Tuesday, 24 Feb 2015 - AMC

Dow +92.35 at 18209.19, Nasdaq +7.15 at 4968.12, S&P +5.82 at 2115.48

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

Market reacted with an upside following Fed Chair Yellen's testimony. However on the bond market it shows that the yields have been dropping. So is the run going to be sustainable?                         

It seems the small caps are lagging on Tuesday, and NASDAQ too. Well that explains/answers part of the question earlier on.  

Market Summary

Industry Watch

Strong: Consumer Discretionary, Financials, Materials, Telecom Services, Utilities

Weak: Energy, Health Care, Technology

Other Market Moving Factor:

• Fed Chair Yellen testifies before Senate Banking Committee: sees "somewhat elevated stock market valuations," says Fed "will change forward guidance before changing rates"
• Greece submits list of reforms to the Eurogroup: IMF chief Lagarde notes lack of clear assurances on reforms

[BRIEFING.COM] The major averages endured another quiet session on Tuesday before a late afternoon rally sent the S&P 500 (+0.3%) to a new record high. The price-weighted Dow (+0.5%) outperformed while the Nasdaq Composite (+0.1%) and Russell 2000 (+0.1%) struggled to keep up. Once again, trading volume was well below average with only about 700 million shares changing hands at the NYSE floor. 

Equity indices spent the bulk of the day near their flat lines, seeing little reaction to Fed Chair Janet Yellen's testimony on monetary policy before the Senate Banking Committee. 

While the minutes from the latest Fed policy meeting revealed a slight hawkish tilt, that tone was offset by today's comments from Chair Yellen, who reiterated the Fed's intent to remain patient before raising rates, due to weak wage growth and low inflation. In addition, Ms. Yellen indicated the Fed will change its forward guidance prior to hiking rates, and that change to the outlook will clear the way for a potential hike in any particular meeting that follows. 

Although the testimony had little impact on equities, Treasuries spiked with the 10-yr yield sliding eight basis points to 1.98% as bond traders showed little concern for a rate hike in the near term. On a related note, the Dollar Index (94.44, -0.13) ended lower by 0.1% after showing strength in the early going. 

Nine sectors finished the day in positive territory with rate-sensitive telecom services (+0.6%) and utilities (+0.6%) pacing the advance. The financial sector (+0.5%) also finished among the leaders, thanks in large part to shares of JPMorgan Chase (JPM 60.82, +1.47), which surged 2.5% after the company's CFO hinted at a dividend increase during the company's Investor Day. 

Elsewhere among cyclical sectors, the consumer discretionary space (+0.4%) received support from homebuilders after Toll Brothers (TOL 38.49, +1.39) reported better than expected results and boosted its delivery guidance. Toll Brothers spiked 3.8% while the iShares Dow Jones US Home Construction ETF (ITB 28.15, +0.65) rose 2.4%. Also of note, Dow component Home Depot (HD 116.75, +4.47) surged 4.0% after better than expected results and a 26.0% boost to its annualized dividend ($2.36/share) overshadowed below-consensus guidance. 

Meanwhile, the top-weighted technology sector (+0.2%) struggled in the early going, but was able to end not far behind the broader market. Apple (AAPL 132.17, -0.83) spent some time on each side of its flat line before ultimately settling lower by 0.6%. Chipmakers, however, displayed broad strength with the PHLX Semiconductor Index jumping 1.3%. 

However, not all high-beta groups displayed comparable strength. To that point, biotechnology lagged with the iShares Nasdaq Biotechnology ETF (IBB 335.15, -2.85) ending lower by 0.8%. Biotech's underperformance kept the health care sector (-0.1%) under pressure, but the countercyclical group settled just below its flat line. 

Economic data was limited to Consumer Confidence and the Case-Shiller 20-City Index: 

• The Conference Board's Consumer Confidence Index declined to 96.4 in February from an upwardly revised 103.8 (from 102.9) while the Briefing.com consensus expected a decline to 99.6 
• The Case-Shiller 20-city Home Price Index for December rose 4.5% against a 4.3% increase expected by the Briefing.com consensus. This followed the previous month's increase of 4.3% 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while New Home Sales for January (Briefing.com consensus 471K) will be reported at 10:00 ET. 

Global Market

ASIA

Asian Markets Close: Nikkei +0.7%, Hang Seng -0.4%, Shanghai Composite (closed for holiday)
Asian markets, with the exception of China, were up and running again following an extended shutdown for many due to the Lunar/Chinese New Year celebration. Most played catch up and enjoyed modest gains. Japan’s Nikkei continued its winning streak and extended its breakout to a 15-year high.

