Tuesday, 5 May 2015 - AMC

Dow -142.20 at 17928.20, Nasdaq -77.60 at 4939.33, S&P -25.03 at 2089.46

Monday session doesn't really indicate anything in the market or should I say it is hinting a possibility of a reversal. I am not surprised if the market is going into correction after failing to break above the resistance level. Inferring from the technical analysis, it is likely that we would see more downside the next few days.

Direction for Tuesday 5 May, 2015; Down

Market did not surprise and took a reversal as there were more short selling on Tuesday. The underperformance from the technology sector seems to be dragging the market. The Dollar Index also went down as US trade deficit widens while oil prices continued to break above $60 prior to the inventory report next day.                                               

Market Summary

Industry Watch

Strong: Energy, Financials, Materials

Weak: Consumer Discretionary, Health Care, Industrials, Technology, Utilities

Other Market Moving Factor:

• China's Shanghai Composite dives 4.1% after brokers increase margin requirements
• Q1 GDP likely to see downward revision after trade deficit misses expectations, widening to $51.40 billion in March from $35.90 billion (Briefing.com consensus $40.00 billion)
• Biotechnology underperforms

[BRIEFING.COM] The stock market ended the Tuesday session on a sharply lower note following a daylong retreat that was paced by the Nasdaq Composite (-1.6%). For its part, the S&P 500 lost 1.2% with all ten sectors ending in the red.  

The Tuesday selloff in U.S. equities followed an overnight session that featured a 4.1% drop in China's Shanghai Composite after some equity brokers increased their margin requirements, which led to forced selling. Furthermore, markets across Europe also struggled with Germany's DAX diving 2.5% amid spiking yields. To that point, Germany's 10-yr bund yield surged 13 basis points to 0.52% after hovering near 0.16% as recently as last week while Italy's 10-yr yield soared 34 basis points to 1.83%. 

Rising interest rates were not unique to Europe as the U.S. 10-yr note registered its sixth consecutive decline, sending its yield higher by three basis points to 2.17%. The benchmark yield hit its highest level since early March and spent the day near its 200-day moving average, representing the first appearance near that level in more than a year.  

To be sure, U.S. and European yields remain at depressed levels, but that masks the sharp pace at which rates have been increasing as of late. In turn, the sharp rally in yields has made equities less attractive versus Treasuries, which was on full display today with the rate-sensitive utilities sector (-2.3%) leading the stock market lower. Including the decline, the utilities sector is down 7.4% for the year. 

Other countercyclical groups ended a bit closer to their flat lines with the health care sector (-1.2%) settling in-line with the broader market even as biotechnology displayed relative weakness. The iShares Nasdaq Biotechnology ETF (IBB 338.00, -7.19) fell 2.1%, distancing itself from the 50-day moving average (349.00), which provided resistance yesterday.  

Biotechnology contributed to the underperformance of the Nasdaq while the technology sector (-1.6%) also pressured the index. Large cap names like Apple (AAPL 125.80, -2.90) and Google (GOOGL 543.04, -9.80) both lost near 2.0% while Microsoft (MSFT 47.60, -0.64) climbed off its low after Bloomberg reported the company is interested in Salesforce.com (CRM 72.75, +1.15). Microsoft ended lower by 1.3% while Salesforce.com gained 1.6%.  

Similar to technology, the industrial sector (-1.3%) underperformed while consumer discretionary (-1.0%), financials (-0.8%), energy (-1.1%), and materials (-1.1%) ended just ahead of the S&P 500. 

Notably, the energy sector spent the bulk of the day in positive territory thanks to crude oil, which rose 2.5% to $60.38/bbl., making its first appearance above $60/bbl since December. 

Today's participation was ahead of recent averages with more than 770 million shares changing hands at the NYSE floor. 

Economic data was limited to Trade Balance and ISM Services: 

• The U.S. trade deficit widened to $51.40 billion in March from an upwardly revised $35.90 billion (from $35.40 billion) in February while the Briefing.com consensus expected an increase to $40.00 billion 
  • The BEA assumed a March trade deficit of roughly $48.50 billion in the advance Q1 2015 GDP report, but the actual deficit was much larger than expected and will likely lead to a downward revision to GDP growth 
  • The goods deficit increased to $70.60 billion in March from $55.70 billion, a gain of $14.90 billion, while the services surplus declined by $600 million to $19.20 billion in March 
  • The spike in the trade deficit shouldn't be too concerning, considering the West Coast port strike caused a pileup of containerships that needed to be unloaded. As dockworkers returned, imports that normally would have come in February were unloaded in March 
• The ISM Non-manufacturing Index increased to 57.8 in April from 56.5 in March while the Briefing.com consensus expected a decrease to 56.3 
  • Production activities improved as the related index increased to 61.6 in April from 57.5 in March 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while April ADP Employment Change (Briefing.com consensus 189K) and Q1 Productivity/Unit Labor Cost Data will be released at 8:15 ET and 8:30 ET, respectively. 

