Monday, 27 July 2015 - AMC

Dow -127.94 at 17440.59, Nasdaq -48.85 at 5039.78, S&P -12.00 at 2067.65

Friday session was generally bearish but I am going to look at whether the support is strong enough to hold. After all the S&P is still above its 200MA. I think we might see a slight pullback but the bearish momentum from last week could limit the extent of this action.

This coming week is jam packed with some market moving data and plenty of earnings reports. Most likely we are going to see another volatile week ahead, especially on Wednesday we are going to see the FOMC Rate decision and GDP number on the next day.

Meanwhile in Asia, China remains a time-bomb as the economic data is not showing much growth. This led to an underperformance in the market and could affect the commodities market one way or another. 

Direction for Monday 27 July, 2015: Up

Although market broke below their technical support and went lower on Monday, it seems that they have found another support level. S&P somehow formed a good support on its 200MA again but I am uncertain if the market is going to bounce back from here. The strength of the pullback was getting weaker along the session.  

Global market remains weak as we continue to see red. We saw a sell-off in the Europe market as well. China suffered another sell-off on Monday and at this point of writing, Shanghai Composite opened lower on Tuesday. 

Market Summary

Industry Watch

Strong: Consumer Discretionary, Health Care, Telecom Services, Utilities

Weak: Consumer Staples, Energy, Financials, Technology, Materials

Other Market Moving Factor:

• China's Shanghai Composite tumbles 8.5% amid speculation government may reduce support measures for the market
• S&P 500 tests 200-day moving average (2,064)
• Teva Pharmaceutical (TEVA) to acquire Allergan's (AGN) generics business for $40.50 billion

[BRIEFING.COM] The stock market began the trading week on a cautious note with the S&P 500 (-0.6%) settling just above its 200-day moving average (2,064) while the Nasdaq Composite (-1.0%) underperformed.  

Equity indices spent the entire day in negative territory after the overnight session was highlighted by an 8.5% plunge in China's Shanghai Composite, which endured its largest one-day decline in more than eight years. The index widened its slide from June highs to 28.0%, falling to lows during the final hour of action after the International Monetary Fund voiced concerns about the degree of recent government intervention in the market. 

In all likelihood, government involvement in the Chinese market will be in focus over the next few weeks, especially if the measures currently being employed fail to halt the ongoing slide. To that point, today's rout was followed by reports that China's government will step up its buying measures, but that report was refuted shortly thereafter.  

The overseas weakness weighed on investor sentiment in Europe and the U.S. while German Bunds (10-yr yield -6 bps to 0.65%) and U.S. Treasuries (10-yr yield -4 bps to 2.23%) advanced. 

Nine sectors finished the day in negative territory with all six cyclical groups ending in the red. Furthermore, five of six growth-sensitive groups settled behind the broader market while the industrial sector (-0.4%) ended just ahead. Similar to the sector, high-beta transport stocks fared better than the broader market with the Dow Jones Transportation Average shedding 0.2%. 

Elsewhere among cyclical groups, the energy sector (-1.4%) settled at the bottom of the leaderboard while crude oil fell to early April levels, ending lower by 1.6% at $47.39/bbl. The energy component retreated despite today's greenback weakness that sent the Dollar Index (96.53, -0.71) lower by 0.7%. On the upside, the utilities (+1.3%) sector posted a solid gain after showing relative strength throughout the day while consumer staples (-0.1%), health care (-0.1%), and telecom services (-0.1%) also outperformed, but could not make it out of the red. 

Notably, the health care sector was boosted by a 16.4% surge in Teva Pharmaceutical (TEVA 72.00, +10.15) after the company beat earnings expectations and announced the acquisition of Allergan's (AGN 326.98, +18.77) generics business for $40.50 billion. As for biotechnology, the high-beta group struggled with iShares Nasdaq Biotechnology ETF (IBB 373.58, -4.00) falling 1.1%. 

Today's participation was ahead of recent averages with more than 900 million shares changing hands at the NYSE floor.  

Economic data was limited to Durable Orders, which increased 3.4% in June after declining an upwardly revised 2.1% (from -2.2%) in May while the Briefing.com consensus expected an increase of 3.0%. 

