Dow +196.09 at 17361.04, Nasdaq +41.45 at 4676.69, S&P +25.86 at 2020.85
First trading day of Feb 2015 managed to get a head up after the volatile month in Jan. But I would say it was a typical short covering session.The US economy is showing some faltering here. Looking at the yield curve (flatten), it seems that we should expect a soft economy soon.
On the market wise, I think we should see more downside. But I reckon we will see some pullback as the indices are sitting on their respective support level.
Direction for Monday 2 Feb, 2015; Up
Market Summary
Industry Watch
Strong: Energy, Financials, Industrials, Materials
Weak: Consumer Discretionary, Consumer Staples, Technology, Utilities
Other Market Moving Factor:
- S&P 500 begins new month after losing 3.1% in January
- Crude oil surrenders morning gain
[BRIEFING.COM] The stock market began the new trading week on a higher note. The S&P 500 spiked 1.3% while the Nasdaq (+0.9%) and Russell 2000 (+0.9%) underperformed.
Overall, the Monday session was fairly quiet with the market spending some time on each side of its unchanged level. The S&P 500 began with a slim gain, but relative weakness among high-beta biotechnology and chipmaker names kept heavily-weighted health care (+0.6%) and technology (+1.0%) sectors on the defensive. The S&P 500 tried to overcome that weakness, but was rebuffed by its 100-day moving average in the 2,010 area. However, a second effort in the late afternoon sent the S&P 500 well above the 100-day average to end the day.
All ten sectors finished in the green with energy (+3.0%) spending the entire session in the lead. The sector benefitted from a 2.8% advance in crude oil ($49.59/bbl) while also drawing strength from ExxonMobil (XOM 89.58, +2.16). Shares of XOM jumped 2.5% in reaction to better than expected earnings thanks to a $1 billion non-cash windfall resulting from deferred tax items and a favorable ruling for expropriated Venezuela assets.
Elsewhere among cyclical sectors, financials (+1.6%) and industrials (+1.5%) displayed relative strength throughout the day after posting respective losses of 7.0% and 3.7% in January. Meanwhile, the top-weighted technology sector (+1.0%) spent the day behind the broader market, but narrowed the gap during afternoon action.
For the most part, large cap tech names fared well, but Google (GOOGL 532.20, -5.35) and Facebook (FB 74.99, -0.92) lost 1.0% and 1.2%, respectively. Similarly, chipmakers struggled as a group, which limited the PHLX Semiconductor Index to an uptick of 0.3%.
The underperformance of semiconductor names kept the Nasdaq behind the broader market, but so did biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 319.58, -2.07) lost 0.6% while the health care sector advanced 0.6%.
Similar to health care, the utilities sector (+0.4%) underperformed while consumer staples (+1.3%) and telecom services (+2.5%) fared well.
Treasuries registered modest losses with the 10-yr yield climbing three basis points to 1.68%.
Economic data included Personal Income/Spending data, ISM Index, and Construction Spending:
- Personal income increased 0.3% for a second consecutive month in December following a negative revision (from 0.4%) in November while the Briefing.com consensus expected personal income an increase of 0.3%
- Personal spending declined 0.3% after increasing a downwardly revised 0.5% (from 0.6%) in November while the consensus expected a decrease of 0.3%
- The ISM Manufacturing Index dropped to 53.5 in January from 55.1 in December while the Briefing.com consensus expected a decline to 54.7
- Production growth decelerated as the related index fell to 56.5 in January from 57.7 in December. The drop coincided with a decline in new orders (52.9 from 57.8) and a large contraction (46.0 from 52.5) in unfilled orders
- Construction spending increased 0.4% in December after declining an upwardly revised 0.2% (from -0.3%) in November while the Briefing.com consensus expected an increase of 0.8%
Macroeconomic Data
Economic Data
from Briefing.com
- Personal Income : 0.3% vs 0.3% (Prior 0.3%)
- Personal Spending : -0.3% vs -0.2% (Prior 0.5%)
- PCE Prices - Core : 0.0% vs 0.0% (Prior 0.0%)
- ISM Index : 53.5 vs 54.7 (Prior 55.1)
- Construction Spending : 0.4% vs 0.8% (Prior -0.2%)
PERSONAL INCOME AND SPENDING
Highlights
- Personal income increased 0.3% for a second consecutive month in December following a negative revision (from 0.4%) in November. The Briefing.com Consensus expected personal income to increase 0.3%.
- Personal spending declined 0.3% in December after increasing a downwardly revised 0.5% (from 0.6%) in November. The consensus expected personal spending to decrease 0.3%.
Key Factors
- The personal income and spending data were already incorporated in the advance Q4 GDP report that was released last week. The only new information was how revisions to October or November data would impact the December monthly numbers.
- Wages and salaries increased 0.1% in December after increasing 0.6% in November. The December income gain was in-line with the December employment report, which showed virtually flat wage growth.
- On the spending side, goods spending decreased 1.3% as both durable (-1.2%) and nondurable (-1.3%) demand fell by nearly equal rates. Services spending increased 0.1%.
