Market ended flat in facing FOMC meeting tomorrow. In any case, that is going to be a market mover. In addition to that, situation at Russia seems to get worse after they raised the interest rate to 17% from 10.5% previously. Not to mention the uncertainty of oil prices that had gone to a recent low that brought the market down as well.
Given on what I saw from the market, everyone is putting their attention on tomorrow Fed's meeting.
Direction for the Wednesday 17 Dec, 2014; ABSTAIN
Best trading day of 2014! Market take a reversal on Wednesday as FOMC statement provides a dovish outlook. Alright maybe I am more skeptical, but is this a dead cat bounce or are we seeing an end to the correction with Santa claus rally coming? The latter seems quite likely after all...
Market Summary
Industry Watch
Strong: Energy, Financials, Materials, Utilities
Weak:
Other Market Moving Factor:
- FOMC Statement replaces 'considerable time' language with call for 'patience' before raising rates
- November CPI (-0.3%) registers largest decline since December 2008
- Crude oil remains pressured
- Dow Jones Transportation Average underperforms
Equities climbed through the first half of action and saw an extension of their rally in the afternoon once the FOMC released its latest policy directive.
As expected by some, the Fed removed the "considerable time" language from its policy statement, but that reference was replaced with a call for "patience," which essentially conveyed the same message. Above all, Chair Yellen reiterated that the central bank will remain data-dependent and reserves the right to accelerate, or defer, a rate hike in accordance with what the data are communicating about the progress being made toward the Fed's dual mandate.
With regard to inflation, Ms. Yellen touched on the drop in oil prices during her press conference, but showed little concern, saying the decline is expected to be transitory.
The policy statement was followed by volatile action in the bond market, but Treasuries slid to lows into the close. The benchmark 10-yr yield spiked eight basis points to 2.14%.
As for equities, the energy sector (+4.2%) paced the advance and ended near its high even as crude oil slumped into the close, ending higher by 1.0% at $56.44/bbl.
The energy sector was followed by the materials space (+2.8%), which benefitted from gains among miners and steelmakers. The Market Vectors Gold Miners ETF (GDX 17.98, +0.88) and Market Vectors Steel ETF (SLX 35.31, +1.27) ended higher by 5.2% and 3.7%, respectively.
Outside of the two commodity-related groups, the financial sector (+2.3%) represented the only other outperformer on the cyclical side. Influential sector components fueled the strength with Bank of America (BAC 17.26, +0.54) and JPMorgan Chase (JPM 59.77, +1.34) posting respective gains of 3.2% and 2.3%.
Elsewhere, the industrial sector (+0.9%) climbed out of the red after the FOMC statement, but the sector could not keep pace with the broader market amid relative weakness in transport stocks. FedEx (FDX 167.78, -6.48) tumbled 3.7% after missing estimates while peers Expeditors International (EXPD 43.28, -0.98) and UPS (UPS 108.55, -1.28) lost 2.2% and 1.2%, respectively. However, rail carriers CSX(CSX 35.77, +1.10) and Union-Pacific (UNP 114.89, +2.69) helped the Dow Jones Transportation Average end higher by 0.9%.
Today's participation was ahead of average with more than a billion shares changing hands at the NYSE floor.
Economic data included CPI, Core CPI, Q3 Current Account, and MBA Mortgage Index:
- Consumer prices declined 0.3% in November after being unchanged in October, which was the biggest decline since CPI fell 0.8% in December 2008
- The Briefing.com consensus expected a decline of 0.1%
- The entire decline in prices can be attributed to the energy sector. Energy prices fell 3.8% in November, marking the fifth consecutive monthly decline and the largest drop since falling 9.5% in December 2008
- Gasoline prices fell 6.6% after declining 3.0% in October
- Food prices increased 0.2% in November, up from a 0.1% gain in October
- Excluding food and energy, core CPI increased 0.1% in November, down from a 0.2% gain in October, while the consensus expected an increase of 0.1%
- The current account deficit for the third quarter totaled $100.30 billion while the Briefing.com consensus expected the deficit to hit $95.00 billion
- The second quarter deficit was revised down to $98.40 billion from $98.50 billion
- The weekly MBA Mortgage Index fell 3.3% to follow last week's 7.3% spike
from Briefing.com
- MBA Mortgage Index : -3.3% (Prior 7.3%)
- CPI : -0.3% vs -0.1% (Prior 0.0%)
- Core CPI : 0.1% vs 0.1% (Prior 0.2%)
- Current Account Balance : -$100.3B vs -$95B (Prior -$98.4B)
- Crude Inventories : -0.847M (Prior 1.454M)
- FOMC Rate Decision : 0.25% vs 0.25% (Prior 0.25%)
CONSUMER PRICE INDEX
Highlights
- Consumer prices declined 0.3% in November after being unchanged in October. That was the biggest decline in the CPI since falling 0.8% in December 2008. The Briefing.com consensus expected the CPI to decline 0.1%.