• Economic data:
  • Japan
    • Corporate Services Price Index +3.4% (expected 3.6%; prior 3.5%)
  • New Zealand
    • Inflation expectations 1.8% quarter-over-quarter (prior 2.1%)
• Japan’s Nikkei increased 0.7%, extending its breakout to a new 15-year high and logging its fifth straight gain with the added help of a weaker yen. Tuesday’s move higher saw participation from every sector with the communications (+1.4%) and consumer cyclical (+1.0%) sectors setting the pace. Leading percentage movers included Asahi Glass (+4.4%), TOTO Ltd. (+4.3%), Nippon Sheet Glass Co. (+4.3%), and Taiheiyo Cement Co. (+4.2%).
• Hong Kong’s Hang Seng dropped 0.4%, pressured by weakness in the consumer cyclical (-1.7%) and financial (-0.4%) sectors. HSBC Holdings (-3.5%) was the biggest decliner after reporting a larger than expected 17% drop in its full-year profit. Galaxy Entertainment (-2.7%) and Sands China (-2.7%) were other notable losers in Tuesday’s trading.
• China’s Shanghai Composite – closed in observance of Lunar New Year
• India’s Sensex scored a small 0.1% gain, helped by relative strength in its consumer cyclical (+0.4%) and technology (+0.3%) sectors. Hindustan Unilever (+3.1%), Larsen & Toubro Ltd (+2.1%), and Bharat Heavy Electricals Ltd. (+1.9%) were top gainers in the Sensex Index.
• Australia’s S&P/ASX 200 tacked on 0.3% with the metals & mining (+1.6%), materials (+1.1%), and resources (+1.0%) lending support. BHP Billiton reported a 31% drop in profit for the six months through December, yet that was ahead of analysts’ average expectations, according to a Reuters report. BHP ended with a 2.9% gain. Other notable winners included Flight Centre (+12.1%), which reaffirmed its guidance, and Mesoblast Ltd. (+11.7%).
• Regional advancers: Taiwan +1.1%, South Korea +0.4%, Singapore +0.5%, Thailand +0.3%, Indonesia +0.3%, Philippines +0.1%, and Vietnam +1.7%
• Regional decliners: New Zealand -0.6%
• FX: USD/CNY unch at 6.2551, USD/INR +0.2% at 62.275, USD/JPY +0.6% at 119.56

EUROPE

Major European indices trade mixed with Spain’s IBEX (+0.4%) outperforming the region. Elsewhere, the Athens General Index is higher by 8.0% in reaction to troika’s acceptance of the list of planned reforms presented by Finance Minister Yanis Varoufakis; however, the parties are not out of the woods just yet with Eurogroup chief Jeroen Dijsselbloem saying the list represents “the first step” in what is setting up to be a lengthy process.

• Eurozone CPI fell 1.6% month-over-month while the year-over-year reading declined 0.6%. Separately, Core CPI rose 0.6% year-over-year. All three figures matched expectations
• Germany’s Q4 GDP was left unrevised at 0.7% quarter-over-quarter, as expected, while the year-over-year reading held at 1.6% (consensus 1.5%)
• French Business Survey ticked down to 99 from 100, as expected

CLOSING PRICES

• UK’s FTSE: + 0.5%
• Germany’s DAX: + 0.7%
• France’s CAC: + 0.5%
• Spain’s IBEX: + 0.6%
• Portugal’s PSI: + 1.7%
• Italy’s MIB Index: + 0.8%
• Irish Ovrl Index: 0.0%
• Greece ASE General Index:  + 9.8%

Macroeconomic Data

Economic Data

from Briefing.com

• Case-Shiller 20-city Index : 4.5% vs 4.3% (Prior 4.3%)
• Consumer Confidence : 96.4 vs 99.6 (Prior 103.8 - Up)

CONSUMER CONFIDENCE

Highlights

• The Conference Board's Consumer Confidence Index declined to 96.4 in February from an upwardly revised 103.8 (from 102.9) in January. The Briefing.com Consensus expected the Consumer Confidence Index to fall to 99.6.

