Dow -195.84 at 17191.37, Nasdaq -43.50 at 4637.99, S&P -27.39 at 2002.16
Well the market really went down after the hawkish FOMC statement. Other than that market started out in positive due to the better performance from Boeing and Apple. I still feel the market is rather weak to go higher, perhaps the opposite is more appropriate instead...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
Market Summary
Industry Watch
Strong: Technology
Weak: Consumer Discretionary, Energy, Health Care, Financials, Materials
Other Market Moving Factor:
- Sliding crude pressures energy sector and weighs on overall risk tolerance
- Better than expected earnings from Apple (AAPL) and others
- FOMC policy directive reiterates intent to remain patient
[BRIEFING.COM] The stock market finished the midweek session on a lower note despite showing considerable strength in the early going. The S&P 500 (-1.4%) lost its 100-day moving average (2,010) and settled behind the Nasdaq Composite (-0.9%) while the Russell 2000 (-1.7%) lagged throughout the day.
Equities appeared to be on solid footing at the start with the Nasdaq up 1.0% after Apple (AAPL 115.31, +6.17) reported better than expected results for the quarter and issued strong guidance. The stock surged 5.7% and helped the technology sector (-0.1%) finish near its flat line while most of the remaining sectors struggled.
The benchmark index traded little changed ahead of the afternoon release of the latest policy statement from the Fed, but slumped into the close. Once again, the policy directive reiterated the Fed's intent to remain patient in determining the appropriate timing for the first rate hike, which helped send Treasuries to new highs. The 10-yr yield fell ten basis points to 1.73% while the 30-yr yield dropped 11 basis points to register its lowest close on record (2.28%).
The Fed described U.S. economic growth as ‘solid' while categorizing job growth as ‘strong.' The central bank did not spend much time discussing overseas developments, which could help explain some of the selling that developed after the statement was released. Furthermore, the FOMC showed little concern over low inflation, saying that while the price level is expected to decline in the near term, a gradual return to 2.0% should follow once the ‘transitory effects of lower energy prices and other factors dissipate.'
Today, however, energy prices deteriorated further with crude oil dropping 3.6% to $44.53/bbl. The energy component continued slipping in electronic trade while the energy sector plunged 3.9% to widen its January decline to 5.7%.
The energy sector resides near the bottom of the January leaderboard with only financials (-2.0%) showing a larger decline for the month (-6.3%). Together, the underperformance of the pair serves as a reminder of the global growth concerns that have been at the forefront so far in 2015.
Elsewhere among influential sectors, consumer discretionary (-1.3%) and health care (-1.5%) finished a little behind the market while industrials (-0.9%) outperformed. Retailers and media names pressured the discretionary sector while biotechnology weighed on health care. The iShares Nasdaq Biotechnology ETF (IBB 318.98, -7.00) lost 2.2%.
For its part, the industrial space ended ahead of the broader market thanks to upbeat earnings and guidance from Dow component Boeing (BA 139.64, +7.16). In other earnings news, Electronic Arts (EA 54.61, +6.20) and Freescale Semiconductor (FSL 31.16, +4.81) surged 12.8% and 18.3%, respectively, after beating estimates.
The afternoon slide fueled a rush for portfolio protection, evidenced by a 17.9% spike in the CBOE Volatility Index (VIX 20.30, +3.08). The near-term volatility measure returned to last week's levels with the entire move taking place after the FOMC statement.
Today's participation was a little above average with 835 million shares changing hands at the NYSE floor.
Economic data was limited to the weekly MBA Mortgage Index, which fell 3.2% to follow the prior week's surge of 16.1%.
Tomorrow, weekly Initial Claims will be reported at 8:30 ET (Briefing.com consensus 301K) while the Pending Home Sales report for December (consensus 0.6%) will be released at 10:00 ET.
Macroeconomic Data
Economic Data
from Briefing.com
- MBA Mortgage Index : -3.2% (Prior 14.2%)
- Crude Inventories : 8.874M (Prior 10.071M)
- FOMC Rate Decision : 0.25% vs 0.25% (Prior 0.25%)
FOMC POLICY UPDATE & COMMENTARY
The Federal Open Market Committee (FOMC) started 2015 with neither a bang nor a whimper. It was more like a resolute sigh.
