Dow +305.36 at 17666.40, Nasdaq +51.05 at 4727.74, S&P +29.18 at 2050.03
Market went up as I expected and I think it was mainly due to technicals. However, it is obvious that the market was testing its support level after opening before the rally led by an increase in buying activity.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.
Direction for Tuesday 3 Feb, 2015; Up
Market Summary
Industry Watch
Strong: Consumer Discretionary, Energy, Financials, Materials, Industrials, Telecom Services
Weak: Consumer Staples, Health Care, Utilities
Other Market Moving Factor:
- European markets rally after Financial Times suggests Greece has softened its stance; however, Greek FM Varoufakis says there has been 'no U-turn'
- Nasdaq Composite and health care sector pressured by biotechnology
[BRIEFING.COM] The stock market registered its second consecutive advance with the S&P 500 climbing 1.4% to retake its 50-day moving average (2,044). The price-weighted Dow (+1.8%) fared a bit better while the Nasdaq Composite (+1.1%) underperformed.
Equities displayed strength from the get-go after markets in Europe responded positively to a Financial Times report suggesting Greece will soften its negotiating stance; however, Finance Minister Yanis Varoufakis said there has been no ‘U-turn' in Greece's position while German Chancellor Angela Merkel has set expectations for a drawn out process, saying the ongoing talks will ‘drag on for months.' In addition, a handful of German lawmakers have voiced their displeasure with the position being assumed by Greece. With no resolution in sight, another chapter in the European saga will be written tomorrow when Mr. Varoufakis meets with European Central Bank President Mario Draghi in Frankfurt.
For the time being, the market happily continued retracing its losses from January. The S&P 500 narrowed its quarter-to-date decline to 0.4% with all ten sectors ending in the green.
Once again, the energy sector (+2.8%) held the lead throughout the session with help from crude oil, which soared 7.0% to $53.04/bbl. In all likelihood, a short squeeze contributed to the surge, but so did better than expected earnings from BP (BP 41.10, +1.24). However, it is worth mentioning that the industry giant plans to cut its 2015 capital expenditure budget by 13.0% to $20 billion.
Similar to energy, materials (+2.2%) and consumer discretionary (+2.2%) jumped more than 2.0% while two of the remaining three cyclical groups also finished ahead of the broader market.
The discretionary sector received broad support with Office Depot (ODP 9.27, +1.64) charging higher by 21.5% after The Wall Street Journal reported the company has been in talks with Staples (SPLS 19.01, +1.87) about a potential merger.
Elsewhere, the technology sector (+1.0%) lagged throughout the session, but was able to settle not far behind the broader market. Chipmakers displayed relative strength (PHLX Semiconductor Index +1.8%), but several top-weighted components like Apple (AAPL 118.57, -0.06), Facebook (FB 75.40, +0.41), and Google (GOOGL 533.30, +1.10) struggled to pull away from their flat lines.
Similar to the tech sector, the Nasdaq spent the day behind the broader market. Biotechnology factored into the underperformance with the iShares Nasdaq Biotechnology ETF (IBB 317.79, -1.79) falling 0.6% while the health care sector (+0.7%) settled near the bottom of the leaderboard.
Treasuries spent the day in a steady retreat, sending the 10-yr yield higher by 11 basis points to 1.78%.
Today's participation was well above average with more than 958 million shares changing hands at the NYSE floor.
Economic data was limited to Factory Orders:
- Factory orders declined 3.4% in December after declining a downwardly revised 1.7% (from -0.7%) in November while the Briefing.com consensus expected a drop of 2.0%
- While the headline decline in factory orders was clear miss in terms of expectations, the underlying data should provide a boost to the second estimate to Q4 2014 GDP
- Shipments of nondefense capital goods, excluding aircraft, were much stronger than reported in the advance release. Instead of declining 0.2% in December, shipments increased 0.2%. Since shipments factor into GDP calculations, the upward revision will positively contribute to economic growth
Macroeconomic Data
Economic Data
from Briefing.com
- Factory Orders : -3.4% vs -2.0% (Prior -0.7%)
- Auto Sales : (Prior 5.9M)
- Truck Sales : (Prior 7.9M)
FACTORY ORDERS
Highlights
- Factory orders declined 3.4% in December after declining a downwardly revised 1.7% (from -0.7%) in November. The Briefing.com Consensus expected factory orders to decline 2.0%.