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei closed for holiday; Hong Kong’s Hang Seng -1.3%; China’s Shanghai Composite -4.1%
Tuesday’s trading featured a sharp decline in China’s Shanghai Composite (-4.1%) as reports suggesting brokerages were tightening margin financing requirements triggered a wave of selling interest. Elsewhere, the Reserve Bank of Australia cut its cash rate 25 basis points as expected to 2.00%. The policy statement, though, lacked the indication that further easing may be appropriate.

Economic data

• Hong Kong
• March Retail Sales -2.9% (expected +5.8%; prior +14.9%)
• Australia
• Reserve Bank of Australia cuts cash rate 25 basis points to 2.00% as expected
• April AIG Services Index 49.7 (prior 50.2)
• March Trade Balance – AUD 1.32 bln (expected – AUD 1.00 bln; prior – AUD 1.61 bln)
• Exports -2.0% (prior -1.0%)
• Imports -2.0% (prior +2.0%)

Equity Markets

• Japan’s Nikkei closed for Golden Week holiday
• Hong Kong’s Hang Seng declined 1.3% in a steady retreat after pushing higher at the start of trading. The basic materials (-3.7%), energy (-2.0%), diversified (-1.9%), and financial (-1.6%) sectors were the biggest losers on a day that also produced a report showing retail sales declined a weaker than expected 2.9% in March. Bank of Communications (-4.2%), China Overseas Land & Investment (-3.9%), and CITIC Ltd (-3.7%) were the worst-performing stocks. Galaxy Entertainment (+1.8%), Want Want China Holdings (+1.6%), and Sands China (+1.1%) were the only stocks to gain in excess of 1.0%. Out of the 50 index members, 8 ended higher, and 42 finished lower.
• China’s Shanghai Composite declined 4.1% in a steady sell-off that was reportedly catalyzed by news of Chinese brokerages raising margin financing requirements. Every sector was down big for the day. The energy sector was the best-performing of the bunch with a loss of 2.3%.
• India’s Sensex declined 0.2% with losses in the communications (-1.5%) and financial (-1.3%) sectors weighing. A big move in the basic materials (+5.5%) sector acted as an offset. Individual standouts included Sesa Sterlite (+6.7%), Tata Steel (+5.0%), and Hindalco Industries (+4.5%). Mahindra & Mahindra (-2.2%), Cipla Ltd (-1.7%), and State Bank of India (-1.7%) paced the decliners.
• Australia’s S&P/ASX 200 coughed up early gains and ended the day basically flat. The downturn followed the Reserve Bank of Australia’s decision to cut its cash rate by 25 basis points to a record-low 2.00%. Reportedly, the market was bothered by a policy directive that did not include an acknowledgment that further easing of policy may be appropriate (as was suggested in the April statement). The metals & mining (-1.8%), materials (-1.7%), and resources (-1.4%) sectors weighed on the market.
• Regional advancers: Malaysia +0.5%, Indonesia +0.4%, Philippines +1.3%, Vietnam +1.4%
• Regional decliners: Taiwan -0.3%, Singapore -0.3% · Holiday closure: Thailand (Coronation Day), South Korea (Children’s Day)

FX

• USD/CNY -0.05% at 6.2052
• USD/INR -0.2% at 63.476
• USD/JPY +0.2% at 120.41

EUROPE

Major European indices trade in mixed fashion with Italy’s MIB (-1.1%) trailing the region. Elsewhere, Greece is scheduled to pay EUR200 million to the International Monetary Fund tomorrow with another EUR780 million payment scheduled for next Tuesday.