- The personal savings rate increased to 4.9% in December from 4.3% in November. That was the largest personal savings rate since reaching 5.0% in July 2014.
Big Picture
- Core PCE prices increased by only 1.3% y/y in December. That is 0.7% below the FOMC target rate and falling.
ISM INDEX
Highlights
- The ISM Manufacturing Index dropped to 53.5 in January from 55.1 in December. The Briefing.com Consensus expected the index to fall to 54.7.
Key Factors
- Production growth decelerated as the related index fell to 56.5 in January from 57.7 in December. The drop coincided with a decline in new orders (52.9 from 57.8) and a large contraction (46.0 from 52.5) in unfilled orders.
- A lack of steady new orders growth and shrinking backlogs could put further downward pressure on production growth.
- The Employment Index declined to 54.1 in January from 56.0 in December.
Big Picture
- This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.
CONSTRUCTION SPENDING
Highlights
- Construction spending increased 0.4% in December after declining an upwardly revised 0.2% (from -0.3%) in November. The Briefing.com Consensus expected construction spending to increase 0.8%.
Key Factors
- Private spending increased 0.1% in December, down from a 0.5% increase in November. Residential construction rose 0.3% in December. Spending on new structures rose 1.0%. Spending on home improvement projects declined 1.3%.
- Nonresidential construction spending declined 0.2% in December after increasing 0.8% in November. A 1.9% increase in manufacturing construction was offset by a 1.0% decline in power, a 1.2% decline in lodging, and a 1.5% decline in commercial. Office construction spending increased 0.2%.
- Public construction spending rebounded in December, up 1.1% after declining 1.8% in November.
Big Picture
- The recent improvement in homebuilder sentiment has not translated into strong residential construction spending growth.
Market Internals
NYSE:
Lower Volumes than the day before – 910.9M vs 1216.2M
Advancers outpaced Decliners (adv/dec): 2283 / 826
New Highs outpaced New Lows (highs/lows): 169 / 62
NASDAQ:
Lower Volumes than the day before – 1984.8M vs 2214.7M
Advancers outpaced Decliners (adv/dec): 1762 / 1000
New Lows outpaced New Highs (highs/lows): 28 / 86
VOLATILITY S&P500 (VIX)
19.43 -1.54 (-7.34%)
Internals are showing bits of bullishness but it is undermined by the lack in volume. Put it more exactly, it is more towards short covering. VIX did not break above 21.00 and I think there is a head and shoulder pattern forming. Keep monitoring the market for confirmation...
Technical Updates
17,361.04 +196.09 (+1.14%)
Volume: 108,085,517 (above average of 91,303,570)
Range: 17,037.76 - 17,367.68
4,676.69 +41.45 (+0.89%)
Volume: 525,393,576 (above average of 448,122,653)
Range: 4,580.46 - 4,676.69
S&P 500 INDEX (SPX: CBOE)
2,020.85 +25.86 (+1.30%)
Volume: 637,708,000 (above average of 520,893,277)
Range: 1,980.90 - 2,021.66
The support level is holding the indices well. I think we are likely to see more consolidation for the next few sessions. Meanwhile I am looking out for the breakout in NASDAQ and S&P.
Commodities
Closing Commodities: Oil Extends Gains, Copper Ends Flat
- WTI crude oil extended Friday’s rally and is now up $5 or 11.1% in the last two trading sessions, getting a boost from Friday’s rig count cut, but partially offset from some refinery employees being on strike in the U.S.
- Natural gas was in the red today and finished the session $0.01 lower at $2.68/MMBtu
- Precious metals were largely flat today, with Feb gold falling $1.50 to $1277.40/oz and Mar silver gaining $0.04 to $17.25/oz
- Mar copper ended unchanged at $2.49/lb
Energy Price Action
- Mar crude oil futures rose $1.39/barrel to $49.56/barrel
- Mar natural gas fell $0.01 cents to $2.68/MMBtu
- RBOB Gasoline closed $0.06 higher (or +4.1%) at $1.54/gallon
- Heating oil closed $0.07 higher (or +3.5%) at $1.76/gallon
Agricultural Price Action
- Mar corn closed $0.01 lower at $3.70/bushel
- Mar wheat closed $0.10 lower at $4.93/bushel
- Feb soybeans ended $0.01 lower at $9.60/bushel
- Ethanol closed $0.08 lower at $1.40/gallon
- Sugar #11 closed $0.63 lower (or -4.2%) at 14.22 cents/gallon
Metals Price Action
- Feb gold ended today’s session $1.50 lower at $1277.40/oz
- Mar silver ended $0.04 higher at $17.25/oz
- Mar copper closed unchanged $2.49/lb
Currencies
Manufacturing Misses Expectations, Focus Turns to Week End Jobs Data: The Dollar Index has rolled over from overnight highs. The DXY has been running into resistance just under the 95 level the past few sessions. But it does continue to hold this 94.40 area. There are a few items at play. Perhaps the one having the biggest impact is some of the recent U.S. economic data which has been showing signs of the global slow down having an impact. That has led to a pause in the dollar rally at this 95 area. This morning the markets saw weaker than expected Personal Spending, Construction Spend and ISM Manufacturing numbers. Macro focus will start to turn toward the jobs data expected at the back end of the week.
