Dow +212.88 at 17584.52, Nasdaq +57.73 at 4650.46, S&P +23.29 at 2025.90
Market rebound after consecutive losses for the past few sessions. Although market was consolidating after FOMC minutes released. But is this a dead cat bounce or are we seeing more bulls coming into the market?Tomorrow we will have some major market mover economic data releasing such as ADP Non-Farm and FOMC minutes.
Market is still looking weak as it was brought down partly by the oil prices as well as geopolitical situation at Greece. I won't be going full on long right now but I am watching very closely on the market movement.
Direction for Wednesday 7 Jan, 2015; Down
Market Summary
Industry Watch
Strong: Consumer Discretionary, Consumer Staples, Health Care, Utilities
Weak: Energy, Industrials, Telecom Services
Other Market Moving Factor:
- Global equities rebound
- Dollar strength persists
- Crude oil struggles to stay positive
[BRIEFING.COM] The major averages rebounded from their recent swoon with the S&P 500 (+1.2%) posting its first gain in six sessions. The benchmark index settled just behind the Nasdaq Composite (+1.3%) while the Dow Jones Industrial Average (+1.2%) and Russell 2000 (+1.2%) ended in-line with the S&P 500.
The midweek advance occurred in two stages with the market climbing out of the gate amid upbeat action overseas. The S&P 500 notched its morning high 30 minutes after the opening bell, but returned to its opening level two hours after the start of the session. Equity indices then charged to new highs after Bloomberg reported that German officials are expected to show willingness to restructure Greek debt. The report said that a debt write-off is not being discussed, but repayment terms may be eased.
Stocks caught a second wind following the Bloomberg report and spent the remainder of the session near their afternoon highs, all but ignoring the FOMC minutes from the December meeting. The lack of reaction was understandable, considering the document did not introduce anything ‘new' in particular.
According to the minutes, the Fed's intent to be ‘patient,' which was announced by Janet Yellen in the December press conference, means that a rate hike will not occur in the next couple of meetings.
Nine of ten sectors ended in the green with health care (+2.3%) spending the entire session in the lead. The countercyclical sector was underpinned by biotechnology with the iShares Nasdaq Biotechnology ETF (IBB 312.00, +11.19) surging 3.7%. The strong showing from the high-beta group kept the Nasdaq ahead of S&P 500 for the bulk of the session. Meanwhile, top-weighted technology names were not as strong. Apple (AAPL 107.75, +1.49) and Microsoft (MSFT 46.23, +0.58) posted solid gains while Google (GOOGL 505.15, -1.49) and IBM (IBM 155.05, -1.02) could not stay out of the red, resulting in daylong underperformance from the technology sector (+0.9%).
As for the remaining cyclical groups, consumer discretionary (+1.5%) was the only growth-sensitive sector able to finish ahead of the broader market thanks to broad support. Retailers climbed with the SPDR S&P Retail ETF (XRT 95.70, +2.44) adding 2.6% while homebuilders had an even stronger showing. The iShares Dow Jones US Home Construction ETF (ITB 25.93, +0.82) spiked 3.3%.
Elsewhere, the energy sector (+0.3%) was among the early leaders, but finished the day just north of its low. For its part, crude oil alternated between gains and losses before ending the pit session higher by 1.5% at $48.70/bbl.
On the downside, the telecom services sector (-1.4%) represented the lone decliner, spending the entire session in negative territory.
Treasuries ended the day in the middle of their range with the 10-yr yield up one basis point at 1.96% after marking an intraday high just above 2.00%. The benchmark note climbed after the release of the FOMC minutes, suggesting fixed income traders were not concerned with a possibility of a swift rate hike.
Participation was just short of recent averages with 758 million shares changing hands at the NYSE floor. Economic data released this morning was limited to ADP Employment, Trade Deficit, and the MBA Mortgage Index:
- The ADP National Employment Report revealed that employment in the nonfarm private business sector rose 241K in December while the Briefing.com consensus expected an increase of 230K
- The November reading was revised up to 227,000 from 208,000
- The U.S. trade deficit declined to $39.00 billion in November from a downwardly revised $42.20 billion (from $43.40 billion) in October while the consensus expected a decline to $41.80 billion
- That was the smallest trade deficit since December 2013 (-$37.40 billion)
- Even though U.S. petroleum producers have increased their exports of petroleum-based products over the last few years, the U.S. is still a net importer of crude products. The fall in oil prices had a larger impact in lowering total imports than reducing exports, which led to the smaller trade deficit in November.
