Wednesday, 1 July 2015 - AMC

Dow +138.40 at 17758.25, Nasdaq +26.26 at 5013.13, S&P +14.32 at 2077.55

It seems like a short covering to me. The retracement did not carry much strength. If the sellers want to maintain some control, I reckon we might see a limited pullback like Tuesday. Maybe we might see a consolidation in the market before it goes for another sell-off. Personally I don't feel much bullish at the moment and you do not think you are getting the bottom because market might just go against you big time. Market is still not out of the trading range yet if you look at it exactly, but it looks as if it is about to.

With Greece default on its payment to IMF, it certainly leads to more weakness in the global market. 

Direction for Wednesday 1 July, 2015: Up

There was a huge spike at the opening, but market rejected the resistance level and we saw some profit taking across most of the session. However there seems to be some buying in the last 2 hours. NASDAQ was somehow the weakest among the 3 indices. Overall I think the strength of the bullishness is yet to be seen and we haven't seen much bearishness since Monday. 

Crude oil took a toll after the Dollar Index continues to rise and a build up in the oil inventories released on Wednesday. Meanwhile in Greece, the government is finally going to throw in the towels to settle on their debt payments this coming weekend. But in Asia, China market continues to slump and it might requires the PBOC to step in soon.            

Market Summary

Industry Watch

Strong: Consumer Discretionary, Financials, Health Care

Weak: Energy, Technology, Telecom Services, Industrials, Utilities

Other Market Moving Factor:

• Global markets surge amid reports Greece is now ready to accept all creditor demands: German Chancellor Angela Merkel says negotiations will not resume before Sunday referendum

[BRIEFING.COM] The major averages spent the Wednesday session in a slow retreat from their opening highs, but they were able to keep more than half of their opening gains. The S&P 500 climbed 0.7% while the Nasdaq Composite (+0.5%) underperformed.  

Equities surged out of the gate amid reports from Europe indicating Greece is now ready to accept all conditions in order to secure a bailout. The report sparked a rush to risk assets, but the Greek offer was met with a cool reception from Eurozone leaders. Most notably, Germany's Chancellor Angela Merkel reiterated that talks will not resume until after Sunday's referendum, adding that "a compromise at any price" is not worthwhile. Similarly, Eurogroup Chief Jeroen Dijsselbloem said he does not see the need for a resumption of talks ahead of Sunday's referendum.  

Despite charging at the start, stocks began inching away from their highs about 30 minutes into the session after Greek Prime Minister Alexis Tsipras reiterated his call for a ‘no' vote during Sunday's referendum. A small pullback ensued as Mr. Tsipras' comments cast doubt on earlier speculation that the referendum could be cancelled altogether.  

Nine sectors were able to end the day with gains while energy (-1.3%) struggled amid daylong weakness in crude oil that sent the energy component to levels not seen since late May. WTI crude settled lower by 4.2% at $56.94/bbl with greenback strength contributing to the move as the Dollar Index (96.25, +0.76) rose 0.8%.  

Today's plunge in crude oil failed to boost airlines as the industry group was hit with broad-based selling interest after the Department of Justice confirmed a probe into potential collusion in the industry. Delta Air Lines (DAL 40.27, -0.81) and JetBlue (JBLU 20.04, -0.71) lost 2.0% and 3.4%, respectively, while the Dow Jones Transportation Average eked out a slim gain of 0.2% thanks to gains among shipping and railroad names.  

Elsewhere among cyclical sectors, consumer discretionary (+1.0%) and financials (+1.3%) outperformed throughout the session. The financial sector held the lead into the close with Chubb (CB 119.99, +24.85) soaring 26.1% after agreeing to be acquired by ACE Limited (ACE 102.49, +0.81) for roughly $124.13/share in cash and stock. The acquisition boosted other insurers with Dow component Travelers (TRV 99.30, +2.64) jumping 2.7%. 

Also of note, the technology sector (+0.6%) was among the early leaders, but the top-weighted group slipped behind the broader market during afternoon action. The retreat from early highs was paced by chipmakers with the PHLX Semiconductor Index narrowing its gain to 0.2% after being up 1.5% at the start.  

Treasuries ended the day not far above their lows with the 10-yr yield climbing six basis points to 2.42%.  

Today's participation was ahead of average as more than 840 million shares changed hands at the NYSE floor.  

