Monday, 23 Feb 2015 - AMC

Dow -23.60 at 18116.84, Nasdaq +5.01 at 4960.97, S&P -0.64 at 2109.66

Greece's debt situation remains uncertain. FOMC minutes will be releasing tomorrow and we will expect some major economic data too. I suppose if the numbers are disappointing we would see some reason for profit-taking. But watch out for the volatility.

Direction for Wednesday 18 Feb, 2015; Down

Happy Lunar New Year! It's been a few days since I last updated my DMA. Market closed higher last week with the last push on Friday. Mostly that was due to the agreement of Greece's temporary deal with the ECB. I suppose we are seeing the profit-taking as market reached a high. Meanwhile the overall sentiment is still pointing to some bullishness...                       

Market Summary

Industry Watch

Strong: Consumer Staples, Health Care, Utilities

Weak: Energy, Financials, Industrials, Technology, Materials

Other Market Moving Factor:

• European markets on hold with Greece expected to present a reform package tomorrow (originally scheduled for today)
• Crude oil drops below $50.00/bbl
• Health care leads after Valeant Pharmaceuticals (VRX) agrees to acquire Salix (SLXP) for $158.00/share

[BRIEFING.COM] The major averages began the new week on a sleepy note. The S&P 500 ended flat after spending the day in a seven-point range while the Nasdaq (+0.1%) finished a little ahead of the benchmark index. 

In large part, the lack of activity on Monday could be explained by participants sticking to the sidelines ahead of Fed Chair Janet Yellen's semiannual testimony on monetary policy. Tomorrow, Ms. Yellen will appear before the Senate Banking Committee at 10:00 ET while her appearance in front of the House Financial Services Committee will follow on Wednesday. Since the minutes from the latest FOMC policy meeting showed waning support for increasing the fed funds rate during the first half of the year, participants will be on a lookout for similar hints from the Fed Chair tomorrow. 

Meanwhile in Europe, Greece's government was expected to present a list of reforms today, but it remains unclear whether the Eurogroup received that list. Greek Finance Minister Yanis Varoufakis told CNN that the list was indeed delivered today, but separate reports indicated reform plans will be submitted tomorrow. 

The wait-and-see tone resulted in range-bound action on light volume with only 720 million shares changing hands at the NYSE floor. 

Six of ten sectors registered losses with all six cyclical sectors ending in the red. Most notably, the energy sector (-0.4%) slumped to the bottom of the leaderboard at the start, exerting pressure on the market throughout the day. The group lagged as crude oil fell 2.5% to $49.56/bbl. The energy component saw a brief afternoon spike into the $50.00/bbl area after Nigeria's oil minister said the sharp slide in crude prices could lead to an emergency OPEC meeting. WTI crude returned to its afternoon low after OPEC refuted the report, announcing no plans for an emergency meeting at this time. 

Elsewhere among cyclical sectors, financials (-0.4%) and industrials (-0.4%) lagged while technology (+0.2%) finished ahead of the broader market thanks to the shares of Apple (AAPL 133.00, +3.50). The top-weighted sector component spiked 2.7% after announcing a EUR1.70 billion plan to build two data centers in Europe. 

In addition to boosting its sector, the largest tech stock helped the Nasdaq spend the day ahead of the S&P. Biotechnology also contributed to the outperformance with the iShares Nasdaq Biotechnology ETF (IBB 338.00, +1.57) adding 0.5% after being up more than 1.0% intraday. In turn, the health care sector (+0.4%) ended in the lead with Valeant Pharmaceuticals (VRX 198.75, +25.49) spiking 14.7% after agreeing to acquire Salix Pharmaceuticals (SLXP 155.76, -2.09) for $158.00/share. 

Elsewhere among countercyclical groups, consumer staples (+0.3%) and utilities (+0.7%) posted gains while the telecom services sector (-0.6%) lagged. 

Treasuries climbed throughout the day, ending on their highs with the 10-yr yield down five basis points at 2.06%. 

Economic data was limited to the Existing Home Sales report, which showed a 4.9% decline in January to a seasonally adjusted annual rate of 4.82 million from an upwardly revised 5.07 million (from 5.04 million) in December while the Briefing.com consensus expected a decline to 4.95 million SAAR. 

The existing home sales data is derived from actual closings. Even though mortgage rates declined significantly in January, the impact from lower mortgage rates will not be felt until February. Furthermore, inventory levels continue to be troublesome for growth. During normal sales periods, inventory levels typically hold at roughly 6 months at the current sales rate. In January, inventories represented only a 4.7 months' supply. 

Tomorrow, the Case-Shiller 20-city Index for December (Briefing.com consensus 4.3%) will be released at 9:00 ET while February Consumer Confidence will cross the wires at 10:00 ET (consensus 99.3). 