• Eurozone March PPI +0.2% month-over-month (expected 0.3%; prior 0.6%); -2.3% year-over-year, as expected (previous -2.8%)
• UK’s April Construction PMI fell to 54.2 from 57.8 (expected 57.5)
• France’s March government budget deficit widened to EUR26.30 billion from EUR23.50 billion
• Spain’s Unemployment Change -118,900 (expected -64,800; prior -60,200)

Closing Prices

• UK’s FTSE: -0.8%
• Germany’s DAX: -2.5%
• France’s CAC: -2.1%
• Spain’s IBEX: -2.7%
• Portugal’s PSI: -2.4%
• Italy’s MIB Index: -2.8%
• Irish Ovrl Index: + 0.6%
• Greece ASE General Index: -3.8%

Macroeconomic Data

Economic Data

from Briefing.com

• Trade Balance : -$51.4B vs -$40.0B (Prior -$35.9B - Up)
• ISM Services : 57.8 vs 56.3 (Prior 56.5)

TRADE BALANCE

Highlights

• The U.S. trade deficit widened to $51.4 bln in March from an upwardly revised $35.9 bln (from $35.4 bln) in February. The Briefing.com Consensus expected the trade deficit to increase to $40.0 bln.
• The BEA assumed a March trade deficit of roughly $48.5 bln in the advance Q1 2015 GDP report. The actual trade deficit was much larger than expected and will likely lead to a downward revision to GDP growth.

Key Factors

• The goods deficit increased to $70.6 bln in March from $55.7 bln, a gain of $14.9 bln. The services surplus declined by $0.6 bln to $19.2 bln in March from $19.8 bln in February.
• The trade deficit jumped from its lowest point in February since November 2009 to its largest deficit since October 2008. 
• The spike in the trade deficit, however, shouldn’t be too concerning. A port strike on the West Coast caused a pileup of containerships that needed to be unloaded. As dockworkers returned, imports that normally would have come in February were unloaded in March. That helped drive up imports 7.7% in March. Overall import levels are now back to where they were before the strike in Q4 2014.
• Export levels increased by $1.6 bln in March, from $186.2 bln in February to $187.8 bln. A large chunk of the increase in exports came from a $0.5 bln increase nonmonetary gold. Gold is not included in the official GDP trade data, which means the overall trade deficit was much higher than the headline suggests. Other gains came from capital goods including autos ($2.3 bln) and foodstuffs ($0.3 bln). Consumer good exports fell by $1.7 bln with most of the decline coming from pharmaceuticals (-$0.8 bln) and artwork (-$0.3 bln).
• Imports increased by $17.1 bln in March to $239.2 bln from $222.1 bln in February. Most of the import gain came from consumer goods ($9.0 bln), capital goods ($4.0 bln), and autos ($2.7 bln). Imports from these sectors come primarily from Asia, which would confirm that the port strike influenced the trade numbers.
• Despite higher crude prices, the petroleum-based trade deficit declined to $7.7 bln in March from $8.2 bln in February.

Big Picture

• The big down-and-up movement in the trade deficit over the past two months was the result of the delays caused by the West coast port strike. Volatility should level out over the next month or two.

ISM SERVICES

Highlights

• The ISM Non-manufacturing Index increased to 57.8 in April from 56.5 in March. The Briefing.com Consensus expected the index to decrease to 56.3.

Key Factors

• That is the strongest ISM Non-manufacturing reading since the index reached 58.8 in November 2014.
• Production activities improved as the related index increased to 61.6 in April from 57.5 in March. Gains in both new orders (59.2 from 57.8) and unfilled orders (54.5 from 53.5) should keep upward pressure on production growth in the near term.
• The Employment Index increased slightly to 56.7 in April from 56.6 in March.

Big Picture

• The market generally doesn't pay much attention to the services index because the services sector is less cyclical than the manufacturing sector. To that end, April marked the 63rd consecutive month in which economic activity in the non-manufacturing sector has expanded.

Market Internals

NYSE:

Higher Volumes than the day before – 792.9M vs 697.1M 


Decliners outpaced Advancers (adv/dec): 620 / 2467

New Lows outpaced New Highs (highs/lows): 38 / 54

NASDAQ:

Higher Volumes than the day before – 2039.4M vs 1658.1M

Decliners outpaced Advancers (adv/dec): 700 / 2104

New Lows outpaced New Highs (highs/lows): 42 / 72

VOLATILITY S&P500 (VIX)
14.31 +1.46 (+11.36%)

With volume supporting, internals is getting more of its bearishness and New Lows is increasing as well. VIX reflected the lack of confidence as market moves lower. It looks to me that we should see more downside in the market.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,928.20 -142.20 (-0.79%)

Volume: 95,336,389 (below average of 99,278,913)
Range: 17,905.71 - 18,086.01

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,939.33 -77.60 (-1.55%)
Volume: 480.0M (above average of 436,791,868)

Range: 4,934.34 - 5,008.27

S&P 500 INDEX (SPX: CBOE)

2,089.46 -25.03 (-1.18%)

Volume: 532.1M (below average of 534,088,862)

Range: 2,088.46 - 2,115.24 

From the candlestick pattern, the 3 indices are getting a reversal in the market. DOW and S&P are back on their trend support and looking at MACD, I think for the market to go lower is quite possible.  