A large portion of the increase resulted from a significant surge in aircraft orders as Boeing (BA 141.03, -3.03) reported 161 aircraft orders in June, up from just 11 in May. That gain helped push defense and nondefense aircraft orders up 52.3%. Excluding transportation, durable goods orders increased 0.8% in June after declining a negatively revised 0.1% (from 0.0%) in May while the consensus expected an increase of 0.5%.  

Tomorrow, the Case-Shiller 20-city Index for May will be released at 8:30 ET (Briefing.com consensus 5.6%) while July Consumer Confidence will be reported at 10:00 ET (consensus 100.0). 

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei -1.0%; Hong Kong’s Hang Seng -3.1%; China’s Shanghai Composite -8.5%
The Shanghai Composite plummeted 8.5% on Monday and effectively set the tone for most markets in the Asia-Pacific region. That was the biggest drop for the Composite since February 2007 and it followed some weak industrial profits data and a building sense of anxiousness around the idea that the government may attempt to pull back on some of the support measures enacted to arrest the last meltdown.

Economic data

• Japan
• Corporate Services Price Index +0.4% year-over-year (expected +0.6%prior +0.6%)
• China
• Industrial profits -0.3% year-over-year (prior +0.6%)
• Hong Kong
• June Trade Balance HKD -45.8 bln (expected HKD -39.1 bln; prior HKD -40.1 bln)
• Exports -3.1% month-over-month (expected -2.6%; prior -4.6%)
• Imports -2.0% month-over-month (expected -3.4%; prior -4.7%)

Equity Markets

• Japan’s Nikkei declined 1.0% in a broad-based retreat led by the health care (-2.7%), materials (-2.1%), and consumer staples (-1.7%) sectors. A stronger yen, which garnered support in the face of China’s stock market rout, reportedly helped weigh on the action. Sumco Corp (-5.3%), Sumitomo Chemical (-5.0%), and Eisai Co (-4.4%) led the losers. Mitsubishi Motors (+5.5%) and Kyowa Hakko Kirin (+4.6%) topped the list of winners. Out of the 225 index members, 38 ended higher, 182 finished lower, and 5 were unchanged. ·
• Hong Kong’s Hang Seng dropped 3.1% and closed near its lows for the day, tracking mainland stocks lower. It was a broad-based retreat that saw all 50 stocks in the index lose ground. The worst performers were China Resources Power Holdings (-6.3%), China Unicom Hong Kong (-5.9%), and China Life Insurance Co. (-5.5%). Cheung Kong Property Holdings (-0.7%) held the distinction of being down the least among the 50 index members.
• China’s Shanghai Composite plummeted 8.5% with selling efforts accelerating in the final hour of trading. In that span, the Composite fell approximately 5.4%. Reportedly, the selling momentum picked up following some weak industrial profits data and as market participants feared the government will begin withdrawing its support measures. Monday’s loss was the single-biggest loss since February 2007.
• India’s Sensex declined 2.0% in a session that saw every sector close lower. The biggest laggards were the materials (-4.8%), industrials (-3.3%), utilities (-2.2%), and financial (-2.1%) sectors. Tata Steel (-5.4%), Hero Moto Corp (-4.9%), and Hindalco Industries (-4.5%) paced the individual losers. Bajaj Auto (+0.5%) was the only stock among the 30 index members to end with a gain.
• Australia’s S&P/ASX 200 bucked the regional trend and gained 0.4% as beaten-down resource plays attracted some bargain-hunting interest. Overall, Monday’s best-performing areas were the gold (+4.6%), REIT (+2.7%), and metals & mining (+0.9%) sectors. Out of the 200 index members, 104 ended higher, 73 finished lower, and 23 were unchanged.
• Regional advancers: Vietnam +0.2%
• Regional decliners: South Korea -0.4%, Taiwan -2.4%, Malaysia -0.6%, Indonesia -1.8%, Singapore -1.2%, Thailand -1.8%, Philippines -1.5%

FX

• USD/CNY unch at 6.2098
• USD/INR +0.2% at 64.1712
• USD/JPY -0.4% at 123.31

EUROPE

Major European indices trade lower across the board with Germany’s DAX (-2.1%) trailing the region. Elsewhere, European Central Bank member Benoit Coeure said that debt relief for Greece is no longer a subject of debate with bailout negotiations about to begin.

