Tuesday, 27 Jan 2015 - AMC

Dow -291.41 at 17387.29, Nasdaq -90.27 at 4681.49, S&P -27.53 at 2029.56

In my opinion, market is still reluctant to go higher. Maybe the traders are waiting for the FOMC meeting on Wednesday before deciding on which direction. So I suppose market is likely to consolidate prior to Wednesday.

Meanwhile on the January Barometer, we are still in the red with 4 more sessions to go. Last year we had a down January but the year ended in positive. So is it reliable? At this moment I don't look into it with too much attention...

Direction for Tuesday 27 Jan, 2015; Down

Ok that huge drop in price at the opening is mainly due to the disappointment in durable goods order in December and earnings reports. But market still remains sideway throughout the session. I suppose there is no major movement ahead of FOMC meeting on Wednesday...        

Market Summary

Industry Watch

Strong: Energy, Utilities

Weak: Consumer Staples, Industrials, Materials, Technology

Other Market Moving Factor:

• Disappointing earnings/guidance from Caterpillar (CAT), DuPont (DD), Microsoft (MSFT), Pfizer (PFE), Procter & Gamble (PG), and United Technologies (UTX): strong dollar cited
• December Durable Orders miss expectations (-3.4%; Briefing.com consensus 0.5%)
• S&P 500 loses 50-day moving average (2,047) once again

[BRIEFING.COM] The major averages stumbled on Tuesday with the S&P 500 (-1.3%) returning below its 50-day moving average (2,047). The benchmark index settled ahead of the Dow Jones Industrial Average (-1.7%), but behind the Russell 2000 (-0.5%). 

Stocks careened lower at the start of today's session after several large companies cautioned that dollar strength will present a headwind to their future earnings. Most notably, Caterpillar (CAT 79.92, -6.11), DuPont (DD 73.18, -0.93), Microsoft (MSFT 42.66, -4.35), and Procter & Gamble (PG 86.49, -3.09) lost between 1.3% and 9.3% while Pfizer (PFE 32.60, -0.20), and United Technologies (UTX 119.16, +0.41) held up relatively well despite their warnings. 

However, cautious guidance from six Dow components was not the only issue as investors had to digest a disappointing Durable Orders report while Consumer Confidence and New Home Sales beat expectations. 

The Russell 2000 was able to stay ahead of the broader market as domestically-oriented small cap stocks benefitted from having limited exposure to currency fluctuations. Today's outperformance lifted the small-cap index ahead of the S&P 500 for the month of January. The Russell is lower by 0.8% since the end of 2014 while the S&P 500 has surrendered 1.4% so far this month. 

Overall, cyclical sectors bore the brunt of today's losses with the top-weighted technology sector tumbling 3.3%. Microsoft's 9.3% decline was a notable drag on the index, but other large cap names also registered losses. Google (GOOGL 521.55, -15.17) and Intel (INTC 34.19, -1.62) lost 2.8% and 4.5%, respectively, while Apple (AAPL 109.13, -3.97) fell 3.5% ahead of its quarterly report. Investors are likely to pay close attention to Apple's guidance to see if the company joins the chorus of influential names voicing concern over greenback strength. 

Elsewhere, the industrial sector (-1.3%) was the only other underperformer on the cyclical side, but the group caught up to the S&P 500 just ahead of the close. Caterpillar's 7.2% dive pressured the sector while transport stocks settled just ahead of the broader market. The Dow Jones Transportation Average fell 1.2%. 

Over on the countercyclical side, consumer staples (-1.2%) finished in-line with the S&P 500 while health care (-0.8%), telecom services (-1.1%), and utilities (+0.2%) outperformed. 

Similar to utilities, the energy sector (-0.2%) spent the day ahead of the broader market with crude oil lending support. The energy component rose 2.3% to $46.21/bbl while the energy sector narrowed its weekly gain to 1.2%. 

Treasuries round tripped, spiking in the morning just to spend the remainder of the session in a slide from highs. The benchmark 10-yr yield slipped one basis point to 1.81% after testing the 1.76% level in the morning. 

Today's participation was below average with fewer than 700 million shares changing hands at the NYSE floor. 