Economic data included ADP Employment, ISM Index, Construction Spending, and MBA Mortgage Index: 

• The ADP National Employment Report revealed that employment in the nonfarm private business sector rose by 237K in June, which was above the increase of 200K expected by the Briefing.com consensus 
  • The May reading was revised up to 203,000 from 201,000 
• The ISM Manufacturing Index increased to 53.5 in June from 52.8 in May while the Briefing.com consensus expected an increase to 53.2 
  • A small acceleration in new orders growth (56.0 from 55.8) was not enough to keep the Production Activities index from falling to 54.0 in June from 54.5 in May 
• Construction spending increased 0.8% in May after a downwardly revised 2.1% (from 2.2%) increase in April while the Briefing.com consensus expected an increase of 0.3% 
  • Typically, construction spending naturally pulls back after an outsized 2.0% monthly gain. Not only did construction spending remain on a positive track, but it easily topped what we considered to be inflated expectations. 
• The weekly MBA Mortgage Index fell 4.7% to follow last week's 1.6% increase 

Tomorrow, weekly Initial Claims (Briefing.com consensus 273K) and June Nonfarm Payrolls (consensus 230K) will both be reported at 8:30 ET while the Factory Orders report for May (consensus -0.5%) will cross the wires at 10:00 ET.

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei +0.5%; Hong Kong’s Hang Seng CLOSED; China’s Shanghai Composite -5.2%
The equity markets in the Asia-Pacific region were mixed on Wednesday. China’s rocky road continued with a 5% loss in the Shanghai. The index shook off an early round of bad news after the HSBC Final Manufacturing PMI reading came in below expectation at which came in at 49.4 (vs 49.6e). The state issued PMI also failed to meet the consensus with a reading of 50.2 (vs 50.4e). Perhaps the data gave traders a bit of indigested since the fall-out did not occur until after the lunch break. The Nikkei was 0.5% stronger today with some better than expected news on the outlook of the economy after the Tankan Business Survey came in 3 pts better than expected at 15.

Economic Data

• Japan
• Q2 Tankan Manufacturing Index: 15 vs 12e
• Jun Final Manufacturing PMI: 50.1 vs 49.9 prelim
• China
• Jun FInal HSBC Manufacturing PMI: 49.4 vs 49.6e
• Australia
• May Building Approvals M/M: 2.4% vs 1.2%e

Equity Markets

• Japan’s Nikkei increased 0.5% on broad-based gains that were led by the consumer non-cyclical (+1.2%) and communications (+0.9%) sectors. Individual standouts included Shionogi & Co (+7.8%) and Nippon Paper Industries (+3.6%). Out of the 225 index members, 134 ended higher, 77 finished lower, and 14 were unchanged.
• Hong Kong’s Hang Seng increased was closed for public holiday
• China’s Shanghai Composite declined 5.2% shortly after the starting the day in positive territory. Financials were notable laggards with Ag Bank of China down 3.2%, while Bank of China slid 2.9%. China Shipbuilding sunk 10%, outpacing the broader market.
• India’s Sensex increased 0.9%, closing above the 28000 level. bolstered by strength in Financials with Axis Bank (+4%) and Bank of Baroda (+3.9%) after the government’s announced plan of a comprehensive package geared to banks. Out of the 30 stocks in the index, 23 ended in positlve territory.

FX

• USD/CNY -0.01% at 6.2000
• USD/INR -0.01% at 63.640
• USD/JPY +0.4% at 122.95

EUROPE

Major European indices trade higher across the board with France’s CAC (+2.7%) in the lead. Elsewhere, Greece’s proposal of returning to the original creditors’ offer has been met with a cool reception among Eurozone leaders. For instance, Germany’s Chancellor Angela Merkel reiterated that talks will not resume until after Sunday’s referendum, adding that “a compromise at any price” is not worthwhile.

• Eurozone June Manufacturing PMI 52.5, as expected (prior 52.5)
• Germany’s June Manufacturing PMI 51.9, as expected (prior 51.9)
• UK’s June Manufacturing PMI 51.4 (consensus 52.5; prior 51.9)
• France’s June Manufacturing PMI 50.7 (consensus 50.5; prior 50.5)
• Italy’s June Manufacturing PMI 54.1 (expected 54.4; last 54.8)
• Spain’s June Manufacturing PMI 54.5 (consensus 55.5; previous 55.8)

Closing Prices

• UK’s FTSE: + 1.2%
• Germany’s DAX: + 2.2%
• France’s CAC: + 1.9%
• Spain’s IBEX: + 1.2%
• Portugal’s PSI: + 1.5%
• Italy’s MIB Index: + 2.2%
• Irish Ovrl Index: + 1.1%
• Greece ASE General Index: Closed