Global Market

ASIA

Asian Markets Close: Nikkei +0.7%, Hang Seng flat; Shanghai Composite (closed for holiday)
The Chinese stock market remained closed for the Lunar New Year holiday. Japan’s Nikkei 225, however, kept its winning streak alive, scoring its fourth consecutive gain. The Nikkei is up 4.5% since the end of January.

• Economic data:
• Singapore
• January CPI -0.4% year-over-year (expected -0.3%; prior -0.2%)
• Japan’s Nikkei jumped another 0.7% despite a weak showing from its financial sector (-1.0%). Minutes from the latest Bank of Japan meeting indicated that three members expressed reservations about the bank hitting its inflation target due to the downturn in oil prices. Gains in the consumer cyclical (+1.5%), communications (+1.1%), and technology (+1.1%) sectors helped offset weakness in financials. Leading percentage gainers included Casio Computer (+5.9%), Kuraray Co. (+4.9%), Sumco (+4.1%), and Yamaha Corp. (+3.7%).
• Hong Kong’s Hang Seng ended little changed with gains in the communications (+1.1%) and diversified (+0.5%) sectors helping to offset weakness in the consumer staples (-1.0%) and consumer discretionary (-1.8%) sectors. Galaxy Entertainment (-3.2%) CNOOC (-2.8%), and Sands China (-2.0%) led index decliners while Tencent Holdings (+3.8%), MTR Corp. (+3.2%), and CITIC (+1.8%) led the index gainers.
• China’s Shanghai Composite – closed in observance of Lunar New Year
• India’s Sensex declined 0.9%, pressured by losses in its financial (-1.3%) and consumer discretionary (-0.7%) sectors. Reliance Industries (-2.5%), Axis Bank (-2.2%), and Tata Steel (-2.0%) were the worst-performing stocks in the Sensex on Monday.
• Australia’s S&P/ASX 200 added 0.5%, paced by the REIT (+1.2%), consumer discretionary (+0.9%), and health care (+0.6%) groups.
• Regional advancers: South Korea (+0.4%), Malaysia (+0.1%) , Indonesia (+0.1%), Philippines (+0.01%)
• Regional decliners: Singapore -0.4%, Thailand -0.6%
• Regional markets closed for holiday observance: Taiwan (Lunar New Year) and Vietnam (Lunar New Year)
• FX: USD/CNY +0.02% at 6.2551, USD/INR +0.04% at 62.273, USD/JPY +0.02% at 119.05

EUROPE

Major European indices trade mostly higher with Spain’s IBEX (+0.7%) in the lead. According to press reports, there is increased friction within Greece’s Syriza party following Friday’s tentative agreement to extend the current loan by four months. Furthermore, the extension is contingent on the acceptance of a reform package, which is supposed to be presented by Greece today.

• Germany’s Ifo Business Climate ticked up to 106.8 from 106.7 (expected 107.7) as Business Expectations improved to 102.5 from 102.0 (expected 103.0) while Current Assessment fell to 111.3 from 111.7 (consensus 112.7)
• UK’s CBI Distributive Trades Survey fell to 1 from 39 (consensus 34)

CLOSING PRICES

• UK’s FTSE: 0.0%
• Germany’s DAX: + 0.7%
• France’s CAC: + 0.7%
• Spain’s IBEX: + 0.9%
• Portugal’s PSI: + 0.5%
• Italy’s MIB Index: + 0.6%
• Irish Ovrl Index: + 1.7%
• Greece ASE General Index:  Closed

Macroeconomic Data

Economic Data

from Briefing.com

• Existing Home Sales : 4.82M vs 4.95M (Prior 5.07M - Up)

Existing Home Sales

Highlights

• Existing home sales declined 4.9% in January to a 4.82 mln seasonally adjusted annual rate (SAAR) from an upwardly revised 5.07 mln SAAR (from 5.04 mln SAAR) in December. The Briefing.com Consensus expected existing home sales to decline to 4.95 mln SAAR.

Key Factors

• The pullback in January was not unexpected. The existing home sales data is derived from actual closings. Even though mortgage rates declined significantly in January, the impact from the relatively lower mortgage rates will not be felt until February.
• Furthermore, inventory levels continue to be troublesome for growth. During normal sales periods, inventory levels typically hold at roughly 6 months at the current sales rate. In January, inventories represented only a 4.7 months’ supply.
• Lack of inventories put significant upward pressure on prices. The median home price increased 6.2% yr/yr in January to $199,600.
• The combination of higher prices and relatively high mortgage rates made it more difficult for first-time homebuyers to come to the market. This is the lifeblood of existing home sales growth, and the percentage of these buyers dipped to 28% in January from 29% in December. That was the lowest percentage of first-time buyers since they accounted for 28% in June 2008. To put this into perspective, first-time buyers usually account for 35% - 40% of sales during normal buying periods.
• Without a steady influx of first-time buyers, existing home sales cannot accelerate.
• Unfortunately, the weakness in first-time buyers was not offset by investor demand. All-cash sales accounted for 27% of total sales in January, up modestly from 26% in December. Sales to individual investors, however, were flat and remained at 17% of all sales in January.