Its latest directive began with an emphasis on the improvement in the U.S. economy, noting that information received since it last met in December suggests economic activity has been expanding at a solid pace. At the December meeting, it noted economic activity is expanding at a moderate pace.
The latest directive also stretched to point out that household purchasing power has been boosted by recent declines in energy prices. There wasn’t any acknowledgment of improved purchasing power in the prior directive even though oil prices had declined roughly 50% from their June highs at the time of the December FOMC meeting.
The strongest statement, though, about the goings-on in the U.S. economy was perhaps embedded in what the FOMC didn’t say. To that end, there was no mention of global developments currently having any impact on the U.S. economy.
To be fair, “international developments” was added to the wide range of information the FOMC will look at regarding its assessment of how it is progressing toward meeting its objectives of maximum employment and 2 percent inflation. The December directive did not include that language on “international developments.”
The absence of any mention of what is currently going on abroad implies to us that the FOMC is not overly concerned about a spillover effect to the U.S. economy; accordingly, we suspect its tacit aim is to keep the market vested in the possibility (but not the guarantee) that a hike in the fed funds rate could still take place in mid-2015.
For that matter, it could happen sooner. We say that only because the directive reiterated the FOMC’s position that increases in the fed funds rate could occur sooner than now anticipated if incoming information indicates faster progress toward meeting its dual mandate than the Committee now expects. They could come later, too, if that progress proves slower than expected.
As of now, the FOMC thinks the underutilization of labor resources continues to diminish, yet it acknowledges that market-based measures of inflation compensation have declined substantially in recent months. The FOMC thinks that inflation over the medium term will rise gradually toward 2 percent as the labor market improves and the transitory effects of lower energy prices and other factors dissipate.
The latest directive has dropped the “considerable time” language and has been streamlined to acknowledge the FOMC’s judgment that it can be patient in beginning to normalize the stance of monetary policy.
The Fed of course left the 0 to ¼ percent target range for the fed funds rate unchanged. The vote for the monetary policy action was unanimous.
What wasn’t unanimous was the response of the capital markets to the latest Fed directive. Treasuries rallied, stocks sold off sharply, and the U.S. Dollar Index advanced after the FOMC decision.
That was deemed by some to mean the Fed’s directive wasn’t clear cut, having offered a little something for both the hawks (economic activity expanding at a solid pace and improved household purchasing power) and the doves (substantial decline in market-based measures of inflation compensation and concession that international developments will factor into its policy assessment).
In the end, the disparate reactions point to confusion in the market. That’s not what anyone wants to see. It breeds increased volatility, which has been a featured happening so far in 2015 due, among other things, to the suspect policies of central banks around the globe.
Market Internals
NYSE:
Higher Volumes than the day before – 856.6M vs 711.2M
Decliners outpaced Advancers (adv/dec): 825 / 2306
New Highs outpaced New Lows (highs/lows): 327 / 97
NASDAQ:
Higher Volumes than the day before – 2094.7M vs 1914.8M
Decliners outpaced Advancers (adv/dec): 679 / 2093
New Highs outpaced New Lows (highs/lows): 83 / 79
VOLATILITY S&P500 (VIX)
20.44 +3.22 (+18.70%)
It is almost similar to Tuesday as the internals are not entirely bearish as we still continue to see more New Highs vs New Lows. Meanwhile the huge spike in VIX to above 20.00 is indicating the lack of confidence or maybe the increasing in hedging which either are saying market is weak...
Technical Updates
17,191.37 -195.84 (-1.13%)
Volume: 115,982,628 (above average of 89,664,872)
Range: 17,189.00 - 17,484.41
4,637.99 -43.51 (-0.93%)
Volume: 535.4M (above average of 448,200,093)
Range: 4,637.48 - 4,742.06
S&P 500 INDEX (SPX: CBOE)
2,002.16 -27.39 (-1.35%)
Volume: 648.5M (above average of 514,057,569)
Range: 2,001.49 - 2,042.49
A bearish breakout in DOW and the indices continue to close below their 20 and 50 MAs. However they are approaching support/resistance level and maybe we should see a pullback.
Commodities
Closing Commodities: WTI Crude Oil Gets Hit Again
- Energy futures traded lower today, led by losses by oil futures
- Mar crude oil ended the day -3.6% lower at $44.53/barrel
- Mar nat gas lost 8 cents to $2.85/MMBtu
- Precious metals finished the day mixed.