Macroeconomic Data

Economic Data

from Briefing.com

• MBA Mortgage Index : -4.7% (Prior 1.6%)
• Challenger Job Cuts : 9.3% (Prior -22.5%) 
• ADP Employment Change : 237K vs 220K (Prior 201K)
• ISM Index : 53.5 vs 53.2 (Prior 52.8)
• Construction Spending : 0.8% vs 0.2% (Prior 2.2%)
• Crude Inventories : 2.386M (Prior -4.934M)  
• Auto Sales : (Prior 5.9M)
• Truck Sales : (Prior 8.4M)

ISM INDEX

Highlights

• The ISM Manufacturing Index increased to 53.5 in June from 52.8 in May. The Briefing.com Consensus expected the index to increase to 53.2.

Key Factors

• A small acceleration in new orders growth (56.0 from 55.8) was not enough to keep production growth from slowing or to restock manufacturer backlogs. Production activities softened as the index fell to 54.0 in June from 54.5 in May. Unfilled orders contracted as the related index declined to 47.0 in June from 53.5 in May.
• Without a steady supply of backlogs, production growth will be highly reliant on future new orders gains.
• The Employment Index rose to 55.5 in June from 51.7 in May.

Big Picture

• This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.

CONSTRUCTION SPENDING

Highlights

• Construction spending increased 0.8% in May after a downwardly revised 2.1% (from 2.2%) increase in April. The Briefing.com Consensus expected construction spending to increase 0.3%.

Key Factors

• Typically, construction spending naturally pulls back after an outsized 2.0% monthly gain. Not only did construction spending remain on a positive track, but it easily topped what we considered to be inflated expectations.
• Total private construction increased 0.9% in May after increasing 2.2% in April.Total private residential construction increased 0.3% for a second consecutive month in May. Despite a large pullback in the number of new homes started in May, spending on new structures rose 0.1% in May after increasing 0.7% in April. Spending on home improvement projects in May jumped 0.9% after declining 0.9% in April.
• Private nonresidential construction remained robust. After increasing 4.0% in April, nonresidential spending added another 1.5% in May. Gains in manufacturing (6.2%), lodging (3.3%), and office (0.7%) more than compensated for a 2.0% decline in commercial spending.
• Total public spending increased 0.7% in May after increasing 1.7% in April. Most of the gain came from a 2.1% increase in highway and street spending.

Big Picture

• Construction spending has surged over the previous two months.

AUTO SALES & TRUCK SALES

Highlights

• Motor vehicle manufacturers reported that sales increased to 17.8 mln SAAR in May from 16.5 mln SAAR in April.
• That was the most new vehicles sold in one month since U.S. manufacturers offered employee pricing discounts in June and July 2005. Those discounts resulted in sales reaching 18.0 mln SAAR in June 2005 and 20.6 mln SAAR in July 2005.
• Similar incentive programs were used last month to boost demand and get sales to 17.8 mln. Motor vehicle manufacturers offered steep discounts for two weeks in connection with the Memorial Day holiday. Longer-term loans and zero-percent interest rates were also offered to attract buyers. According to Edmunds.com, 9.5% of buyers took advantage of zero percent interest rates, which was the highest since September 2014.
• When those incentive programs end, sales will likely tumble back below 17.0 mln SAAR.
• Total car sales increased to 8.1 mln SAAR in May from 7.9 mln SAAR in April. That was the most new cars sold since December 2014. Total truck sales reached their highest level since June 2005 as sales rose to 9.7 mln SAAR in May from 9.1 mln SAAR in April.
• Domestic sales increased to 14.2 mln SAAR in May from 13.2 mln SAAR in April. Domestic car sales increased to 5.9 mln SAAR from 5.3 mln SAAR and domestic truck sales increased to 8.4 mln SAAR from 7.9 mln SAAR.
• Import sales increased to 3.6 mln SAAR in May from 3.3 mln SAAR in April.

Key Factors

• Year-over-year, sales increased 1.6% in May.
• Despite the big gains, not all manufacturers were winners in May.Sales at Ford (F, -1.3%), Toyota (TM, -0.3%), Nissan (-3.8%), and Hyundai-Kia (-3.8%) all declined on a year-over-year basis.
• A big increase in truck sales from its GMC brand helped drive General Motors (GM) sales up 3.0%.Sales at Fiat Chrysler (FCAU) increased 4.1%.
• Demand for Honda (HMC) vehicles rose 1.3% in May, but that wasn't enough to pick up market share.
• Tesla (TSLA) sales increased 13.3%.
• Year-to-date, sales are up 4.5% from this time in 2014. If sales continue at its current pace, it would surpass early 2015 estimates (17.0 mln) and reach 17.2 mln by the end of the year.