Big Picture

• High prices are making it difficult to draw in first-time buyers. Without them, existing home sales growth cannot meaningfully accelerate.

Market Internals

NYSE:

Higher Volumes than the day before – 735.2M vs 696.6M 


Decliners outpaced Advancers (adv/dec): 1517 / 1545

New Highs outpaced New Lows (highs/lows): 162 / 21

NASDAQ:

Higher Volumes than the day before – 1744.5M vs 1742.4M

Decliners outpaced Advancers (adv/dec): 1206 / 1567

New Highs outpaced New Lows (highs/lows): 128 / 43

VOLATILITY S&P500 (VIX)

14.56 +0.26 (+1.82%)

It is just flat for the internals. But the no. of New Highs still outpaced no. of New Lows and that might still mean something. VIX remained below 15.00 despite a slight up gain. I suppose there is still optimism in general.       

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

18,116.84 -23.60 (-0.13%)

Volume: 83,669,502 (below average of 92,991,697)

Range: 18,054.84 - 18,141.21

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,960.97 +5.00 (+0.10%)

Volume: 452.0M (above average of 442,764,642)
Range: 4,939.56 - 4,960.97

S&P 500 INDEX (SPX: CBOE)

2,109.66 -0.64 (-0.03%)

Volume: 497,016,000 (below average of 526,333,531)

Range: 2,103.00 - 2,110.05 

DOW is forming a hanging man pattern as it reaches a recent high while S&P is having a gravestone doji. That could mean the uptrend is likely to stall.    

Commodities

Closing Commodities: Oil Closes Below $50/Barrel

• Oil futures showed some volatility today as investors/trader remained concerned about the global oversupply
• This kept WTI crude prices over 3% earlier this morning.
• Oil spiked this afternoon following headlines that OPEC may possibly hold an emergency meeting, which would be well before its scheduled meeting in June.
• Oil erased those losses after headlines later came out refuting the earlier FT reports… go figure
• Ultimately, Apr crude closed $1.26 lower at $49.56/barrel today.
• Mar nat gas fell $0.07 to $2.88/MMBtu
• Apr gold lost $3.80 to $1200.80/oz, while Mar silver fell $0.03 to $16.27/oz

Energy Price Action

• Apr crude oil futures fell $1.26/barrel to $49.56/barrel
• Apr natural gas fell $0.07 to $2.88/MMBtu
• RBOB Gasoline rose $0.05 to $1.89/gallon
• Heating oil closed $0.07 lower to $1.84/gallon

Highlight:

• Crude Oil: Current global supply of oil shows that oversupply stands at 1.5-2.0 million barrels per day. Mid-afternoon trading saw a surge in crude prices that reflected comments by the Nigerian oil minister, that OPEC may hold an emergency meeting if prices continue to slide. The close saw prices fall back to losses as news broke that contradicted the reported meeting.
• Both Crude Oil and Nat Gas front months shifted to April

Agricultural Price Action

• Mar corn closed $0.07 lower at $3.79/bushel
• Mar wheat closed $0.04 lower at $5.06/bushel
• Feb soybeans closed flat at $10.00/bushel
• Ethanol closed $0.03 lower at $1.40/gallon
• Sugar #11 closed 0.08 cents lower at 14.31 cents/lb

Metals Price Action

• Apr gold ended today’s session $3.80 lower at $1200.80/oz
• Mar silver ended $0.03 lower at $16.27/oz
• Mar copper closed $0.01 lower at $2.59/lb

Currencies

Currency Commentary: DXY holding steady ahead of Yellen Testimony

• The Dollar Index is floating in the high end of the 94-95 area. The DXY saw some early buying to rally to 94.91 before rolling back over to the mid-94 range. The move comes ahead of tomorrow’s highly anticipated testimony by Fed Chair Janet Yellen. The testimony comes following the release of the latest Fed minutes which were a little more dovish than what was expected. Market participants pointed out comments on International activity and the impact a strong dollar could potentially have on growth as the reason for it being viewed as dovish. So these should be key topics for tomorrow. There are expectations that Ms. Yellen will try to provide a slightly more hawkish tone as the Fed prepares market participants for an eventual rate hike. But at the end of the day, Ms. Yellen will reiterate ad nausea that the Fed remains data dependent first and foremost.
• The euro continues to test the 1.13 level for support. This evening, the Greek government is expected to provide its latest reform plan to the EU in the hopes of extending its current bailout program by four months. Markets have been acting like a deal was done on Friday but the reality is that the two sides need to agree to terms before negotiations can be considered successful. Participants will have their eyes glued to the screen tonight waiting for any updates on the deal. If both sides agree it is expected to be signed tomorrow.
• The pound was able to hold the 1.5330 level and has rallied back to 1.54 as we kick off the week. Sterling’s move comes ahead of tomorrow’s inflation hearing.
• The yen continues to straddle the 119 level as it appears that the Bank of Japan is on hold. One item of interest was a key Abe economic adviser who mentioned over the weekend that the Bank of Japan may have to cut its inflation target and extend the time frame in which it expects to reach its goals (BONDX, FOREX).