• Eurozone June M3 Money Supply +5.0% year-over-year (expected 5.1%; prior 5.0%) while June Private Sector Loans +0.6% year-over-year, as expected (prior 0.5%)
• Germany’s June Import Price Index -1.4% year-over-year (consensus -1.3%; prior -0.8%). Separately, July Ifo Business Climate Index rose to 108.0 from 107.5 (consensus 107.2) as Business Expectations improved to 102.4 from 102.1 (expected 101.8) and Current Assessment rose to 113.9 (consensus 113.0; last 113.1)
• UK’s July CBI Industrial Trends Orders -10 (expected -4; prior -7)

Closing Prices

• UK’s FTSE: -1.1%
• Germany’s DAX: -2.6%
• France’s CAC: -2.6%
• Spain’s IBEX: -1.5%
• Portugal’s PSI: -2.0%
• Italy’s MIB Index: -3.0%
• Irish Ovrl Index: -2.6%
• Greece ASE General Index: CLOSED

Macroeconomic Data

Economic Data

from Briefing.com

• Durable Orders : 3.4% vs 3.0% (Prior -2.1% - Up)
• Durable Goods - ex transportation : 0.8% vs 0.5% (Prior -0.1% - Down)

DURABLE ORDERS & DURABLE GOODS

Highlights

• Durable goods orders increased 3.4% in June after declining an upwardly revised 2.1% (from -2.2%) in May. The Briefing.com Consensus expected durable goods orders to increase 3.0%.
• Excluding transportation, durable goods orders increased 0.8% in June after declining a negatively revised 0.1% (from 0.0%) in May. The consensus expected these orders to increase 0.5%.

Key Factors

• A large portion of the increase in durables demand was the result of a significant surge in aircraft orders. Boeing (BA) reported 161 aircraft orders in June, up from just 11 in May. That gain helped push defense and nondefense aircraft orders up 52.3%.
• The increase in manufacturing demand was much better than the June readings in the Federal Reserve manufacturing surveys and the national ISM New Orders Index.
• With the exception of a 1.4% decline in primary metal orders, all major manufacturing sectors showed positive orders growth. That included a 1.4% increase in machinery orders and a 0.2% increase in computer and electronics product orders.
• Orders of nondefense capital goods excluding aircraft increased a solid 0.9% in June. That ended five consecutive months of declines, including a 0.4% decrease in May. That is the largest increase in cap-ex orders since a 1.2% increase in November 2014. 
• Shipments of nondefense capital goods excluding aircraft, however, declined 0.1% in June after declining 0.3% in May. Since shipments, not orders, factor directly into GDP growth calculations, the weakness in production will have a negative impact on second quarter growth trends.

Big Picture

• Despite a big increase in orders demand, manufacturers are still hesitant to produce. Shipments growth is virtually nonexistent and unfilled orders continue to rise.

Market Internals

NYSE:

Higher Volumes than the day before – 922.4M vs 892.1M 


Decliners outpaced Advancers (adv/dec): 832 / 2275

New Lows outpaced New Highs (highs/lows): 16 / 467

NASDAQ:

Lower Volumes than the day before – 1975.6M vs 1996.0M

Decliners outpaced Advancers (adv/dec): 831 / 2009

New Lows outpaced New Highs (highs/lows): 15 / 293

VOLATILITY S&P500 (VIX)
15.60 +1.86 (+13.54%)

Internals are certainly reflecting a rather strong bearish statement. New Lows remains elevated while New Highs drops. VIX had a huge gap up and broke above the resistance at 15.00 but formed a doji instead. I believe market has becoming more cautious with the factor of uncertainty.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,440.59 -127.94 (-0.73%)

Volume: 117,864,365 (above average of 93,273,985)
Range: 17,399.17 - 17,561.78

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

5,039.78 -48.85 (-0.96%)
Volume: 452,917,096 (above average of 433,901,628)

Range: 5,032.69 - 5,072.88

S&P 500 INDEX (SPX: CBOE)

2,067.64 -12.01 (-0.58%)

Volume: 658,424,000 (above average of 525,533,677)

Range: 2,063.52 - 2,078.19

DOW broke lower its ascending trend line and the lower bound of the trading range since March, somehow suggesting a break out here. Next support is likely to be around 17,250. NASDAQ also broke below its ascending trend line, 20 and 50 MAs. Most probably it is going to find a support at the channel or the support level near 5,000. Similarly, S&P broke below its ascending trend line as well and went down to test its 200MA. I reckon market is still going for more downside. 