Big Picture

• Sales are on pace to exceed 17.0 mln in 2015.

Market Internals

NYSE:

Lower Volumes than the day before – 862.3M vs 1181.2M 


Advancers outpaced Decliners (adv/dec): 1928 / 1181

New Lows outpaced New Highs (highs/lows): 62 / 188

NASDAQ:

Lower Volumes than the day before – 1805.4M vs 1983.2M

Advancers outpaced Decliners (adv/dec): 1496 / 1322

New Lows outpaced New Highs (highs/lows): 78 / 109

VOLATILITY S&P500 (VIX)
16.09 -2.14 (-11.74%)

Still can't say the internals is bullish, but maybe it is somewhere near. There is a rise in New Highs and New Lows continues to fall. VIX broke below its support at 17.50 and is back to test its support level at around 15.50 area. We shall see where the market would go if the support holds, but it is unlikely to go lower.        

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,757.91 +138.40 (+0.79%)

Volume: 87,006,636 (below average of 95,675,654)
Range: 17,638.12 - 17,801.83

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

5,013.12 +26.25 (+0.53%)
Volume: 425.8M (below average of 431,230,487)

Range: 4,994.47 - 5,038.55

S&P 500 INDEX (SPX: CBOE)

2,077.42 +14.31 (+0.69%)

Volume: 531.8M (above average of 517,168,344)

Range: 2,067.00 - 2,082.78 

DOW broke above 200MA but could not break above its resistance at 17,750 area. NASDAQ could not break above its previous trend line and sit above its support level at around 5,000. S&P also broke above its resistance level and went to test its previous trend line serving as a resistance. I think the market might still go forward to test its resistance, but if the resistance level is strong I suppose we should see the market returns to downside.

Commodities

Closing Commodities: WTI Crude Oil Falls Sharply, Corn Rises Modestly Following Yesterday’s 10% Surge

• WTI crude oil futures sold off today, losing $2.50/barrel to $56.94/barrel.
• Aug natural gas also fell to, declining $0.05 to $2.78/MMBtu.
• Heating oil and RBOB futures declined as well today.
• Metals were mixed today with copper rising $0.02 to $2.63/lb, Aug gold falling $2.60 to $1169.20/oz and Sept silver losing $0.05 to $15.57/oz
• Following a 10% rally yesterday, Sept corn futures closed today $0.02 higher to $4.24/bushel

Energy

• August crude oil futures fell $2.50 to $56.94/barrel
• August natural gas closed $0.05 lower at $2.78/MMBtu
• RBOB Gasoline closed $0.04 lower at $2.01/gallon
• Heating oil futures closed $0.05 lower to $1.84/gallon

Agriculture

• September corn closed $0.02 higher at $4.24/bushel
• September wheat closed $0.30 lower at $5.87/bushel
• November soybeans closed $0.07 lower to $10.29/bushel
• Ethanol closed flat at $1.63/gallon
• Sugar #11 closed 0.03 cents lower to 12.44 cents/lb

Metals

• August gold ended today’s session $2.60 lower at $1169.20/oz
• September silver closed $0.05 lower at $15.57/oz
• September copper closed $0.02 higher at $2.63/lb

Currencies

Dollar Gains Against All Majors

• The U.S. Dollar Index jumped 0.81% to 96.26 today on global uncertainty and better-than-expected economic growth in the United States
  • The U.S. economy added 237K jobs in June according to ADP, better than the Brieifing.com consensus of 220K
  • The ISM Index rose to 53.5 in June versus expectations for 53.2 and 52.8 in May
  • China's HSBC Manufacturing Survey missed expectations in June
• EUR/USD: -0.68% to 1.1054
  • Both German Chancellor Angela Merkel and the Eurogroup have said that negotiations with Greece are on hold until the July 5th referendum
  • The eurozone's Manufacturing PMI for June was in line with expectations and the prior month's reading at 52.5
    • Within the eurozone, the Manufacturing PMI readings for June were Italy 54.1, Spain 54.5, Germany 51.9, and France 50.7
• GBP/USD: -0.53 to $1.5602
  • In the U.K., the Manufacturing PMI for June fell to a worse-than-expected 51.4 from 51.9 in May
• USD/JPY: +0.60% to 123.16
  • Industrial sentiment improved as the Tankan Large Manufacturers Index rose to 15 in the second quarter, ahead of expectations and the reading of 12 from Q1
• USD/CHF: +1.30% to 0.9475
  • The Swiss National Bank has been selling Swissy this week to prevent a flight to quality on Greece's failure to repay the IMF
  • The SNB got a new board member today. She will be taking charge of the SNB department that manages currency-market intervention
• USD/CAD: +0.84% to 1.2588
  • Today was a holiday for Canada Day
• AUD/USD: -0.60% to 0.7653
• NZD/USD: -0.46% to 0.6751