Key Factors
- While the headline decline in factory orders was clear miss in terms of expectations, the underlying data should provide a boost to the second estimate to Q4 2014 GDP.
- Specifically, shipments of nondefense capital goods excluding aircraft were much stronger than reported in the advance release. Instead of declining 0.2% in December, these shipments increased 0.2%. Since shipments factor into GDP calculations, the upward revision will positively contribute to economic growth.
- Furthermore, overall demand for business capital was also stronger in the latest manufacturer report. Orders of nondefense capital goods eluding aircraft declined only 0.1% in December after falling 0.5% in November. That was a slight upward revision from the advance release which showed business capital demand declining by 0.6% in both December and November.
- The weakness in the headline number can be attributed to lower petroleum prices. Since factory orders are calculated by prices and not quantities, the drop in petroleum prices was responsible for a collapse (-15.7%) in the total value of orders at petroleum refineries. That, in turn, led to a larger-than-expected 3.4% decline in nondurable goods orders in December.
- Durable goods orders declined 3.3% in December. That was a slight upward revision from the 3.4% decline reported in the advance report. Orders in November, however, were revised down from -2.3% to -2.2%.
Big Picture
- Positive revisions to business capital should outweigh the large negative surprise that was brought on by lower oil prices.
AUTO SALES
Highlights
- Motor vehicle sales remained elevated, but dipped slightly in December. Total sales fell to 16.9 mln SAAR from 17.2 mln SAAR in November.
- Domestic sales fell to 13.6 mln SAAR in December from 14.0 mln in November. Car sales dropped to 5.9 mln SAAR from 6.1 mln SAAR and truck sales fell to 7.7 mln SAAR from 7.9 mln SAAR.
- Total import sales were virtually unchanged at 3.4 mln SAAR.
Key Factors
- Year-over-year, motor vehicle sales increased 11% in December.General Motors (GM) and Fiat Chrysler (FCAU) led the way with sales growth near 20% y/y.
- Toyota (TM, +14%) and Hyundai-Kia (+14%) also gained market share.
- Sales at Nissan rose 7%, and demand for vehicles from Honda (HMC) increased 1%.
- Ford (F) continued to disappoint. Sales rose a very modest 1% in December and are down 1% for all of 2014. Volkswagen (-2%) was the only other major motor vehicle manufacturer to see sales fall in 2014.
- Overall, sales increased 6% in 2014, from 15.6 mln vehicles in 2013 to 16.5 mln vehicles.
Big Picture
- Not only did sales in 2014 easily top the consensus forecast of 16.2 mln vehicles from January, but it was stronger than our most optimistic forecaster within the consensus.
Market Internals
NYSE:
Higher Volumes than the day before – 981.2M vs 910.9M
Advancers outpaced Decliners (adv/dec): 2499 / 616
New Highs outpaced New Lows (highs/lows): 179 / 12
NASDAQ:
Higher Volumes than the day before – 2143.7M vs 1984.8M
Advancers outpaced Decliners (adv/dec): 2040 / 762
New Highs outpaced New Lows (highs/lows): 71 / 42
VOLATILITY S&P500 (VIX)
17.33 -2.10 (-10.81%)
What we are seeing here is definitely indicating more bullishness in the internals. I reckon the dip buyers were coming in to push up the market. VIX is also sitting on its 50 MA. Next we are going to pay attention to is whether VIX would break below 15.00...
Technical Updates
17,666.40 +305.36 (+1.76%)
Volume: 112,860,131 (above average of 91,787,755)
Range: 17,369.97 - 17,670.76
4,727.74 +51.05 (+1.09%)
Volume: 553,797,436 (above average of 449,244,887)
Range: 4,670.82 - 4,727.74
S&P 500 INDEX (SPX: CBOE)
2,050.03 +29.18 (+1.44%)
Volume: 658,300,000 (above average of 522,964,785)
Range: 2,022.71 - 2,050.30
I think the technicals are more important right now. Both NASDAQ and S&P are forming the consolidation pattern. While I am watching if the DOW will form a lower high. It won't be long before we see another (bearish) breakout I suppose...
Commodities
Closing Commodities: Oil Soars 7%, Now Up 19% In Past Three Sessions
- Oil prices were at it again today, extending a rally that began late last week.