- The MBA Mortgage Index, which was not reported last week, rose 11.1%, but fell 9.1% over the two-week period since the last update
Macroeconomic Data
Economic Data
from Briefing.com
- MBA Mortgage Index : 11.1% (Prior -18.2%)
- ADP Employment Change : 241K vs 230K (Prior 227K)
- Trade Balance : -$39.0B vs -$41.8B (Prior -$42.2B)
- Crude Inventories : -3.062M (Prior -1.754M)
- FOMC Minutes
Highlights
- The U.S. trade deficit declined to $39.0 bln in November from a downwardly revised $42.2 bln (from $43.4 bln) in October. The Briefing.com consensus expected the trade deficit to fall to $41.8 bln.
Key Factors
- That was the smallest trade deficit since December 2013 (-$37.4 bln).
- As expected, the weakness in oil prices had a contractionary effect on the trade deficit. Even though U.S. petroleum producers have increased their exports of petroleum-based products over the last few years, the U.S. is still a net importer of crude products. The fall in oil prices had a larger impact in lowering total imports than reducing exports, which led to the smaller trade deficit in November.
- The goods deficit fell by $3.3 bln to $58.3 in November from $61.6 bln in October. The services surplus declined to $19.3 bln from $19.4 bln.
- Export levels slid by $2.0 bln in November to $196.4 bln. Half of the decline in exports was a result of a reversal in civilian aircraft sales (-$1.1 bln). Declines in autos (-$0.5 bln) and consumer goods (-$0.5 bln) rounded out the rest of the pullback.
- Imports declined by $5.2 bln in November to $235.4 bln. Imports of industrial supplies fell by $4.6 bln, which included a $2.9 drop in crude and fuel oil. Capital goods imports declined by $0.8 bln. Consumer goods imports increased by $1.6 bln in November. Most of the gain came from a $1.8 bln increase in cell phone sale, likely the result of the latest Apple (AAPL) iPad release.
- The petroleum-based net export deficit fell to $11.4 bln in November from $15.2 bln in October.
Big Picture
- Lower oil prices played a large role in reducing import demand in November.
Market Internals
NYSE:
Lower Volumes than the day before – 777.6M vs 942.4M
Advancers outpaced Decliners (adv/dec): 2371 / 737
New Highs outpaced New Lows (highs/lows): 200 / 75
NASDAQ:
Lower Volumes than the day before – 1947.9M vs 2150.7M
Advancers outpaced Decliners (adv/dec): 1869 / 892
New Lows outpaced New Highs (highs/lows): 52 / 66
VOLATILITY S&P500 (VIX)
19.31 -1.81 (-8.57%)
Looking at the internals it makes me question back to the same question, is it a dead cat bounce? Internals are showing some bullishness as VIX also went lower than 21.00. Perhaps we can assume some underlying strength for the market to push higher.
Technical Updates
17,584.52 +212.88 (+1.23%)
Volume: 91,026,606 (above average of 90,962,109)
Range: 17,374.78 - 17,597.08
4,650.47 +57.73 (+1.26%)
Volume: 482,505,476 (above average of 472,868,610)
Range: 4,613.90 - 4,652.72
S&P 500 INDEX (SPX: CBOE)
2,025.90 +23.29 (+1.16%)
Volume: 538,478,000 (above average of 532,956,600)
Range: 2,005.55 - 2,029.61
Market makes a nice rebound on Wednesday and I see a similar bullish engulfing at both DOW and S&P while NASDAQ forms a harami. It serves as a good indicator that market is likely to move higher in the next few sessions.
Commodities
Closing Commodities: Oil Gains, Precious Metals Decline Slightly
- Oil prices held up today, rallying nicely off of the overnight low of $46.83/barrel to finish the day $0.68 higher at $48.70/barrel
- Following the weekly EIA inventory data, WTI crude oil initially sunk lost and erased all of its gains as the large build in gasoline and distillates offset the draw in oil inventory (a small build was expected)
- However, in later trading activity, crude shook off that selling and climbed higher in afternoon trade
- Natural gas lost its gains and ended 6 cents lower at $2.88/MMBtu
- Feb gold fell $5.30 to $1210.70/oz, while Mar silver lost $0.02 to close at $16.54/oz
Energy Price Action
- Feb crude oil rose $0.68/barrel to $48.70/barre
- Natural gas fell 6 cents to $2.88/MMBtu
- RBOB Gasoline dropped 2 cents to $1.34/gallon
- Heating oil dropped 3 cents to $1.70/gallon
Agricultural Price Action
- Mar corn closed $0.09 lower at $3.96/bushel
- Mar wheat fell $0.13 cents to $5.79/bushel
- Feb soybeans ended $0.01 higher at $10.53/bushel
- Ethanol closed 2 cents lower at $1.47/gallon
- Sugar #11 fell 0.09 cents to 14.78 cents/gallon
Metals Price Action
- Feb gold ended today’s session $5.30 lower at $1210.70/oz
- Mar silver ended $0.02 lower at $16.54/oz
- Mar copper closed $0.01 lower to $2.76/lb
Currencies
Currency Commentary: DXY at 92
- The Dollar Index continues its push higher as it moves into the 92 area. The move comes following a better than expected ADP number and ahead of the latest FOMC minutes. Market participants will be rifling through the notes when they are released (2pm ET) as they look for a greater definition on the term ‘patience’. The debate on timing of the first rate hike will continue but the dollar trend continues to highlight the expectations that the U.S. will lead other central banks in tightening. Also of interest int he minutes will be commentary on the weak energy prices as well as the potential headwind on trade from the strengthening dollar.