Economic data included Durable Orders, Consumer Confidence, New Home Sales, and Case-Shiller 20-city Index: 

• Durable goods orders declined 3.4% in December after declining a downwardly revised 2.1% (from -0.9%) while the Briefing.com consensus expected an increase of 0.5% 
  • A significant portion of the negative surprise came from seasonal adjustments in the aircraft sector. Even though Boeing (BA 132.48, -1.59) reported a positive increase in orders on a month-to-month basis, sales actually declined significantly once seasonal factors were taken into consideration. Aircraft orders declined 46.4% in December, which led to a 9.2% decline in overall transportation orders 
  • Excluding transportation, durable goods orders fell 0.8% in November after declining a downwardly revised 1.3% (from -0.7%) while the Briefing.com consensus expected an increase of 0.7% 
• New home sales increased 11.6% in December to 481,000 from a downwardly revised 431,000 (from 438,000) while the Briefing.com consensus expected a reading of 450,000
  • That was the most new homes sold since 487,000 were sold in June 2008 
  • Total sales in 2014 were marginally better than 2013, inching up 1.2% to 435,000 from 429,000 in 2013 
• The Case-Shiller 20-city Home Price Index for November rose 4.3%, which is what the consensus expected 
• The Conference Board's Consumer Confidence Index jumped to 102.9 in January from an upwardly revised 93.1 (from 92.6) while the Briefing.com consensus expected an increase to 96.0 
  • According to the index, consumer confidence is at its strongest level since August 2007 when the index reached 105.6 

Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET while the FOMC will release its latest policy directive at 14:00 ET. 

Macroeconomic Data

Economic Data

from Briefing.com

• Durable Orders : -3.4% vs 0.5% (Prior -2.1%)
• Durable Goods - ex transportation : -0.8% vs 0.7% (Prior -1.3%)
• Case-Shiller 20-city Index : 4.3% vs 4.3% (Prior 4.5%)
• Consumer Confidence : 102.9 vs 96.0 (Prior 93.1)
• New Home Sales : 481K vs 450K (Prior 431K)

DURABLE ORDERS

Highlights

• Durable goods orders declined 3.4% in December after declining a downwardly revised 2.1% (from -0.9%) in November. The Briefing.com Consensus expected durable goods orders to increase 0.5%.
• Excluding aircraft, durable goods orders fell 0.8% in November after declining a downwardly revised 1.3% (from -0.7%) in November. The Briefing.com consensus expected these orders to increase 0.7%.

Key Factors

• A significant portion of the negative surprise came from seasonal adjustments in the aircraft sector. Even though Boeing (BA) reported a positive increase in orders on a month-to-month basis, sales actually declined significantly once seasonal factors were taken into consideration. Aircraft orders declined 46.4% in December, which led to a 9.2% decline in overall transportation orders. 
• Unfortunately, the negative data within the durable goods report was not contained to the aircraft sector.
• The regional manufacturing surveys were mixed in December, but generally leaned to the downside. However, none of the surveys pointed toward an overall contraction in durable goods orders. The miss in the hard data, again, shows that regional surveys are not a reliable indicator for manufacturing growth.
• Orders demand fell sharply across the board, and negative revisions to November data show that the manufacturing sector is not as strong as once thought.
• Business capital demand contracted for the fourth consecutive month. Orders of nondefense capital goods excluding aircraft declined 0.6% in both December and November. Much of that decline was the result of a 3.7% decline in machinery orders and a 1.3% decline in computers and electron product orders. 
• Shipments of nondefense capital goods excluding aircraft, which factor into GDP calculations, declined 0.2% in December after declining 0.6% in November.

Big Picture

• The stock of unfilled orders of nondefense capital goods excluding aircraft continued to grow in December. Manufacturers, however, have been very reluctant so produce off their backlog. As a result, business investment growth is being held back.

CONSUMER CONFIDENCE

Highlights

• The Conference Board’s Consumer Confidence Index jumped to 102.9 in January from an upwardly revised 93.1 (from 92.6) in December. The Briefing.com Consensus expected the index to increase to 96.0.

Key Factors

• According to the index, consumer confidence is at its strongest level since August 2007 when the index reached 105.6.
• Lower gasoline prices and a strengthening labor market were key for the increase in confidence in December. Similar gains were also seen in the preliminary January reading of the University of Michigan Consumer Sentiment Index.
• Gains in consumer confidence do not necessarily lead to accelerated consumption. Consumer spending relies on income growth. As long as income improves, consumption growth should follow.

Big Picture

• Consumer confidence has little influence on consumption. As long as payroll levels continue to expand, the resulting income growth should keep consumption gains steady regardless of the monthly ebbs and flows in sentiment.

NEW HOME SALES

Highlights

• New home sales increased 11.6% in December to 481,000 from a downwardly revised 431,000 (from 438,000) in November. That was the most new homes sold since 487,000 were sold in June 2008. The Briefing.com Consensus expected 450,000 new home sales in December.

