Wednesday, 6 May 2015 - AMC

Dow -86.22 at 17841.98, Nasdaq -19.68 at 4919.65, S&P -9.31 at 2080.15

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

There was some short covering at the early session and market was pulled down eventually for the rest of the session. Nothing much on the bearishness and it was a surprisingly quiet day for me. The Dollar Index continued the downside with a disappointing ADP number. Meanwhile crude oil also suffered a loss as inventories report indicating a decline which might be a sign of production topping.                                                  

Market Summary

Industry Watch

Strong: Consumer Staples, Energy, Industrials, Materials

Weak: Health Care, Technology, Telecom Services, Utilities

Other Market Moving Factor:

• S&P 500 slips back below 50-day moving average (2,090)
• Dollar Index returns to February lows

[BRIEFING.COM] The stock market registered its second consecutive decline on Wednesday with the S&P 500 (-0.5%) bouncing off its 100-day moving average (2,070).  

Equity indices began the day with slim gains, but the Dow, Nasdaq, and S&P 500 quickly returned below their 50-day moving averages and continued lower throughout the day. Adding to the pressure were comments from Fed Chair Janet Yellen who reminded investors that equity valuations are "generally quite high" and that raising the fed funds rate is likely to be followed by a spike in Treasury yields. 

Today's opening spike notwithstanding, the session was largely a repeat of yesterday's slide; however, the Nasdaq, which underperformed on Tuesday, retreated alongside the broader market today. The key indices cut their losses in half during the final hour, but nine sectors settled in the red with the countercyclical telecom services space (-1.2%) ending behind its peers. 

More notably, the largest sector by weight—technology (-0.8%)—was the second-weakest performer with large cap names fueling the weakness. Shares of Microsoft (MSFT 46.28, -1.32) tumbled 2.8% while the likes of Apple (AAPL 125.01, -0.79), Google (GOOGL 535.08, -7.96), Oracle (ORCL 43.26, -0.66), and Intel (INTC 32.22, -0.42) lost between 0.6% and 1.5%. It is worth noting that unlike Intel, some other chipmakers outperformed with the PHLX Semiconductor Index shedding just 0.1%. 

Elsewhere, biotechnology represented another high-beta group that fared a bit better than the broader market. The iShares Nasdaq Biotechnology ETF (IBB 340.72, +2.72) added 0.8%, but that was a small victory considering the ETF was up more than 1.7% at the start. That being said, the relative strength of biotechnology could not stop the health care sector (-0.5%) from ending among the laggards. 

Similar to health care, two other countercyclical sectors—telecom services (-1.2%) and utilities (-0.6%)—underperformed throughout the day while the consumer staples sector (+0.2%) spent the day near its flat line. 

Moving back to the cyclical side, only the materials sector (unch) finished near its flat line while the remaining growth-sensitive groups logged losses. For instance, the energy sector (-0.3%) spent the first half in the green, but slumped during the afternoon amid a pullback in oil. WTI crude was up more than 3.5% in the early going, but narrowed its gain to 0.8% at $60.93/bbl by the close. 

Crude oil retreated even though today's storage report showed an inventory draw while an increase was expected. In addition, the energy component struggled even as the Dollar Index (94.13, -0.94) fell 1.0% to levels last seen in February. 

Treasuries retreated through the morning and hovered near their lows during afternoon action. The benchmark 10-yr yield rose four basis points to 2.23%. 

Today's participation was ahead of recent averages with more than 800 million shares changing hands at the NYSE floor. 

Economic data included ADP Employment, Productivity/Unit Labor Cost data, and MBA Mortgage Index: 

• The ADP National Employment Report revealed that employment in the nonfarm private business sector rose by 169K in April while the Briefing.com consensus expected a reading of 189K 
  • The March reading was revised down to 175,000 from 189,000 
• Nonfarm business productivity declined 1.9% in Q1 2015 after declining an upwardly revised 2.1% (from -2.2%) in Q4 2014 while the Briefing.com consensus expected a decline of 1.8% 
  • This was the first time nonfarm business productivity declined for two consecutive quarters since Q2 and Q3 of 2006. Even during the Great Recession, productivity managed to inch ahead on an upward trend 
  • Unit labor costs increased 5.0% in Q1 2015 after increasing 4.2% in Q4 2014 
    • That was the biggest increase in unit labor costs since an 11.5% increase in Q1 2014 
• The weekly MBA Mortgage Index fell 4.6% to follow last week's 2.3% decline 

Tomorrow, the April Challenger Job Cuts report will be released at 7:30 ET while weekly Initial Claims (Briefing.com consensus 280K) will be reported at 8:30 ET. The day's data will be topped off with the 15:00 ET release of the Consumer Credit report for March (consensus $16.00 billion). 