Commodities

Closing Commodities: WTI Oil Closes Above $60/Barrel

• Oil prices rallied today, pushing WTI crude oil prices above $61/barrel level
• Front-month crude ultimately ended +$1.46 to $60.38/barrel
• June natural gas lost $0.04 to $2.78/MMBtu
• Metals rose today, but just modestly
• June gold gained $6.50 to $1193.40/oz, while July silver rose $0.16 to $16.57/oz
• July copper +$0.02 to $2.93/lb

Energy

• June crude oil futures rose $1.46/barrel to $60.38/barrel
• June natural gas closed $0.04 lower at $2.78/MMBtu
• RBOB Gasoline closed $0.03 higher at $2.06/gallon
• Heating oil futures rose $0.03 higher to $2.01/gallon

Agriculture

• July corn closed $0.02 higher to $3.63/bushel
• July wheat closed $0.07 lower to $4.66/bushel
• July soybeans closed $0.08 higher at $9.85/bushel
• Ethanol closed $0.01 higher at $1.63/gallon
• Sugar #11 closed 0.24 cents higher to 12.75 cents/lb

Metals

• June gold ended today’s session $6.50 higher to $1193.40/oz
• July silver closed $0.16 higher at $16.57/oz
• July copper closed $0.02 higher to $2.93/lb

Currencies

Dollar Index Falls

• The dollar fell against all of the majors today in a volatile trade. The Dollar Index rallied after the European equity open only to slip back and drop sharply after the March Trade Balance missed estimates (-$51.4 bln versus the Briefing.com consensus of -$40.0 bln). The April ISM Services number beat expectations (57.8 versus Briefing.com consensus of 56.5) and the dollar popped only to see all of the gains reversed within 15 minutes. After today's repricing of European sovereign debt, investors will be able to find yield outside the United States
• EUR/USD: +0.46% to $1.1198
  • European sovereign yields surged higher today
• USD/JPY: -0.17% to 119.91
  • The Market Services and Composite Purchasing Managers' Indices for April will be released tonight
• AUD/USD: +1.32% to $0.7944
  • The Reserve Bank of Australia cut its policy rate to 2.00% from 2.25%, as expected
• NZD/USD: +0.32% to 0.7565
• USD/CHF: -0.80% to 0.9266
• USD/CAD: -0.24% to 1.2065

Bonds

Treasuries Slump

• Treasuries declined again today, taking the streak to 6 days for 5, 10, and 30-years. The complex sold off after the trade balance data but rallied back, only to go make fresh lows after the ISM Services number beat expectations. The 5-year note suffered the worst of today's selling
• Yield check:
  • 2-yr: +1 bp to 0.62%
  • 5-yr: +3 bps to 1.54%
  • 10-yr: +2 bps to 2.17%
  • 30-yr: +2 bps to 2.90%

• News:
  • The big story in fixed income today was that the European sovereign debt market basically collapsed, particularly in Italy and Spain
    • European 10-year sovereign yields:
      • France: +16 bps to 0.83%
      • Germany: +13 bps to 0.52%
      • Italy: +34 bps to 1.83%
      • Portugal: +29 bps to 2.38%
      • Spain: +31 bps to 1.77%
      • U.K. +13 bps to 1.99%
  • The U.S. trade deficit widened to $51.4 bln in March from an upwardly revised $35.9 bln (from $35.4 bln) in February. The Briefing.com Consensus expected the trade deficit to increase to $40.0 bln
    • The trade deficit jumped from its lowest point in February since November 2009 to its largest deficit since October 2008
  • The ISM Non-manufacturing Index increased to 57.8 in April from 56.5 in March. The Briefing.com Consensus expected the index to decrease to 56.3
    • Production activities improved as the related index increased to 61.6 in April from 57.5 in March. Gains in both new orders (59.2 from 57.8) and unfilled orders (54.5 from 53.5) should keep upward pressure on production growth in the near term

• Equities:
  • S&P 500: -1.07% to 2,091.91
  • Nasdaq 100: -1.36% to 4,421.45
  • DJIA: -0.72% to 17,939.58

• Commodities:
  • WTI Crude made a new high for 2015, up  2.61% to $60.47/bbl
  • Gold rallied 0.54% to $1,193.20
  • Copper rallied 0.27% to $2.9285/lb.