- In the past three session, WTI crude oil futures are up 19%
- Crude is actually up for four consecutive sessions. We just excluded the session on Thursday Jan 29 because crude was up that day, but only posted a six cent gain.
- Today, Mar crude oil ended pit trading $3.48 higher at $53.04/barrel.
- Mar natural gas futures rose $0.08 to end the session at $2.76/MMBtu
- Despite the dollar index selling off today, Apr gold prices lost $17.80.
- Meanwhile, Mar silver rose $0.07 to $17.32/oz. Mar copper rose $0.09 to $2.58/lb
Energy Price Action
- Mar crude oil futures rose $3.48/barrel to $53.04/barrel
- Mar natural gas rose $0.08 cents to $2.76/MMBtu
- RBOB Gasoline closed $0.06 higher (or +4%) at $1.60/gallon
- Heating oil closed $0.09 higher (or +5.1%) at $1.85/gallon
- Crude is actually up for four consecutive sessions. I just excludes the session on Thursday Jan 29 because crude was up that day, but only posted a six cent gain.
Agricultural Price Action
- Mar corn closed $0.16 higher at $3.86/bushel
- Mar wheat closed $0.20 higher at $5.13/bushel
- Feb soybeans ended $0.25 higher at $9.85/bushel
- Ethanol closed $0.07 higher at $1.47/gallon
- Sugar #11 closed $0.25 higher at 14.47 cents/lb
Metals Price Action
- Apr gold ended today’s session $17.80 lower at $1259.60/oz
- Mar silver ended $0.07 higher at $17.32/oz
- Mar copper closed $0.09 higher at $2.58/lb
Currencies
Dollar, Euro Reverse Roles- The Dollar Index is having its worst day in five months as it tumbles below recent support levels. The DXY showed some signs of tiring around the 96-96 area over the past couple of days. The 17% run up since July is finally showing some signs of tiring. Weaker U.S. economic data, a poor performance by U.S multinationals due to the weak dollar, and the reduction of headline risk as central banks around the globe announce easing measures have all helped lead to some profit taking by dollar bulls. The selling in the dollar began with the poor December Factory Orders and picked up as it broke the 94.40 support level. The DXY is trying to hold the 20 sma (93.50) in late trade. Tomorrow the January ADP jobs report will be released as investors start to focus on the latest employment data.
- The euro has rallied to test 1.15 for the first time since January 22 when the ECB embarked on its own QE program. The single currency ran to 1.1533 just shy of the 20 sma (1.1535) before seeing a small pullback. The euro is showing signs of holding the 1.15 area. The currency was boosted by headlines from Greek and EU officials that showed some conciliatory tones. This helped offset some of the aggressive comments that came right after Syriza rose to power in Greece. The debt debate promises to drag out over the next couple of months. This should have the euro remain a volatile story in markets. A Eurozone Retail Sales number (5am) and Services PMI numbers will be the economic focus on Wednesday.
- The pound was able to rally to 1.5198, falling just shy of the 1.52 resistance level. The pound remains elevated at 1.5165 as the dollar continues to see headwinds. Services PMI is due out tomorrow at 4:30am.
- The yen continues to trade in the 117 level in relatively uneventful trade. It should be a quiet night in Japan on the economic front as Average Cash Earnings (8:30am) is the only economic report due out.
- The Aussie dollar was able to regain all of its overnight losses during U.S. trade. The Aussie fell from 0.7810 to 0.7626 after the RBA cut rates 25 bps. The move was a surprise but not completely unexpected as there were rumors out last week that this would happen. The Aussie's losses against the dollar though would be reversed when the greenback started to sell off. This led to the Aussie erasing all its losses and moving back to 0.7852at 1:30pm. The AUD has pulled back to the 0.7786 since hitting its session highs.
Tough Day:
- The selling started overnight and it continued through the day. Treasuries were down across the curve with the back end bearing the brunt of the selling interest.