- Excluding food and energy, core CPI increased 0.1% in November, down from a 0.2% gain in October. The consensus expected these prices to increase 0.1%.
Key Factors
- The entire decline in prices can be attributed to the energy sector. Energy prices fell 3.8% in November, marking the fifth consecutive monthly decline and the largest drop since falling 9.5% in December 2008. Gasoline prices fell 6.6% after declining 3.0% in October.
- Food prices increased 0.2% in November, up from a 0.1% gain in October.
- There were no significant outliers in the core data, and trends have been relatively unchanged for some time. The shelter index increased 0.3% and medical prices rose 0.4%, which was the largest increase in over a year. Those gains, however, were offset by declines in apparel (-1.1%), recreation (-0.6%), and education and communications (-0.1%).
- Future core price gains will rely on income growth. If November’s large gain was the start of an upward moving path, core prices could experience some demand-pull inflationary pressures in 2015.
Big Picture
- For the past two years, year-over-year core CPI growth averaged 1.8% with very little volatility. That is well below the Fed's implied CPI target of roughly 2.5%.
Market Internals
NYSE:
Higher Volumes than the day before – 1050M vs 1022.6M
Advancers outpaced Decliners (adv/dec): 2793 / 359
New Lows outpaced New Highs (highs/lows): 62 / 98
NASDAQ:
Higher Volumes than the day before – 2259.7M vs 2219.2M
Advancers outpaced Decliners (adv/dec): 2225 / 559
New Lows outpaced New Highs (highs/lows): 52 / 98
VOLATILITY S&P500 (VIX)
19.44 -4.13 (-17.52%)
Wednesday is basically a bullish day. VIX went down by a big range to below 21.00 which is a support level.
Technical Updates
17,356.87 +288.00 (+1.69%)
Volume: 118,220,416 (above average of 94,240,879)
Range: 17,069.16 - 17,389.30
4,644.31 +96.48 (+2.12%)
Volume: 573,498,994 (above average of 502,596,095)
Range: 4,550.70 - 4,651.90
S&P 500 INDEX (SPX: CBOE)
2,012.89 +40.15 (+2.04%)
Volume: 658,790,000 (above average of 554,561,492)
Range: 1,973.77 - 2,016.75
I am seeing a Morning Star candlestick pattern from the indices. It seems that the market has a tendency to go up higher but I will need more confirmation. The 50MA will serves as a good support/resistance.
Commodities, Currencies and Bonds
Closing Commodities: Oil Surges, But Erases Most Gains
- Oil prices had a wild day, falling as low as $54.21 to rising as high as $58.987/barrel, most likely on some short covering
- Late in the session, WTI crude oil gave up most of its gains and closed $0.57 higher at $56.44/barrel
- Natural gas futures gained some steam today, ending today’s session 8 cents higher to $3.70/MMBtu
- Gold and silver lost steam in afternoon trade.