Bonds

Treasuries Gain:

• U.S. government debt of all maturities rallied on Monday, as traders looking for breakouts continued to deal with rallies and sell-offs that didn't follow through
• Fed Chair Yellen will testify before the Senate Banking Committee tomorrow, which may have led to defensive positioning by market participants
• Greece was reportedly set to produce its reform proposals today under the deal worked out last Friday. Subsequent reports, however, said those proposals may be out on Tuesday instead
• Existing home sales data came out weaker than expected this morning (Actual 4.82M, Briefing.com consensus 4.95M, prior 5.07M revised from 5.04M) 
  • The disappointing number enhances the case for a weaker economy that began to form last week with weaker than expected PPI, industrial production, and retail sales numbers
• The yield curve flattened slightly, with 2's/10's down to 147 bps and 5's/30's down to 111 bps
• Yield check:
  • 2-yr: -4 bps to 0.59%
  • 5-yr: -5 bps to 1.54%
  • 10-yr: -5 bps to 2.06%
  • 30-yr: -7 bps to 2.65%

• U.S. equities traded a very tight range ahead of the Yellen testimony, with the S&P 500 falling 5 points to 2,105

• WTI Crude fell $1.70 (-3.35%) to $49.11/bbl. There was a mid-day rally to $50.56/bbl on rumors of an emergency OPEC meeting. Those rumors were later denied
• The US Dollar Index gave back early gains for the second day in a row, but traded 30 ticks higher (+0.32%) at 94.56
• Gold futures fell $3.50 (-0.29%) to $1201.40/troy oz., in sympathy with the stronger dollar

For Tomorrow:

• December Case-Shiller 20-city Index (09:00 ET)
• February Consumer Confidence (10:00 ET)
• Fed Chair Janet Yellen gives semi-annual testimony on the economy and monetary policy before the Senate Banking Committee (10:00 ET)
• $26 billion 2-year note auction (13:00 ET)

Treasury Yields:

• 2 Year Note 0.64% -0.03
• 5 Year Note 1.56% -0.05
• 10 Year Note 2.06% -0.07
• 30 Year Bond 2.66% -0.07

2/30 Spread: 202 bps ( -4 ) …  2/10 Spread: 142 bps ( -4 )

Preview for Tuesday 24 Feb, 2015

Economic Data

Tuesday (24 Feb) :

• Case-Shiller 20-city Index – 09:00 : 4.3% (Prior 4.3%)
• Consumer Confidence – 10:00 : 99.9 (Prior 102.9)

Earnings Highlights

Tuesday (24 Feb) :
BMO - CEQP ALKS AMT ASTE BMO CRZO CLDX CRNT GTLS CLDT COT CBRL CMLP CTG DAKT DRH DPZ DCI DW DYAX ECL EXAS EXLS EXPD FDML FELE THRM GPX GLDD HSII HD ZINC IPXL INCR IART M MNKD NEO ODP PCRX PLL PF RLGY SAFM SHLX SAH SPAR SHOO STCK SUI SPWR TNC TOL TRXC TREX UTHR VRX VAL VSI WPC WEN WLK WLKP WIN

AMC - AAC ACAS AWK AMRS NLY ARC BNFT BGFV SAM BBRG CBI CENX CLR CPRT CLGX DPM DWA DY BOOM DYN EIX EPR XCO EXEL FSLR FLTX FMI GNMK HLS HWAY HEI HPQ HEP AWAY HDP HURN IMPR INFI JAZZ JONA KRA LQ LC DOOR MATX MMSI NSTG NKTR NYMT NFX NDSN NUVA ORA PZZA PRA QEP RRC RJET RUBI SM SGY TNDM TXTR TRNX TSLX SLCA VRSK VVUS WBMD GB ZAGG

Summary

Fed Chair Yellen is having her testify tomorrow. That is maybe why Monday was rather flat. I guess that the testimony is likely to give the session a wild ride. With the volatility in oil prices and Eurozone situation, the market is kinda susceptible at the moment. I am calling a flat to upside for Tuesday.

Direction for Tuesday 24 Feb, 2015; Up

2015 Daily Directional Accuracy: 12/29 (41.38%) 
2015 Weekly Directional Accuracy: 5/7 (71.43%)