Key Factors

• Consumers are getting awfully picky when examining current economic trends. Even though gasoline prices are down more than $1.50 a gallon since the beginning of last summer, the stock market flirts with new historical highs, and unemployment levels continue to drop, the very slight deterioration of those conditions over the past few weeks has caused consumers to reexamine their outlook on the economy.
• This was mostly seen in the Expectations Index, which dropped from 97.0 in January to 87.2 in February. In other words, a $0.30 increase in the price of a gallon of gas caused consumers to backpeddle on their economic assessment of the future. 
• Fortunately, consumption growth is not reliant on confidence measures. As long as income growth accelerates, consumption gains will follow regardless of how confidence performs.

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.

Market Internals

NYSE:

Lower Volumes than the day before – 715.7M vs 735.2M 


Advancers outpaced Decliners (adv/dec): 1920 / 1173

New Highs outpaced New Lows (highs/lows): 183 / 13

NASDAQ:

Higher Volumes than the day before – 1828.7M vs 1744.5M

Advancers outpaced Decliners (adv/dec): 1592 / 1161

New Highs outpaced New Lows (highs/lows): 157 / 30

VOLATILITY S&P500 (VIX)

13.69 -0.87 (-5.98%)

I am seeing more bullishness in the internals but it is not yet convincing with the lack in participation. Meanwhile VIX continues to slide lower and this could mean less fear in the market.         

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

18,209.19 +92.35 (+0.51%)

Volume: 79,312,890 (below average of 92,921,089)

Range: 18,098.73 - 18,231.09

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,968.12 +7.15 (+0.14%)

Volume: 429,639,014 (below average of 442,148,645)
Range: 4,945.14 - 4,971.18

S&P 500 INDEX (SPX: CBOE)

2,115.48 +5.82 (+0.28%)

Volume: 499,805,000 (below average of 524,924,953)

Range: 2,105.87 - 2,117.94 

As the market climbs higher, the lack in volume just show the bulls are actively involved. NASDAQ is continuing its parabolic trend while S&P is likely to meet its trend support. It is worth noting that the MACD is showing some divergence too...   

Commodities

Closing Commodities: Oil Loses Steam, Closes With Modest Loss

• Oil prices slid lower in afternoon trading and hit a new pit trading low heading into the close
• Apr crude oil lost $0.30 today to $49.26/barrel
• Nat gas was trending higher and rose as high as $2.97/MMBtu.
• By the end of today’s session, Apr nat gas closed $0.01 higher at $2.89/MMBtu, and fell into the red in electronic trade
• Gold and silver went on to climb higher after floor trading closed
• Apr gold ended the session $3.50 lower to $1197.30/oz, while Mar silver fell $0.08 to $16.19/oz.

Energy Price Action

• Apr crude oil futures fell $0.30/barrel to $49.26/barrel
• Apr natural gas rose $0.01 to $2.89/MMBtu
• RBOB Gasoline fell $0.02 to $1.87/gallon
• Heating oil closed $0.02 lower to $1.82/gallon

Agricultural Price Action

• Mar corn closed $0.01 lower at $3.78/bushel
• Mar wheat closed $0.01 lower at $5.01/bushel
• Feb soybeans closed $0.15 higher at $10.15/bushel
• Ethanol closed $0.03 lower at $1.37/gallon
• Sugar #11 closed 0.14 cents lower at 14.17 cents/lb

Metals Price Action

• Apr gold ended today’s session $3.50 lower at $1197.30/oz
• Mar silver ended $0.08 lower at $16.19/oz
• Mar copper closed $0.05 higher at $2.64/lb

Currencies

Dollar Remains Little Changed:

• After an initial pop on Fed Chair Yellen’s testimony, the USD Index fell back to give up gains for a fourth day. As of writing, it was down 11 ticks (-0.11%) to 94.46
• $/Yen rallied to 119.82 before falling 4 pips (-0.03%) on the day to 118.90
• GBP/USD was volatile after the release, but ended up 10 pips (+0.06%) at $1.5462
• The Canadian Dollar rallied in the afternoon on hawkish remarks from Governor Poloz. He said that the BoC would have to consider financial stability as well as price stability, sending the Canadian Dollar up 40 pips on the day (+0.51%) to $0.7993
• Aussie and Kiwi both rallied after Yellen’s remarks, but NZD/USD couldn’t dig out of the hole it had dug for itself last nightAUD/USD rose 21 pips (+0.27%) to $0.7824 on the day
• NZD/USD fell 48 pips (-0.64%) to $0.7482 on the day
• EUR/USD, after testing the $1.1300 level twice, rallied to end the day up 8 pips (+0.07%) to $1.1344

Bonds

Treasuries Gain:

• Yields declined across the curve today following Fed Chair Yellen's testimony to the Senate Banking Committee
• The buying was focused in the belly of the curve, with the 5-year performing the best of all issues
  • 2-yr: -4 bps to 0.56%
  • 5-yr: -8 bps to 1.46%
  • 10-yr: -7 bps to 1.99%
  • 30-yr: -6 bps to 2.60%
• While nothing about Mrs. Yellen's remarks was particularly dovish, she reiterated that the FOMC's assessment that it can be patient in beginning to normalize policy means that it is unlikely economic conditions will warrant an increase in the fed funds rate for at least the next couple of FOMC meetings. Also, she emphasized the Fed's data-dependent nature -- a point that seemed to quell concerns about a June rate hike given the lackluster economic data that has been released of late
  • Fed fund futures responded in kind. The probability of a rate hike at the September meeting slipped to 48% after her remarks, from 56% on Monday
• Last week's trade, with 10's and 30's scraping lows all week and so many bad closes, offered the bears many opportunities to checkmate the longs. Failure to follow through on the downside must have been discouraging for the shorts. Treasury bears have been burned many times over the past few years, and anybody who was slow to cover would probably not be managing money anymore

• Equities rallied in conjunction with bonds on the dovish interpretation of the Fed Chair's remarks. The S&P 500 set a fresh record high at 2,117, up 7.40 points or 0.25%

• WTI Crude fell $0.35 (0.71%) to $49.10/bbl
• Gold tested the $1191.50 level twice, but recovered to $1200.30/troy oz., down $0.50 or 0.04%
• The US Dollar Index also felt the weight of a dovish interpretation of Ms. Yellen's testimony. After rallying as high as 94.99, it fell 12 ticks (-0.13%) to 94.45
• $26 billion 2-yr note auction was met with average overall demand, however, there was solid interest from indirect bidders
  • Bid-to-cover was 3.45 (vs. prior 12-auction average of 3.41)
  • Indirect bidders with 48% of accepted offers (vs. prior 12-auction average of 34%)
    • Second-strongest indirect bid since 2010

Ahead Tomorrow:

• MBA Mortgage Index for the week ending 2/21 (07:00 ET)
• January New Home Sales (10:00 ET)
• Crude Inventories for the week ending 2/21 (10:30 ET)
• $35 billion 5-year note auction (13:00 ET)
• Fed Chair Janet Yellen gives semi-annual testimony before the House Financial Services Committee

Treasury Yields:

• 2 Year Note 0.60% -0.04
• 5 Year Note 1.47% -0.09
• 10 Year Note 1.99% -0.07
• 30 Year Bond 2.60% -0.06

2/30 Spread: 200 bps ( -2 ) …  2/10 Spread: 139 bps ( -3 )

Preview for Wednesday 25 Feb, 2015

Economic Data

Wednesday (25 Feb) :

• MBA Mortgage Index – 07:00 : Prior -13.2%
• New Home Sales – 10:00 : 471K (Prior 481K)
• Crude Inventories – 10:30 : Prior -7.716M

Earnings Highlights

Wednesday (25 Feb) :
BMO - AEE AVA BBG BSFT CVC CPB CSG CHK CLH CCOI DIN DLTR EV EE ECA FI FMS HFC ICLR ISLE JAKK LAMR LAD LOW LL MGA MWE MEMP NVDQ OCR PERI RY RRD SQBG SODA SMP STWD TGT TDS TJX TRS USM WCIC

AMC - AEGN AWR AMSG ANIK AR ARI AAOI AREX AGO AVGO BWC BLDP BMRN PRSS CWT CEMP CHMT CHDN CLVS CXO CSGP DXCM DRYS EHTH ESRT ELGX ESV EPAM EAC FARO FOE GMED GXP GPOR HK TEG IL KAI KW LB LGCY LHCG MCHX MMLP MDVN MELI OAS ORIG PVA PGTI PLKI RLJ CRM SBY SFM STAA STLY RGR SYNC TTEC CLUB RIG RIGP WR WLL WDAY WPX WMGI

Summary

Fed Chair Yellen continues her testifying on Wednesday together with ECB President Draghi speech. Looks like we are going to watch out for the swing in the market. We are getting the numbers for crude oil inventories too. That is likely to bring in some volatility too.

I suspect there might be some profit-taking tomorrow. In general, there are too many factors to take in for Wednesday session so I am staying out on this one.

Direction for Wednesday 25 Feb, 2015; Abstain

2015 Daily Directional Accuracy: 13/30 (43.33%) 
2015 Weekly Directional Accuracy: 5/7 (71.43%)