- Feb gold ended $0.20 higher to $1194.90/oz, while Mar silver gained $0.20 to $15.93/oz
Energy price action
- Crude oil rose 57 cents today, closing today’s pit session at $56.44/barrel
- Crude pulled back notably off of its $58.98/barrel HoD
- Natural gas rose 8 cents to $3.70/MMBtu
- RBOB Gasoline rose 3 cents to $1.57/gallon
- Heating oil rose 5 cents to $2.01/gallon
Agricultural price action
- Mar Corn rose 2 cents higher to $4.08/bushel
- Jan wheat rose 21 cents to $6.49/bushel
- Jan soybeans rose 5 cents at $10.28/bushel
- Ethanol fell 7 cents higher at $1.59/gallon
- Sugar #11 rose 0.01 cents to 14.72 cents/gallon
Metals price action
- Feb gold ended today’s session $0.60 higher at $1194.90/oz
- Mar silver rose $0.20 to $15.93/oz
- Mar copper rose 1 cent to $2.87/lb
Currency: Dollar Whips Around Post-Fed
- The Dollar Index pressed back to its flat line near 88.15 in as the FOMC Statement was digested, but is beginning to bounce off the level.
- Notable were comments from the Fed indicating it can be ‘patient' with rate hikes.
- EURUSD is -60 pips @ 1.2450 as trade dipped to session lows near 1.2380 before surging to the best levels of U.S. trade near 1.2475. Today's action has tested both the upper and lower bounds of the range that has been in place over the past week, but has been unable to produce a breakout. Germany's Ifo Business Climate is due out tomorrow.
- GBPUSD is -75 pips @ 1.5675 as trade has seen a whippy post-Fed trade. Sterling quickly dropped onto key support in the 1.5600 area before surging to 1.5700. In all, a mostly uneventful day as trade remains stuck in its 1.5600/1.5800 range. Britain's retail sales will cross the wires tomorrow.
- USDJPY is +95 pips @ 117.35 as action rallies off one-month lows. The pair has been whipped around as traders digest the Statement, but action has been immaterial.
Bonds: Yields Rise as Fed Signals Patience on Rates
- Treasuries finished on their lows as sellers took control following the latest Fed Statement.
- The complex held modest losses into the cash open before the tame CPI (-0.3% MoM actual v. -0.1% MoM expected) and disappointing current account balance (-$100.3 bln actual v. -$95.0 bln expected) number provoked a rally back to the flat line.
- However, maturities were unable to break into positive territory and steadily pushed lower into this afternoon's FOMC meeting.
- The Fed kept the ‘considerable time' language in the Statement, but changed its location, while also noting it will remain ‘patient' as to when the first rate hike will occur.
- Perhaps the most notable aspect of the Statement was the three dissenters (two hawks, one dove), highlighting some discord between members. However, it should be noted the two hawks who dissented (Dallas' Fisher and Philly's Plosser) will be retiring at year-end.
- Post-Fed selling pushed maturities to fresh lows into the cash close.
- Up front, the 2Y added +2.5bps to 0.585%. The probed 0.550% support early, but managed to reclaim the level.
- In the belly, the 5Y surged +8.6bps to 1.612%. Action held 1.500% support before reclaiming the 50 dma and closing at a one-week high.
- The 10Y rallied +7.7bps to 2.148%. The benchmark yield is now flirting with minor resistance in the 2.150% region.
- The 30Y tacked on +5bps to 2.752%. Today's selling ran the yield off its lowest levels since September 2012.
- Selling swung the curve steeper as the 2-10-yr spread widened to 156.5bps.
- Precious metals went off near their lows with gold -$8 @ $1186 and silver flat @ $15.75.
- Data: Initial and continuing claims (8:30), Philly Fed, and leading indicators (10).
Treasury Yields:
- 2 Year Note 0.62% +0.04
- 5 Year Note 1.61% +0.08
- 10 Year Note 2.14% +0.07
- 30 Year Bond 2.74% +0.05
2/30 Spread: 212 bps ( +1 ) … 2/10 Spread: 152 bps ( +3 )
Preview for Thursday 18 Dec, 2014
Summary
Finally a rebound in the market. I will have to look into the next few days to see if we are getting back the bullish trend. If we are, it is quite possible that we will be having a Santa Claus rally.
Just for an update, we are still in red for the month of December. Not to mention that we still have to pay attention to the oil prices as it remains volatile and Russia's problem. Nevertheless, I think tomorrow session is going to be up.
Just for an update, we are still in red for the month of December. Not to mention that we still have to pay attention to the oil prices as it remains volatile and Russia's problem. Nevertheless, I think tomorrow session is going to be up.
Direction for the Thursday 18 Dec, 2014; Up
Daily Directional Accuracy (from 25 November 2014): 6/13 (46.15%)
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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