Commodities

Closing Commodities: WTI Oil Slides Lower In Electronic Trade

• The dollar index remained in the red today, but some commodities such as oil and copper didn’t see any benefit to this move
• Oil slid lower today as bearish catalysts continue to weigh on prices
• Front-month Sept crude oil finished today’s session -1.5% at $47.42/barrel
• In electronic trade, crude fell as low as $47.05/barrel
• Aug nat gas gained one cent today to $2.79/MMBtu
• Gold and silver closed higher, Aug gold +1% and Sept silver +0.8%
• Sept copper dropped -1.3% to $2.35/lb

Energy

• September crude oil futures fell $0.71 (-1.5%) to $47.42/barrel
• August natural gas closed $0.01 higher (+0.4%) at $2.79/MMBtu
• RBOB Gasoline closed $0.02 lower at $1.76/gallon
• Heating oil futures closed $0.04 lower at $1.60/gallon

Agriculture

• December corn closed $0.18 lower at $3.84/bushel
• September wheat closed $0.11 lower at $5.01/bushel
• November soybeans closed $0.32 lower to $9.32/bushel
• Sugar #11 closed flat at 11.24 cents/lb

Metals

• August gold ended today’s session $10.60 higher (+1%) at $1096.20/oz
• September silver closed today’s session $0.12 higher (+0.8%) at $14.61/oz
• September copper closed $0.03 lower (-1.3%) at $2.35/lb

Currencies

Dollar Drops on Global Risk Aversion

• The sharp fall in global equities overnight forced interest rate and FX traders to rethink their expectations about the pace of Fed policy normalization. While the FOMC has so far given the crises in China and the eurozone little respect in its statements about the rate liftoff decision process, markets are betting that those headwinds will eventually affect Fed policy. A "lower and slower" path of rate hikes is, other things being equal, dollar bearish. The positive surprise in June's Durable Goods Orders data was largely ignored
  • U.S. Dollar Index: -0.76% to 96.51
• EUR/USD: +1.00% to $1.1099
  • Former Greek Finance Minister Yanis Varoufakis had been in the late stages of developing a contingency plan for Greece's currency and banking system back in December of 2014
  • Negotiations in Athens are expected to resume soon, once the parties can agree on a meeting place
  • The German IFO Business Climate Index unexpectedly jumped to 108 this month from 107.5 in June
  • In France, Jobseekers fell to 3,553,500 in June from 3,552,200 in May
• GBP/USD: +0.32% to $1.5560
  • In the U.K., CBI Industrial Trends Orders fell to a lower-than-expected -10 in July from -7 in June
• USD/JPY: -0.45% to 123.23
  • The Corporate Services Price Index grew a less-than-expected 0.4% y/y in June versus 0.6% growth in May
    • Hotel charges jumped 8.8% on strong tourism demand
• USD/CAD: -0.18% to 1.3028
• Despite the turmoil in China, the Antipodean currencies were higher on the session. Iron ore and gold prices rallied today, and the general selling of the greenback provided a tailwind for the Kiwi and the Aussie
  • AUD/USD: -0.05% to $0.7284
  • NZD/USD: +0.61% to$ 0.6614

Bonds

Treasuries Rally on Global Risk Aversion

• Government notes and bonds continued their two-week rally today after the Chinese stock market all but crashed overnight. While the FOMC has downplayed the risks presented by the crises in the eurozone and China to its economic outlook, the market is taking these risks more seriously than the Fed. The U.S. economy is relatively closed in terms of real economic activity, but the risk of the global financial system transmitting any shocks to U.S. assets are concerning investors
• Yield Check:
  • 2-yr: -5 bps to 0.64%
  • 5-yr: -5 bps to 1.57%
  • 10-yr: -4 bps to 2.23%
  • 30-yr: -2 bps to 2.94%