- Mar gold lost $6.50/oz to $1285.60/oz, while Mar silver rose $0.01 to $18.09/oz
Energy Price Action
- Mar crude oil futures fell $1.68/barrel (or -3.6%) to $44.53/barrel
- Mar natural gas fell $0.08 cents to $2.85/MMBtu
- RBOB Gasoline closed unch at $1.38/gallon
- Heating oil closed $0.03 lower at $1.61/gallon
Agricultural Price Action
- Mar corn closed $0.07 lower at $3.74/bushel
- Mar wheat closed $0.14 lower at $5.05/bushel
- Feb soybeans ended $0.05 lower at $9.70/bushel
- Ethanol closed $0.03 lower at $1.39/gallon
- Sugar #11 closed unchanged at 15.16 cents/gallon
Metals Price Action
- Feb gold ended today’s session $6.50 lower at $1285.60/oz
- Mar silver ended $0.01 higher at $18.09/oz
- Mar copper closed $0.02 higher to $2.48/lb
Currencies
Fed Sees Economy on 'solid pace' and inflation heading lower; Watching 'International Developments': The Dollar Index is rally to session highs as the market digests the latest Fed statement. Expectations for any meaningful additions were low and overall the statement did provide few changes to the December commentary. But there were two items that were added, one hawkish and one dovish. So there was a little bit for everyone. When describing the economy the FOMC said it was expanding at a solid pace, an uptick in language from the prior 'moderate'. And then the Fed added in 'international developments' as factors in its decision. A hint that it was closely watching overseas markets. The DXY has rallied to 94.45 after some initial whippy action.
- The euro is giving up some of its recent gains following the release of the statement. The euro was trading at 1.1360 in immediate reaction but has fallen about 60 pips to challenge the 1.13 level for support. German jobs numbers (4am ET), CPI (2-7am), Eurozone Money Supply and Private Loans (4am) and an Italian 10-year Bond Auction (4am) will all be on trader's radars tomorrow morning.
- The pound has slipped back below the 1.52 level on the dollar strength. Just prior to the FOMC, Bank of England Governor John Carney spoke and provided dovish commentary as he noted that the ECB could not fight stagnation by itself. Mr. Carney said the country would eventually get back to more normal rates but his concern over weak inflation and growth suggested that was not until 2016 at the earliest. The pound is trading at 1.5140.
- The reaction in the yen has been pretty muted. Perhaps the ambiguity in the statement has kept the carry trade at bay while the markets bounce around the commentary. The yen does remain strong overall as it has been able to hold 118 support.
Bonds
Another Day, Another Treasury Rally:
- Wednesday started on a good note for the Treasury market and it ended on one, too. "International developments" had plenty to do with the buying interest on both ends of the day.
- Early interest was triggered by rising concerns over the anti-austerity/debt restructuring posture of Greece's new government
- Greek banks led a 9.2% decline in Greece's stock market
- Greek 10-yr bond yields surged 103 basis points to 10.51%
- Late buying interest was triggered by the FOMC's acknowledgment that it will now be looking at international developments in its assessment of how it's progressing toward its objectives of maximum employment and 2 percent inflation
- With market participants cognizant that international developments are far from ideal, buying interest picked up on the belief that the FOMC may indeed hold at the zero bound past the middle of the year
- Early interest was triggered by rising concerns over the anti-austerity/debt restructuring posture of Greece's new government
- The market's dovish interpretation was reflected across the curve as all securities hit their highs in price and lows in yield following the release of the FOMC directive
- 2-yr yield -3 bps to 0.48%
- 5-yr yield -9 bps to 1.25%
- 7-yr yield -10 bps to 1.53%
- 10-yr yield -10 bps to 1.73%
- 30-yr bond -11 bps to all-time low yield of 2.28%
- 2-10-yr spread flattened to 122 basis points from 131 basis points at Tuesday's settlement
- A further drop in oil prices (-4.0% to $44.41/bbl) following a bearish inventory report from the Energy Information Administration also supported buying at the inflation-sensitive back end of the curve
- Up front, there was strong demand for the $26 billion 2-yr note auction.