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei closed for holiday; Hong Kong’s Hang Seng -0.4%; China’s Shanghai Composite -1.6%
It was a rough outing Wednesday for most markets in the Asia-Pacific region, which struggled on the heels of weak showings from Wall Street and Europe on Tuesday. The inability of the Shanghai Composite (-1.6%) to hold early gains and disappointing bank earnings out of Australia (-2.3%) also weighed on sentiment.

Economic data

• China
• April HSBC Services PMI 52.9 (expected 53.1; prior 52.3)
• Hong Kong
• April Manufacturing PMI 48.6 (prior 49.6)
• India
• April HSBC Services PMI 52.4 (prior 53.0)
• New Zealand
• Q1 Employment Change +0.7% quarter-over-quarter (expected 0.8%; prior 1.2%)
• Q1 Unemployment Rate 5.8% (expected 5.5%; prior 5.8%)
• Q1 Labor Cost Index +0.3% quarter-over-quarter (expected 0.4%; prior 0.5%); +1.8% year-over-year (expected 2.0%; prior 1.8%)
• Australia
• March Retail Sales +0.3% month-over-month (expected 0.4%; prior 0.7%); +0.7% quarter-over-quarter (expected 0.9%; prior 1.2%)
• March New Home Sales +4.4% month-over-month (prior 1.1%)

Equity Markets

• Japan’s Nikkei closed for holiday (Greenery Day)
• Hong Kong’s Hang Seng declined 0.4%, failing to hold earlier gains as it followed mainland shares lower in late action. The consumer cyclical (-1.5%) and basic materials (-1.3%) sectors were the biggest losers. China Resources Power Holdings (-4.4%), China Overseas Land & Development (-4.1%), China Unicom Hong Kong (-3.5%), and Galaxy Entertainment (-2.9%) paced individual decliners. China Mengniu Dairy (+7.5%) was the best-performing stock. Out of the 50 index members, 13 ended higher, 32 finished lower, and 5 were unchanged.
• China’s Shanghai Composite declined 1.6% on the back of a late-session selloff that erased earlier gains as concerns about the market being overheated continued to weigh. The HSBC Services PMI report for April wasn’t as strong as expected, but was still at its highest level (52.9) this year. The utilities (-3.7%), energy (-3.2%), and basic materials (-2.3%) sectors were the weakest areas in the Chinese market on Wednesday.
• India’s Sensex declined 2.6% on the heels of Wall Street’s weak session, falling prone to selling pressure that began at the open and persisted into the close. The Sensex finished at its lows for the day. The industrial (-4.9%) and basic materials (-2.8%) paced the broad-based retreat. Bharat Heavy Electricals (-6.0%), ICICI Bank Ltd (-5.0%), and Larsen & Toubro (-4.7%) topped the list of individual decliners. Bharti Airtel (+0.6%) was the only stock to finish higher on Wednesday.
• Australia’s S&P/ASX 200 declined 2.3%, also sliding at the start of trading and continuing lower into the close. Banks helped pace the retreat after a disappointing third quarter earnings report from Commonwealth Bank of Australia. The financials (-3.3%), utilities (-2.8%), and consumer discretionary (-2.6%) sectors were the weakest areas.
• Regional advancers: Indonesia +0.5%
•   Taiwan -0.02%, South Korea -1.3%, Singapore -0.3%, Malaysia -0.4%, Thailand -0.5%, Philippines -0.6%

FX

• USD/CNY -0.1% at 6.1990
• USD/INR +0.3% at 63.542
• USD/JPY -0.02% at 119.81

EUROPE

Major European indices trade higher across the board with Germany’s DAX (+0.7%) leading the rebound from yesterday’s region-wide drop. In news, Greece has made a EUR200 million payment to the International Monetary Fund, according to a government official. The country is expected to pay another EUR780 million next Tuesday.