• Currencies:
  • EUR/USD: +0.44% to $1.1196
  • USD/JPY: -0.23% to 119.83

• Data Out Wednesday:
  • MBA Mortgage Index for the week ending 05/02 (07:00 ET)
  • April ADP Employment Change (08:15 ET)
  • Q1 Productivity - Preliminary (08:30 ET)
  • Q1 Unit Labor Costs – Preliminary (08:30 ET)
  • Crude Inventories for the week ending 05/02 (10:30 ET)
• Fed Speak:
  • Fed Chair Yellen (FOMC voter) speaks on “Finance and Society” (09:15 ET)
  • Kansas City Fed President George (non-FOMC voter) participates in “Credit Markets: Booms, Busts and Distortions” panel (13:15 ET)
  • Atlanta Fed President Lockhart (FOMC voter) speaks on the economic outlook and monetary policy (13:30 ET)

Treasury Yields:

• 2 Year Note 0.62% +0.02
• 5 Year Note 1.54% +0.03
• 10 Year Note 2.19% +0.03
• 30 Year Bond 2.90% +0.02

2/30 Spread: 228 bps ( UNCH ) …  2/10 Spread: 157 bps ( +1 )

Preview for Wednesday 6 May, 2015

Economic Data

Wednesday (6 May) :

• MBA Mortgage Index : (Prior -2.3%) 
• ADP Employment Change : 189K (Prior 189K)
• Productivity - Prelim : -1.9% (Prior -2.2%)
• Unit Labor Costs - Prelim : 4.2% (Prior 4.1%)
• Crude Inventories : (Prior 1.910M) 

Earnings Highlights

Wednesday (6 May) :
BMO - CEQP DDD AYR BUD ANSS ARQL ATHM AVA AVOL BAM CACQ CSTE CRZO CRNT CHK CHH CLH CKSW CRRC CMLP DNR XRAY EGAN EE ENB EXK XLS DAVE GLOG GDP HAIN HSC HTA HCLP HFC HSNI IMN INFI KELYA FSTR LG LAMR LINC MWE MEMP MPO MSI NOR NXTM OXY OCUL POM PERI POWR PGNX QLTI RDUS RDC RHP SPNS SNH SBGI SODA SE SWC STRA SCMP SUP TMHC TRXC TVPT VSI VG VOYA WD WCG WEN WMC WIX WPX
AMC - FOXA ATVI HIVE MITT ALB ALDW ACAS AWK ANAC NLY AMTG AREX ATML ATO AUQ AVNW BWC BLCM BNFT BEAT BRKR CJES CZR CPE CECO CSLTCF CKP CHEF CHGG CLVS CODI CBPX CLR CPA CSOD CXW CUZ BREW CCRN CTRP CUB DPM DMD ECR EFC EGN ETP ETE EXXI EPAM EQC ESS EVTC EPM EXPD EXTR FGL FNGN FLTX FOXF FNV BGC GBDC GUID HGR HR HRTG HUBS INOV NSIT XENT IL IVR IO JKHY JONE JUNO KTWO KW GMCR KIM KND KRO LADR LCI LDRH LGCY LHCG MRO MCHX MRIN FISH MASI DOOR MTDR MELI MET MYRG NSTG NP NEFF NEWP NUS OAS OSUR ORA FRSH PAYC PDLI PEGA PNNT PFSI PMT PFMT PGTI PHH PRAA PTLA PRAH PRI PSEC PRU QLTY QTM RYN REG REXR RLJ RST SN SD SWM SQNM SBY SZYM SLH SGM SXL SUN TSLA TTPH THRX RIG RIGP TCAP TRIP TROX TUMI TWO VNDA VRNS VVC VECO WTI WBMD WGL WFM XNPT

Summary

I can't say the market is bearish because I think market is still actually in a sideway trend and whether we would see a bearish breakout is yet to be seen. With the Fed Chair Yellen speaking and ADP number releasing tomorrow, I suppose that is going to bring in more volatility.

Direction for Wednesday 6 May, 2015; Up

2015 Daily Directional Accuracy: 34/65 (52.31%) 

2015 Weekly Directional Accuracy: 9/15 (60.00%)