- Auction drew a high yield of 0.54% on a 3.74 bid-to-cover ratio that exceeded the prior 12-auction average of 3.37
- A disappointing sell-off in the stock market after the FOMC decision helped underpin the Treasury market into the cash settlement
- The S&P 500, up 0.6% at its high, was down 0.8% as of this post
- Strikingly, the U.S. Dollar Index (+0.5% at 94.46) extended its gains after the FOMC decision
- There was no economic data of note on Wednesday. Thursday will feature the Initial Claims report (08:30 ET) and the Pending Home Sales report for December (10:00 ET).
- Auctions on Thursday include the $35 billion 5-yr note auction (delayed due to Northeast snowstorm) and the $29 billion 7-yr note auction
Treasury Yields:
- 2 Year Note 0.50% -0.04
- 5 Year Note 1.25% -0.09
- 10 Year Note 1.73% -0.10
- 30 Year Bond 2.29% -0.11
2/30 Spread: 179 bps ( -7 ) … 2/10 Spread: 123 bps ( -6 )
Preview for Thursday 29 Jan, 2015
- Initial Claims : 301K (Prior 307K)
- Continuing Claims : 2429K (Prior 2443K)
- Pending Home Sales : 0.6% (Prior 0.8%)
- Natural Gas Inventories : (Prior -216bcf)
Earnings Highlights
Thursday :
BMO - ABT, APD, ALXN, BABA, ALLY, AIT, ALV, BAX, BEAV, BMS, BX, BC, CCMP, CAM, CRR, CAH, CSH, CELG, CHKP, CMS, CL, CMCO, COP, DHX, DOW, DST, EPD, F, GLOP, HOG, HAR, HP, HSY, HGG, IVZ, ITG, JBLU, LRN, KEM, KMT, LLL, LANC, LSTR, MMYT, HZO, MJN, MD, MTH, NDAQ, NOK, NOC, OXY, PENN, PSX, PSXP, POT, PHM, DGX, RTN, RGS, RCI, RCL, RGLD, RYL, SHW, SILC, SWK, TCB, TMO, TWC, TKR, VLO, VLY, VIAB, WCC, XEL, ZMH
AMC - ABAX ALGN AMZN AVNW EPAY BRCM BCR ELY CPHD CB COHR CPSI CTCT CORT DECK EMN EFII ELX FCB FICO FFBC GIMO GOOG GDOT GSIT HBI HLIT HA INFA INVN ISBC IXYS JDSU KFX LEGMTW MATW MBFI MCRL MTX MITK NBHC NFG NATI NGVC N NEU PCCC PKI PMCS PFG PFPT QLGC RHI SCSC SIGI SWI SFG SRDX SYNA TFSL TMST TUES UIS VR V WSFS
BMO - ABT, APD, ALXN, BABA, ALLY, AIT, ALV, BAX, BEAV, BMS, BX, BC, CCMP, CAM, CRR, CAH, CSH, CELG, CHKP, CMS, CL, CMCO, COP, DHX, DOW, DST, EPD, F, GLOP, HOG, HAR, HP, HSY, HGG, IVZ, ITG, JBLU, LRN, KEM, KMT, LLL, LANC, LSTR, MMYT, HZO, MJN, MD, MTH, NDAQ, NOK, NOC, OXY, PENN, PSX, PSXP, POT, PHM, DGX, RTN, RGS, RCI, RCL, RGLD, RYL, SHW, SILC, SWK, TCB, TMO, TWC, TKR, VLO, VLY, VIAB, WCC, XEL, ZMH
AMC - ABAX ALGN AMZN AVNW EPAY BRCM BCR ELY CPHD CB COHR CPSI CTCT CORT DECK EMN EFII ELX FCB FICO FFBC GIMO GOOG GDOT GSIT HBI HLIT HA INFA INVN ISBC IXYS JDSU KFX LEGMTW MATW MBFI MCRL MTX MITK NBHC NFG NATI NGVC N NEU PCCC PKI PMCS PFG PFPT QLGC RHI SCSC SIGI SWI SFG SRDX SYNA TFSL TMST TUES UIS VR V WSFS
Summary
It seems like the market is forming a downtrend. For confirmation we should see a lower highs and lower lows. I think there should be a pullback before the market continues to go down lower...
Direction for Thursday 29 Jan, 2015; Up
2015 Daily Directional Accuracy: 5/16 (31.25%)
2015 Weekly Directional Accuracy: 2/3 (66.67%)
2015 Weekly Directional Accuracy: 2/3 (66.67%)
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