.30am ET. That would give the market more reason to go down if the data are poor.
Market has a nasty sell off on Wednesday so I reckon there should be short covering at the opening or even a slight pullback. Looking at the situation now, I am still staying bearish...
Market has a nasty sell off on Wednesday so I reckon there should be short covering at the opening or even a slight pullback. Looking at the situation now, I am still staying bearish...
Direction for the Thursday 11 Dec, 2014; Down
Daily Directional Accuracy (from 25 November 2014): 5/11 (45.45%)
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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