- The euro continues its slide as the latest CPI numbers came in at -0.2%. This was lower than expected and points to a deflationary environment in the region. In addition, employment data in the region remains weak which will lead to expectations that the ECB will embark on a QE program in order to spur pricing and growth. Germany continues to outshine its EU partners as retail sales and Unemployment change came in better than expected.
- The pound continues to spiral lower as it slips into the 1.50 level. The multi-year low of 1.4814 set back in July of 2013 will be on plenty of radars as sterling has failed to attract buyers. Sterling is now down 13% since hitting a multi-year high in July of 2014.
- The yen is slipping back to the 120 level but remains firmly entrenched in this 118-120 area. Market uncertainty to kick off 2015 has led to some volatility in the yen but in a tight range (BONDX, FOREX).
Bonds
Post-FOMC Minutes Rally Propels Treasuries to Ninth Straight Gain:
- Treasuries gained for a ninth straight session.
- The complex traded lower overnight and pressed to its worst levels of the day after ADP Employment Change (241K actual v. 230K expected) and the trade balance (-$39 bln actual v. -$41.8 bln expected) outpaced estimates.
- Buying developed into the lunchtime hour and maturities climbed to their best levels of the session following the release of the latest FOMC minutes.
- The minutes suggested "labor market conditions improved further" and that "the foreign economic situation could result in slower domestic economic growth than currently expected." They continued, "The Committee might begin normalization at a time when core inflation was near current levels, although in that circumstance participants would want to be reasonably confident inflation will move back toward 2% over time."
- Up front, the 2Y added +1.6bps to 63bps. Support in the area remains in focus.
- In the belly, the 5Y fell -2bps to 1.473%. Action probed the closely watched 1.500% level before the afternoon bid proved overwhelming.
- The 10Y slipped -0.9bps to 1.954%. The benchmark yield ticked above 2.00% before ultimately failing at the level and putting in its lowest close since May 2013.
- Buying at the long end pushed the 30Y down -0.8bps to 2.515%. The yield on the long bond finished ~6bps off its record low close.
- A flatter curve won out as the 2-10-yr spread narrowed to 132.5bps.
- Precious metals lost ground as gold fell -$4 to $1215 and silver slipped -$0.03 to $16.61.
- Data: Challenger Job Cuts (7:30), initial and continuing claims (8:30) and consumer credit (14).
- Fed Speak: Boston's Rosengren speaks at the 2015 Wisconsin Economic Forecast Luncheon (13:30) and Minny's Kocherlakota takes part in a town hall forum (20).
Treasury Yields:
- 2 Year Note 0.62% -0.03
- 5 Year Note 1.47% -0.03
- 10 Year Note 1.96% -0.01
- 30 Year Bond 2.52% UNCH
2/30 Spread: 190 bps ( +3 ) … 2/10 Spread: 134 bps ( +2 )
Preview for Thursday 8 Jan, 2015
Earnings Highlights
Wednesday :
BMO - APOL, CVGW, STZ, FDO, GPN, SCHN
AMC - ANGO, CUDA, BBBY, TCS, EOPN, HELE, PSMT, RT, VOXX
Summary
I just say tomorrow the market should continue the momentum. However do watch out if the trend is a dead cat bounce or a bullish rally.
Direction for Thursday 8 Jan, 2015; Up
2015 Daily Directional Accuracy: 1/4 (25.00%)
2015 Weekly Directional Accuracy: 0/0 (0.00%)
2015 Weekly Directional Accuracy: 0/0 (0.00%)
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