• News: 
  • Overnight, the Shanghai Composite fell 8.5%, its largest decline since 2007. 1,700 stocks fell the daily maximum allowable limit of 10%
  • Headline Durable Goods Orders rose 3.4% in June versus the Briefing.com consensus of +3.0%. Orders declined 2.1% in May
    • A large portion of the increase in durables demand was the result of a significant surge in aircraft orders. Boeing (BA) reported 161 aircraft orders in June, up from just 11 in May. That gain helped push defense and nondefense aircraft orders up 52.3%
  • Durable Goods Orders ex-transportation grew 0.8% in June, ahead of the Briefing.com consensus of 0.5% and the 0.1% fall in May
    • The increase in manufacturing demand was much better than the June readings in the Federal Reserve manufacturing surveys and the national ISM New Orders Index
    • With the exception of a 1.4% decline in primary metal orders, all major manufacturing sectors showed positive orders growth. That included a 1.4% increase in machinery orders and a 0.2% increase in computer and electronics product orders
  • The IMF warned that European growth is being held back by the Greek crisis, an impaired banking system, and high unemployment. The IMF distinguished between improving near-term prospects from lower energy prices and ECB stimulus on the one hand, and medium-term structural headwinds on the other

• Commodities:
  • WTI Crude: -2.04% to $47.16/bbl.
  • Gold: +0.63% to $1,092.30/troy oz.
  • Copper: -1.47% to $2.3475/lb.

• Currencies:
  • EUR/USD: +0.96% to $1.1095
  • USD/JPY: -0.42% to 123.27

• Data out Tomorrow:
  • May Case-Shiller 20-City Index (09:00 ET)
  • July Consumer Confidence (10:00 ET)
• Treasury Auction:
  • $26 bln 2-year note auction (results at 13:00 ET)

Treasury Yields:

• 2 Year Note 0.68% -0.02
• 5 Year Note 1.58% -0.06
• 10 Year Note 2.23% -0.04
• 30 Year Bond 2.93% -0.03

2/30 Spread: 225 bps ( -1 ) …  2/10 Spread: 155 bps ( -2 )

Preview for Tuesday 28 July, 2015

Economic Data

Tuesday (28 July) :

• Case-Shiller 20-city Index : 5.6% (Prior 4.9%)
• Consumer Confidence : 100.0 (Prior 101.4)

Earnings Highlights

Tuesday (28 July) :
BMO - CAS AMG AGCO ARG AIXG AKS AHGP ARLP ALLY RESI AXE ARW AUO AUDC BP CPLA CNC CIR CIT COMM CVLT CNX GLW OFC CRY CTG CMI CYNO DHX DHI DD ECL FSS FCH FMER FSV FBC F FELE FDP GPN GWB GRUB HSII ICLR IR ISSI IPI IPGP JEC JBLU KEM LH LPT LYB MMC MAS MZOR MRK NOV NCI NAP NLSN NTLS OAK PCAR BTU PFE POR PCH PCP PROV RDWR RAI SALT SIR ST SIRI SVU TCK TXT UTHR UPS WDR WAT WYN
AMC - AKR AEGR AFL GAS AKAM APC ARI ATR AJG APAM AEC AIZ ATML ATRC AXS BLDP BGFV BMR BBOX BXMT BBRG BWLD CHRW CAP CLMS CALX CSCD CINF CTXS CEB CUZ DHT BOOM EW EQR ETH EEFT EXAC EXAM ESRX FFIC GILD GCA GPRE HA HT HMN HURN IPHI IACI KIM LNDC MTSI NATI NCR NGD NEU NCLH NVMI NVDQ NUVA OIS PNRA PEI PSB RSYS RRC RNR RPXC RUBI SSW SM SPOK STLY RGR SPWR TSS TRMK TWTR SLCA X ULTI UMBF VR VDSI VRSK VRTU WNC WRI WSH YELP

Summary
I think the bulls were trying to go against the bears from more selling on Monday but it looks to me that the bears are still a notch stronger. As such I suppose there is more room to the downside. Even so I am watching out for a false breakout in the market.

Tuesday marks the first day of FOMC meeting and the announcement is more or less going to move the market. Maybe the market is pricing in the announcement on Wednesday but well, just watch the market closely.

Direction for Tuesday 28 July, 2015: Down

2015 Daily Directional Accuracy: 72/117  (61.54%) 

2015 Weekly Directional Accuracy: 17/27 (62.96%)