Bonds

Treasuries Slide on Better U.S. Data

• Treasuries gave back more ground as the economic data released today showed continued momentum in the U.S. economic recovery. The complex has now given back over 70% of Sunday night's flight-to-quality rally in every maturity as investors continue to use rallies as selling opportunities. Tomorrow morning, we will see the June Employment Situation Report
• Yield Check:
  • 2-yr: +4 bps to 0.69%
  • 5-yr: +5 bps to 1.70%
  • 10-yr: +6 bps to 2.42%
  • 30-yr: +6 bps to 3.19%

• News:
  • Overnight, Greece failed to make its 1.55 bln euro payment to the IMF
  • The ADP Employment Change for June rose to 237K from an upwardly-revised 203K in May. The Briefing.com consensus had called for a gain of 220K
    • That was the best month for job creation (according to this metrics) since December 2014
  • The ISM Manufacturing Index increased to 53.5 in June from 52.8 in May. The Briefing.com Consensus expected the index to increase to 53.2
    • A small acceleration in new orders growth (56.0 from 55.8) was not enough to keep production growth from slowing or to restock manufacturer backlogs
  • Construction Spending climbed 0.8% in May, more than the Briefing.com consensus of 0.3% but less than the downwardly-revised 2.1% growth seen in May
  • Overnight, St. Louis Fed President Bullard said that the Greek debt crisis was unlikely to take a rate hike off the table at the September meeting
    • Bullard is a non-FOMC voter and a monetary hawk
  • Greece is slated to hold a referendum on July 5th (Sunday) to decide whether or not the country should agree to the official creditors' most recent demands
    • Current polling indicates that 46% of Greek voters would vote "no" and 37% would vote "yes" (lots of undecided's?)
    • Greek Finance Minister Yanis Varoufakis has posted this argument as to why voters should vote "no"

• Commodities:
  • WTI Crude: -4.30% to $56.91/bbl
  • Gold: -0.40% to $1,167.10/troy oz.
  • Copper: +0.57% to $2.63/lb.

• Currencies:
  • EUR/USD:  -0.71% to $1.1051
  • USD/JPY: +0.60% to 123.17

• Data out Thursday:
  • Initial Jobless Claims for the week ending 6/27 and Continuing Jobless Claims for the week ending 6/20
  • June Employment Situation Report (08:30 ET)
  • May Factory Orders (10:00 ET)
  • Natural Gas Inventories for the week ending 6/27 (10:30 ET)

Treasury Yields:

• 2 Year Note 0.69% +0.05
• 5 Year Note 1.70% +0.07
• 10 Year Note 2.43% +0.08
• 30 Year Bond 3.20% +0.09

2/30 Spread: 251 bps ( +4 ) …  2/10 Spread: 174 bps ( +3 )

Preview for Thursday 2 July, 2015

Economic Data

Thursday (2 July) :

• Initial Claims : 270K (Prior 271K)
• Continuing Claims : 2231K (Prior 2247K)
• Nonfarm Payrolls : 230K (Prior 280K)
• Nonfarm Private Payrolls : 225K (Prior 262K)
• Unemployment Rate : 5.4% (Prior 5.5%)
• Hourly Earnings : 0.2% (Prior 0.3%)
• Average Workweek : 34.5 (Prior 34.5)
• Factory Orders : 0.2% (Prior -0.4%)
• Natural Gas Inventories : (Prior 75 bcf)

Earnings Highlights

Thursday (2 July) :
BMO - ISCA
AMC - None Scheduled

Summary
I think market is still likely to going up but the upside is more or less limited, like what we have seen for the past 2 sessions. The resistance level should see if the bears are taking control of the market. On top of that we are going to see the unemployment claims and Nonfarm Payroll numbers. That is going to give the market a catalyst.  

As the market is closed on Friday due to Independence Day, we are going to see more volatility and some profit taking ahead of Greece's deal across the weekend. 

Direction for Thursday 2 July, 2015: Down

2015 Daily Directional Accuracy: 59/100 (59.00%) 

2015 Weekly Directional Accuracy: 14/23 (60.87%)