• Eurozone April Services PMI 54.1 (expected 53.7; prior 53.7) while March Retail Sales -0.8% month-over-month (consensus -0.7%; last 0.1%)
• Germany’s April Services PMI 54.0 (consensus 54.4; last 54.4)
• France’s April Services PMI 51.4 (expected 50.8; prior 50.8)
• Spain’s April Services PMI 60.3 (forecast 57.4; prior 57.3)
• Italy’s April Services PMI 53.1 (expected 52.0; last 51.6)

Closing Prices

• UK’s FTSE: + 0.1%
• Germany’s DAX: + 0.2%
• France’s CAC: + 0.2%
• Spain’s IBEX: + 0.4%
• Portugal’s PSI: -0.3%
• Italy’s MIB Index: + 0.4%
• Irish Ovrl Index: -1.0%
• Greece ASE General Index: + 2.9%

Macroeconomic Data

Economic Data

from Briefing.com

• MBA Mortgage Index : -4.6% (Prior -2.3%) 
• ADP Employment Change : 169K vs 189K (Prior 175K - Down)
• Productivity - Prelim : -1.9% vs -1.8% (Prior -2.1% - Down)
• Unit Labor Costs - Prelim : 5.0% vs 4.5% (Prior 4.2% - Up)
• Crude Inventories : -3.882M (Prior 1.910M) 

PRODUCTIVITY PRELIM

Highlights

• Nonfarm business productivity declined 1.9% in Q1 2015 after declining an upwardly revised 2.1% (from -2.2%) in Q4 2014. The Briefing.com Consensus expected productivity to decline 1.8%.

Key Factors

• This is the first time nonfarm business productivity has declined for two consecutive quarters since the second and third quarters of 2006. Even during the Great Recession, productivity managed to inch ahead on an upward trend.
• Output declined 0.2% in Q1 2015 after increasing 2.6% in Q4 2014. That was in-line with the minimal gain in Q1 2015 GDP growth.
• Total hours increased 1.7% in Q1 2015, down from a 4.9% gain in Q4 2014. The lackluster 1.7% gain was the weakest increase since hours increased by the same rate in Q4 2013. 
• The combination of an increase in hours and a decline in output led to the decline in productivity.
• Unit labor costs increased 5.0% in Q1 2015 after increasing 4.2% in Q4 2014. That was the biggest increase in unit labor costs since an 11.5% increase in Q1 2014.
• As businesses suffered through higher labor costs, the flip side was a sizable gain in real hourly compensation for employees. Real compensation increased 6.2% in Q1 2015, which was the largest quarterly increase since a 7.3% increase in Q4 2012.

Big Picture

• Productivity gains help keep cost-push inflation pressures from rising wages in check. Over the long term, it is productivity gains that provide the increase in output that have led to the consistent gains in living standards in free market economies.

Market Internals

NYSE:

Higher Volumes than the day before – 823.5M vs 792.9M 


Decliners outpaced Advancers (adv/dec): 1008 / 2102

New Lows outpaced New Highs (highs/lows): 24 / 79

NASDAQ:

Higher Volumes than the day before – 2126.1M vs 2039.4M

Decliners outpaced Advancers (adv/dec): 1303 / 1477

New Lows outpaced New Highs (highs/lows): 31 / 86

VOLATILITY S&P500 (VIX)
15.15 +0.84 (+5.87%)

It is not that much of a bearishness but New Lows is now significantly higher. Volume is increasing as well. VIX is also at the resistance level but it looks reluctant to break above at the moment. As a whole I still feel there is more bearishness to come...

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,841.98 -86.22 (-0.48%)

Volume: 100,433,863 (above average of 99,166,118)
Range: 17,733.12 - 18,019.75

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,919.64 -19.69 (-0.40%)
Volume: 496.3M (above average of 435,025,023)

Range: 4,888.17 - 4,965.10

S&P 500 INDEX (SPX: CBOE)

2,080.15 -9.31 (-0.45%)

Volume: 552.2M (above average of 532,451,922)

Range: 2,067.93 - 2,098.42 

The 3 indices broke below their 20 and 50 MAs repectively. DOW and S&P are still at the trend support while NASDAQ is forming the head and shoulder pattern. If the market broke down of their consolidation, I reckon it should be a huge correction.  