- The euro has moved back into the middle of the 1.13 range as it sees some short covering. Aiding the move higher was also the Manufacturing PMI data which was slightly better than expected as a whole. The focus for the euro area remains on Greece with officials from both sides throwing out headline commentary. This is likely to continue throughout February. February 28 remains a key date for the two sides as that marks the end of the country’s involvement in the current Troika bailout.
- The pound is seeing a 60 pip move off the 1.50 level. Sterling was able to hold the key level once again in overnight trade. The U.K. Manufacturing PMI came in better than expected and has provided a bid to cable.
- The yen was able to hold 118 and is pushing to session highs as markets see some early risk off trade. The yen will continue to trade against macro back drops as the Bank of Japan is not expected to make any changes to its current monetary policy or asset purchase programs in the immediate future.
Down, but Far From Out:
- With the exception of the 2-yr note, Treasury securities spent the entirety of Monday's session in negative territory with just modest losses
- 2-yr yield +2 bps at 0.48%
- 5-yr yield +3 bps at 1.19%
- 10-yr yield +2 bps at 1.67%
- 30-yr bond +2 bps at 2.25%
- There were some supportive influences for continued buying interest, yet the lack of strong response to those influences suggested there was a bid to take some profits on the other side of Friday's hard-charging rally into the weekend
- The January ISM Index at 53.5 was weaker than expected (Briefing.com consensus 54.7)
- The PCE Price Index for December was up just 0.7% year-over-year while core PCE was up just 1.3%, both moving away from the Fed's inflation objective of 2.0%
- Construction Spending for December was up 0.4%, which was weaker than expected (Briefing.com consensus +0.8%)
- The U.S. stock market continued to have difficulty sustaining buying interest
- The January manufacturing PMI report for China, at 49.8, marked the first contraction reading in 2 1/2 years
- President Obama's FY16 budget proposed a higher capital gains tax and a tax on foreign profits
- The 2-yr note most notably ebbed and flowed with stocks and the data
- Intraday yield range was 0.43% to 0.49%
- Settled +2 bps at 0.48%
- 2-10-yr spread held steady at 119 basis points
- Oil prices continued to rebound, briefly moving above $50.00/bbl before being met with resistance
- WTI settled up $1.33, or 2.8%, at $49.57
- The move in oil was helped along by some weakening of the dollar, which slipped against both the yen and the euro
- USD/JPY -0.1% at 117.30
- EUR/USD +0.6% at 1.1348
- U.S Dollar Index -0.4% at 94.44
- Tuesday Data: December Factory Orders report (10:00 ET); January Auto and Truck sales
- Fed speak: St. Louis Fed President Bullard (non-FOMC voter) at 09:50 ET on U.S. and International Economies and Monetary Policy; Minneapolis Fed President Kocherlakota (non-FOMC voter) at 12:45 ET on Goal-Based Monetary Policy report
Treasury Yields:
- 2 Year Note 0.49% +0.02
- 5 Year Note 1.19% +0.01
- 10 Year Note 1.68% UNCH
- 30 Year Bond 2.25% UNCH
2/30 Spread: 176 bps ( -2 ) … 2/10 Spread: 119 bps ( -2 )
Preview for Tuesday 3 Feb, 2015
Tuesday (3 Feb) :
- Factory Orders : -2.0% (Prior -0.7%)
- Auto Sales : (Prior 5.9M)
- Truck Sales : (Prior 7.9M)
Earnings Highlights
Tuesday (3 Feb) :
BMO - AET AGCO ARG AXE ACI ARRY AN BHE BP CARB CNC CEVA CHD CBR ETN EMR GLPI GCI HCA HW HCLP HRC IMS JLL LPT LYB MHO MNK NOV NYT PNR ROLL R SC ST SPR TECH THR TWIN UPS WDR
AMC - AFL AJG AEC ATO ATW AXS CHRW CALX CBL CENT CMG CVD EXP EW ENTR EQR FISV GILD HCSG IACI JKHY LSCC MANH MWA MYGN NSR OCLR OMCL PACB PLNR POWL QNST RSYS RNR RNG SLGN SPA TTWO ULTI UNM VASC WRB WNC DIS WYNN
Summary
I won't be paying too much attention to the Monday's session as I believe it is not a convincing bullish session. This further validates my view on short-covering.
However if I am to look at the technicals, I think there is still some upside to go before the market comes crashing down again. But I suspect the market might be more towards the flat side.
However if I am to look at the technicals, I think there is still some upside to go before the market comes crashing down again. But I suspect the market might be more towards the flat side.
Direction for Tuesday 3 Feb, 2015; Up
2015 Daily Directional Accuracy: 7/19 (36.84%)
2015 Weekly Directional Accuracy: 3/4 (75.00%)
2015 Weekly Directional Accuracy: 3/4 (75.00%)
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