- 2-yr yield +5 bps at 0.51%
- 5-yr yield +10 bps at 1.28%
- 10-yr yield +11 bps at 1.78%
- 30-yr bond +11 bps at 2.37%
- 2-10-yr spread widened to 127 basis points from 119 basis points at Monday's settlement
- An unwinding of safety trades pressured the market. Those trades could be put back on quickly, but for Tuesday's session they rolled off primarily on the following factors:
- A sense that the "new leaders" in Greece aren't going to be as combative (or successful) in forcing a debt writedown with eurozone partners as the "old candidates" suggested they would be
- Greek 10-yr yield -148 bps to 9.62%
- ATHEX Composite +11.3%
- Another rally in the U.S. stock market precipitated by rising oil prices and influential leadership from the cyclical sectors
- WTI crude +7.0% at $53.05/bbl
- Energy sector +2.6%
- The Reserve Bank of Australia cutting its key policy rate by 25 bps to a record-low 2.25% and chatter that the People's Bank of China may soon introduce additional policy stimulus helped drive the recovery effort in cyclical sectors
- Bill Gross cautioning about future loss potential in longer-term bond commitments
- A sense that the "new leaders" in Greece aren't going to be as combative (or successful) in forcing a debt writedown with eurozone partners as the "old candidates" suggested they would be
- The December Factory Orders report produced a sizable headline miss, with orders down 3.4% (Briefing.com consensus -2.0%). The recognition that shipments of nondefense capital goods excluding aircraft increased 0.2% versus a previously reported 0.2% decline acted as an offset
- This component factors into GDP estimates and will compute favorably for the second estimate of Q4 GDP
- U.S. Dollar Index -1.0% to 93.54 on the back of a stronger euro
- EUR/USD +1.5% at 1.1493
- Weaker dollar helped underpin buying in the oil market
- Fed speak: Conflicting views from non-FOMC voters
- St. Louis Fed President Bullard tried to downplay mention of "international developments" in latest policy directive and maintained the Fed should raise rates sooner and then gradually afterwards
- Minneapolis Fed President Kocherlakota says Fed should refrain from raising rates in 2015 so as not to slow the economic recovery
- Cleveland Fed President Mester (non-FOMC voter) speaks at 12:45 ET on Wednesday about the economy
- Wednesday data: MBA Mortgage Index for week of Jan. 31 (07:00 ET); ADP Employment Change for January (08:15 ET); ISM Services report for January (10:00 ET)
Treasury Yields:
- 2 Year Note 0.52% +0.03
- 5 Year Note 1.28% +0.09
- 10 Year Note 1.79% +0.11
- 30 Year Bond 2.37% +0.12
2/30 Spread: 185 bps ( +9 ) … 2/10 Spread: 127 bps ( +8 )
Preview for Wednesday 4 Feb, 2015
Wednesday (4 Feb) :
- MBA Mortgage Index : (Prior -3.2%)
- ADP Employment Change : 230K (Prior 241K)
- ISM Services : 56.5 (Prior 56.5)
- Crude Inventories : (Prior 8.874M)
Earnings Highlights
Wednesday (4 Feb) :
BMO - AGYS ARCB ABH ADP BSX CKSW CLX CTSH EVR GM GWPH HAIN HUM KNL LG LVLT LFUS MPC MRK MOD MSI MPLX NJR OIIM RL SMG SLAB SNE SO SE STE TMHC WHR
AMC - FOXA ACXM ADEP AFFX AFOP AWH ALL UHAL MTGE APU ATML BSAC BMR BOOT BDN BKD CDNS CATM CBG CINF CLW CNW CEB CMRE CSGS ENS ESS RE EPM EXAR EXPO FEIC FGL FMC FORM FBHS BGC G GEOS GIL GLUU GPRE THG HHS HI HUBG ININ IVAC IRBT GMCR LCI LNC MAC MN MTRX MAA MPWR MUSA NE NXPI OSUR ORLY PRE PNNT PAA PAGP POWI PSEC PRU QUIK RXN RRTS SPB SU SYA DATA TTMI TWO TYL UGI UA VRTU WFT WSTL WGL YUM
Summary
Market is likely to be affected by the sudden surge in oil prices. Meanwhile we are going to see ADP number as well as Crude Inventories tomorrow also. They will shake things up in the market. At this point in time I am sticking to technicals.
Direction for Wednesday 4 Feb, 2015; Up
2015 Daily Directional Accuracy: 8/20 (40.00%)
2015 Weekly Directional Accuracy: 3/4 (75.00%)
2015 Weekly Directional Accuracy: 3/4 (75.00%)
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