Commodities

Closing Commodities: WTI Oil Erases Most Of Its Gains, Ending Below $61

• WTI gave up its morning rally and closed up pit trading today below the $61/barrel level
• June crude finished $0.56 higher at $60.94/barrel. June nat gas ended flat at $2.78/MMBtu
• Metals lost some value today
• June gold fell $2.80 to $1190.60/oz, while July silver lost $0.07 to $16.50/oz
• July copper fell one cent to $2.92/lb

Energy

• June crude oil futures rose $0.56/barrel to $60.94/barrel
• June natural gas closed flat at $2.78/MMBtu
• RBOB Gasoline closed $0.03 lower at $2.03/gallon
• Heating oil futures closed flat to $2.01/gallon

• The EIA reported weekly petroleum inventory data this morning, which showed a Crude Oil draw of 3.88 mln barrels (vs. a 1.4 mln barrel consensus) and a Gasoline build of 0.401 mln barrels (vs. a flat consensus)

Agriculture

• July corn closed $0.03 higher to $3.66/bushel
• July wheat closed $0.13 higher to $4.79/bushel
• July soybeans closed $0.02 lower at $9.83/bushel
• Ethanol closed $0.02 higher at $1.65/gallon
• Sugar #11 closed 0.12 cents higher to 12.87 cents/lb

Metals

• June gold ended today’s session $2.80 lower to $1190.60/oz
• July silver closed $0.07 lower at $16.50/oz
• July copper closed $0.01 lower to $2.92/lb

Currencies

Dollar Continues Lower

• The dollar lost against the majors today, with losses coming in the wake of the April ADP employment change and then a second wave of selling hit after equities began a sharp drop
• U.S. Dollar Index: -1.01% to 94.12
• EUR/USD: +1.49% to $1.1349
  • The April Services PMI for the eurozone came out at 54.1, higher than expected and above the reading of 53.7 in March
  • Eurozone Retail Sales for March fell 0.8% m/m, worse than expected and lower than the 0.1% increase in February
  • The substantial increases in sovereign bond yields in the eurozone this week may reverse the flight from the eurozone for fixed income investors in search of yield
• GBP/USD: +0.55% to $1.5254
  • The U.K.'s Services PMI for April was 59.5, ahead of expectations and the 58.9 from the prior month
  • The U.K.'s national election is tomorrow. Labour and the Tories are neck-and-neck and there is a high probability of prolonged uncertainty while those parties' leaders, Ed Milliband or David Cameron, respectively, try to form a government. This uncertainty, of course, has been priced into market prices for some time
• USD/JPY: -0.47% to 119.36
  • Japan has Golden Week holidays this week
  • It is somewhat surprising that the yen has not made a new low against the dollar with the 10-year Treasury yield rising so much over the past two weeks. This may indicate that the bear market in the yen is losing steam
• AUD/USD: +0.70% to $0.7981
• NZD/USD: +0.22% to $0.7510
• USD/CHF: -1.38% to 0.9147
• USD/CAD: -0.38% to 1.2034

Bonds

Treasuries Fall for 7th Straight Session

• Treasuries declined at every maturity today despite weaker-than-expected economic data and instability in equity markets that could have prompted bond buying under other circumstances
• Yield check:
  • 2-yr: +1 bp to 0.64%
  • 5-yr: +2 bps to 1.57%
  • 10-yr: +4 bps to 2.23%
  • 30-yr: +4 bps to 2.98%

• News Summary:
  • U.S. Economic Data:
    • The MBA Mortgage Index for the week ending 05/02 fell 4.6% versus a decline of 2.3% for the prior week
    • The ADP Employment Change in April was +169K versus the Briefing.com consensus of 189K and March's reading of +175K (revised from +189K)
    • Non-farm business productivity declined 1.9% in Q1 2015 after a reading of -2.1% (revised from -2.2%) in Q4 2014. The Briefing.com Consensus expected productivity to decline 1.8%
    • Unit labor costs increased 5.0% in Q1 2015 after increasing 4.2% in Q4 2014. That was the biggest increase in unit labor costs since an 11.5% increase in Q1 2014
  • Janet Yellen made some notable remarks in a conversation with IMF Managing Director Christine Lagarde organized by the Institute for New Economic Thinking
    • She said that equity valuations are "generally quite high...and there are potential dangers there." 
    • Yellen also said that "Long-term interest rates are at very low levels...we could see a sharp jump in long-term rates" when the Fed begins its tightening cycle
  • Michael Novogratz, principal at Fortress Investment Group, joined Warren Buffett and Bill Gross in declaring an end to the bull market in fixed income; "the bull market in fixed income has ended and the bear market has started," he told Bloomberg TV
    • This chorus of voices is representative of a deterioration in sentiment for Treasuries that, along with a very oversold market, has a way of producing short-squeezes
  • Greece successfully made a 200 million euro payment to the IMF

• Commodities:
  • WTI crude: After rallying sharply following the weekly supply data, WTI crude for June delivery pulled back to end up 0.79% to $60.88/bbl
  • Gold lost 0.28% to $1,189.90, despite a sharply lower dollar
  • Copper fell 0.37% to $2.924/lb. 