Key Factors

• Total sales in 2014 were marginally better than 2013. Sales inched up 1.2% to 435,000 from 429,000 in 2013.
• Over the past few months, the NAHB Homebuilders’ Index has shown improvement in current and expected single-family sales. Until this month, those gains have not translated into actual stronger sales results. While it is possible that the December gain is a one-time occurrence, the strengthening in the sentiment indices would imply that the market may have reached a turning point for stronger sales growth.
• The number of homes available for sale increased 2.3% to 219,000 in December from 214,000 in November. The increase in sales, however, reduced the months’ supply to 5.5 months from 6.0 months.
• Median home prices increased 8.2% y/y to $298,0000.

Big Picture

• Sales growth in 2014 had been flat prior to the surge in December sales.

Market Internals

NYSE:

Lower Volumes than the day before – 711.2M vs 796.0M 


Decliners outpaced Advancers (adv/dec): 1331 / 1744

New Highs outpaced New Lows (highs/lows): 334 / 54

NASDAQ:

Higher Volumes than the day before – 1914.8M vs 1708.1M

Decliners outpaced Advancers (adv/dec): 1034 / 1724

New Highs outpaced New Lows (highs/lows): 71 / 52

VOLATILITY S&P500 (VIX)

17.22 +1.70 (+10.95%)

The internals are not entirely bearish as we continue to see more New Highs vs New Lows. Although there is still lack in confidence from the bulls to lead the market as VIX ended up higher. 

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,387.21 -291.49 (-1.65%)

Volume: 135,937,796 (above average of 88,324,127)

Range: 17,288.31 - 17,638.53

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,681.50 -90.27 (-1.89%)

Volume: 469,343,354 (above average of 448,332,414)

Range: 4,659.83 - 4,721.88

S&P 500 INDEX (SPX: CBOE)

2,029.55 -27.54 (-1.34%)

Volume: 562,176,000 (above average of 511,780,000)

Range: 2,019.91 - 2,047.86 

I think DOW is likely to see a (bearish) breakout and both NASDAQ and S&P are back to test their trend line. It is worth taking note that all three indices closed below their 20 and 50 MAs respectively. Definitely not a healthy sign, especially if they break below their 200 MAs...

Commodities

Closing Commodities: Oil Closes Higher, Above $46/Barrel, Copper Falls Below $2.50/lb

• WTI traded modestly higher today this morning, but gained steam in mid-to-late morning trading activity
• Mar crude rose as high as $46.55/barrel, but ended today’s session $1.04 higher at $46.21/barrel
• Natural gas traded in positive territory all day. The Mar contract closed today’s session $0.05 higher at $2.93/MMBtu
• Due to the weakness in the dollar index today, precious metals were able to hold gains
• Both Feb gold and Mar silver ended the day near today’s high.
• Feb gold rose +12.70/oz to $1292.10, while Mar silver gained +0.10/oz to $18.08/oz
• Mar copper closed $0.08 lower at $2.46/lb

Energy Price Action

• Mar crude oil rose $1.04/barrel to $46.21/barrel
• Mar natural gas rose $0.05 cents to $2.93/MMBtu
• RBOB Gasoline closed $0.03 cents higher to $1.38/gallon
• Heating oil closed $0.02 higher at $1.64/gallon

Agricultural Price Action

• Mar corn closed $0.03 lower at $3.81/bushel
• Mar wheat closed $0.01 lower at $5.19/bushel
• Feb soybeans ended $0.09 lower at $9.75/bushel
• Ethanol closed $0.03 lower at $1.42/gallon
• Sugar #11 fell 0.19 cents to 15.16 cents/gallon

Metals Price Action

• Feb gold ended today’s session $12.70 higher at $1292.10/oz
• ar silver ended $0.10 higher at $18.08/oz
• Mar copper closed $0.08 higher to $2.46/lb

Currencies

Dollar Pulls Back to 94.00:

• The Dollar Index is on track for just its second loss in eight sessions as action probes 94.00. 
• Today's weakness has dropped the greenback off 11-year highs. 
• EURUSD is +120 pips @ 1.1355 as buying develops for a second day. The single currency has found bids even as skepticism remains over whether or not Greece will make good on its debt obligations. The first test will come in March when a EUR4.3 bln payment is due. 
• GBPUSD is +130 pips @ 1.5205 as trade contends with its best close in three weeks. Sterling has been squeezing higher throughout the day despite today's Preliminary GDP miss. 
• USDCHF is -5 pips @ .9020 after surrendering its early gains. Overnight, the pair hit a high of .9166, marking its best levels since the Swiss National Bank's surprise removal of its EUCHF1.20 floor on January 15. 
• USDJPY is -55 pips @ 117.85 as action remains trapped in its recent range. The pair has been stuck between 117.20/118.80 for the past six sessions. 
• AUDUSD is flat @ .7925. Today's action gives some hope to the bulls as yesterday's five year lows have managed to hold. Australia's CPI and Trimmed Mean CPI are due out tonight. 
• USDCAD is -75 pips @ 1.2395 as sellers take control for the first time in six days. Today's losses have pushed the pair off six-year highs.

Bonds

Treasuries Give Up Early Gains, End Little Changed:

• Treasuries retreated sharply off their early highs and finished on their worst levels of the day. 
• The complex held small gains into the cash open before the weak durable orders (-3.4% MoM actual v. +0.5% MoM expected) data sparked a flight to safety into the complex.
• Maturities lingered near their highs following the impressive consumer confidence (102.9 actual v. 96.0 expected) and new home sales (481K actual v. 450K expected) data, and only began to slide as stocks started to claw back their early losses. 
• Late-morning selling persisted throughout the afternoon and pushed maturities back onto their overnight lows ahead of the cash close.
• Up front the 2Y slipped -1bp to 51bps. The area remains in focus as it has served as a key pivot since June. 
• In the belly, the 5Y eased -1.8bps to 1.332%. 
• The 10Y slipped -0.3bps to 1.825%. The benchmark yield once again found support in the 1.800% area. 
• Light selling at the long end ran the 30Y up +0.4bps to 2.402%. The yield on the long bond touched a record low 2.329% before reversing. 
• The yield curve steepened slightly as the 2-10-yr spread widened to 131.5bps. 
• Precious metals as gold added +$14 to $1294 and silver climbed +$0.13 to $18.11. 
• Data: MBA Mortgage Index (7). The latest FOMC rate decision (14) will be announced. 
• Auction: $26B 2Y notes.

Treasury Yields:

• 2 Year Note 0.54% UNCH
• 5 Year Note 1.34% -0.02
• 10 Year Note 1.83% UNCH
• 30 Year Bond 2.40% UNCH

2/30 Spread: 186 bps ( UNCH ) …  2/10 Spread: 129 bps ( UNCH )

Preview for Wednesday 28 Jan, 2015

Economic Data

• MBA Mortgage Index : (Prior 14.2%)
• Crude Inventories : (Prior 10.071M)
• FOMC Rate Decision : 0.25% (Prior 0.25%)

Earnings Highlights

Wednesday :
BMO - ADPT, ADP, AHGP, ARLP, AEP, ABC, AME, ANTM, ACAT, BIIB, BA, BOKF, BAH, EAT, CRS, GIB, CVLT, CFR, CUBI, EMC, ENR, EVER, FMAO, FCAU, FCF, GD, GNTX, GWB, HAE, HES, HCBK, HTCH, IP, KNX, KLIC, MKTX, MKC, MDC, MWV, MDP, MTOR, BABY, NMM, NYCB, PJC, PCH, PX, PGR, RDWR, RYAM, ROK, ROL, RES, SEIC, SSE, SPIL, STJ, STM, TROW, TEL, TCK, TXT, TUP, UTL, WILN

AMC - ALB, ALGT, ATK, AMP, AZPN, AF, AVB, BRKL, CBT, CACI, CPT, CMO, CSII, CMPR, CRUS, CTXS, CLB, DRE, ESIO, EXTR, FB, FLEX, FTNT, GGP, GHL, HGR, HOLX, IBKC, IEX, ISIL, IGT, IRF, JEC, KRC, KEX, LRCX, LVS, MLNX, MEOH, MKSI, MUR, NFBK, PRXL, PTC, QGEN, QCOM, QTM, RKT, NOW, SHOR, SGI, SLG, STLD, SWFT, TER, TTEK, TSCO, TGI, UMPQ, VAR, VRTX, WSTC

Summary

Watch out for tomorrow as we are expecting the first FOMC meeting of year 2015. I think the market is likely to consolidate prior to the meeting at 2pm ET. I don't think the Fed would probably push back their decision to raise interest rate as the state of economy is not being healthy yet. My guess is that it might drag the market down further? Let's see how it goes then...

Direction for Wednesday 28 Jan, 2015; Abstain

2015 Daily Directional Accuracy: 5/16 (31.25%) 
2015 Weekly Directional Accuracy: 2/3 (66.67%)