• Currencies:
  • EUR/USD: +1.50% to $1.1350. Sharply higher sovereign yields in the eurozone are making holding euro a much smaller sacrifice than it was three weeks ago
  • USD/JPY: -0.49% to 119.34

• Data out Thursday:
  • April Challenger Job Cuts (07:30 ET)
  • Initial Jobless Claims for the week 05/02 and Continuing Jobless Claims for the week ending 04/25 (08:30 ET)
  • Natural Gas Inventories for the week ending 05/02 (10:30 ET)
  • March Consumer Credit (15:00 ET)

Treasury Yields:

• 2 Year Note 0.65% +0.03
• 5 Year Note 1.58% +0.04
• 10 Year Note 2.25% +0.06
• 30 Year Bond 2.98% +0.08

2/30 Spread: 233 bps ( +5 ) …  2/10 Spread: 160 bps ( +3 )

Preview for Thursday 7 May, 2015

Economic Data

Thursday (7 May) :

• Challenger Job Cuts : (Prior 6.4%)
• Initial Claims : 280K (Prior 262K)
• Continuing Claims : 2300K (Prior 2253K)
• Natural Gas Inventories : (Prior 81 bcf)
• Consumer Credit : $16.0B (Prior $15.5B)

Earnings Highlights

Thursday (7 May) :
BMO - WBAI AAON AXAS ACHN WMS AGIO ALU BABA ALE AEE AMRC ARCP APA APO ARMK MT ACRE ARIA BDX BLT BDBD CCC CNQ CSIQ CDW CECE CHD CBB CNK CCOI CNSL CORE COT COTY CRIS CONE DWRE HILL DFT SATS RDEN ENTA ENZY FELP FIG FSYS FXCM IT ROCK GLP GSM GOGO GSIG GWPH HL ONE HPT HMHC HWCC HII ICD IPCC IRC INSY INXN SNAK JASO KATE LPI LXP LGIH LCUT LIOX LQDT MGA MBUU MFC MMS MZOR MPW MPEL MITL TAP MWW NRP NXST NICE NJR NNBR NCLH DNOW OGE OMED OPK OWW PDCE PRFT PMC DOC PGEM PMFG POZN PPL PCLN RDNT GOLD REGN RGEN RFP REV RWLK RICE RMP RSTI RRD SRPT SNI SEAS SSTK LEAF S STE SRI SPH SUNE SFY TLM TU TDC TIME TOWR TA THS GTS USPH USAC VTG VC WPC WAC WRES WPP WIN WPG
AMC - TWOU ACAD ACET ADVS ABCO AL AIRM ALSK ALDR ALIM MDRX ALNY ALJ AMBR AMH AHS ASYS AAOI PETX AHT ASPN AGO ABTL BEBE BIOS BBOX WIFI BCEI BKD CA CBS CCS CERN CDXS ED CNAT CORT CROX CUTR CYBR DIOD DRWI DRC DXPE EBS ECPG ECYT ERII ENOC ENSG EVC ENV EAC ESPR EZPW FFG FRT FPRX FLDM FRPT FTD FXEN GALE GST GEOS GXP GDOT GSIT HNSN HAYN HTGC ICFI IMPV SAAS INWK ICPT IILG XON JCOM JMBA JAZZ KMPR KEYW KTOS LF LBTYA MAIN MTRX MED MDVN MTD MCHP MIDD MSON MHK MOH MCP MNST MFLX NHI NGVC NAVG NNI UEPS NWSA NOG NVAX NUAN NES NVDA OEC OUTR PGRE PCTY PLNR PPO POST PSIX PRA PRO QEPM QUMU RPTP RMAX RJET RIGL RBA FUEL RMTI RRMS RBCN RYI SGMS SEMG SREV SWIR SSNI SLW SPTN SPPI SRC SFM STMP SF SEMI DATA TNGO TEAR TLLP THOR TSLX TRMR TGI TRUE TCX TPC UBNT UEIC OLED EGY VCYT WAIR XOXO XOMA YDLE YUME Z ZIOP ZGNX ZNGA

Summary

Market was short selling for the past 2 days and it seems that the selling is slowing down. I think we should see some pullback prior to the Nonfarm Payroll on Friday. I am still sticking to my stance where the market is not on the bearish side yet as I feel market is more to a sideway trend. Although I still think we are not far from a correction.

Direction for Thursday 7 May, 2015; Up

2015 Daily Directional Accuracy: 34/66 (51.52%) 

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