Wednesday, 19 Aug 2015 - AMC

Dow -162.61 at 17348.73, Nasdaq -40.29 at 5019.05, S&P -17.31 at 2079.61

Market is looking more bearish after the pullback is most likely to be over. Today was a volatile session as expected for the release of FOMC minutes. We saw the market rejected by yesterday close and went down. 

Markets around the world remained weak as we saw more downside in Europe and Asia markets also closed in the red. 

On the crude oil, a rise in inventory report just threw the oil price into free fall. We saw the oil price tanked to near $40.85 level. It looks as though oil is going to stay below $42.50 (previous low) for now. 

Market Summary

Industry Watch

Strong: Consumer Discretionary, Utilities

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

Other Market Moving Factor:

• Crude oil slides back below $42/bbl 
• July CPI comes in below expectations (+0.1%; Briefing.com consensus 0.2%)
• FOMC Minutes paint a dovish picture: dollar slips, Treasuries climb

[BRIEFING.COM] The stock market ended the Wednesday session on a lower note after enduring a volatile day that included opening weakness, an afternoon rebound, and a slide from rebound highs. When the dust settled, the S&P 500 ended lower by 0.8%, turning a slim weekly gain into a 0.6% week-to-date loss. 

Equities stumbled at the start after the overnight session featured more uninspiring action in China. Specifically, the Shanghai Composite climbed 1.2%, but not before being down more than 5.0% in the early going. The wild turnaround was followed by a retreat across European markets while U.S. equities opened in the red and continued their slide with the energy sector (-2.8%) pacing the move. 

The growth-sensitive group extended its weekly loss to 3.2% while crude oil fell to a new low for the year, ending the pit session lower by 4.3% at $40.80/bbl. Similarly, the other commodity-related sector—materials (-1.2%)—ended at the bottom of the leaderboard amid weakness in steelmakers. The Market Vectors Steel ETF (SLX 25.63, -0.75) lost 2.8%. That being said, mining shares represented a pocket of strength, evidenced by a 2.9% spike in Market Vectors Gold Miners ETF (GDX 15.20, +0.43). On a related note, gold futures climbed 1.2% to $1130.70/ozt. 

The early selling pressured the S&P 500 below its 200-day moving average (2,078), but the benchmark index crawled back above that mark during afternoon action and charged to an intraday high after the minutes from the July FOMC meeting crossed the wires about 20 minutes ahead of the scheduled release time. 

Overall, the minutes appeared to be quite dovish with members "generally agreeing" that more information is needed before hiking rates. Furthermore, most members believed that "conditions for policy firming had not yet been achieved," but they agreed that conditions were nearing that point. 

The minutes were followed by a spike in the Treasury market, sending the 10-yr note to its high (10-yr yield -8 bps to 2.12%) while the Dollar Index (96.37, -0.67) fell 0.7%. 

Interestingly, the afternoon rebound dissolved just as fast as it had crystalized with the S&P 500 returning to its pre-FOMC levels roughly 45 minutes after hitting its rebound high. 

Eight sectors ended the day in negative territory while rate-sensitive telecom services (+0.01%) and utilities (+0.4%) eked out gains thanks to lower yields. 

Meanwhile on the cyclical side, the aforementioned energy and materials struggled throughout the day while other growth-sensitive groups fared a bit better. Technology (-0.9%) and financials (-0.9%) ended essentially in-line with the broader market while the consumer discretionary sector (-0.2%) spent the day ahead of the benchmark index. Select restaurant names displayed gains with Yum!Brands (YUM 86.08, +1.88) spiking 2.2% after naming a new CEO for its division in China. Also of note, Lowe's (LOW 74.37, +1.35) climbed 1.9% despite missing bottom-line estimates and reaffirming its guidance. 

Today's participation was ahead of recent averages with more than 810 million shares changing hands at the NYSE floor. 

Economic data was limited to CPI and the MBA Mortgage Index: 

• Total CPI rose 0.1% (Briefing.com consensus +0.2%) in July while Core CPI, which excludes food and energy, also rose 0.1% (Briefing.com consensus +0.2%) 
  • The indexes for food (+0.2%) and energy (+0.1%) helped push up the all items index while a 0.4% increase in the shelter index was the key driver behind the increase in the all items index, excluding food and energy 
  • On a year-over-year basis, total CPI is up 0.2% and core CPI is up 1.8% 
• The weekly MBA Mortgage Index rose 3.6% to follow last week's 0.1% uptick 

Tomorrow, weekly Initial Claims (Briefing.com consensus 272,000) will be reported at 8:30 ET while July Existing Home Sales (consensus 5.42 million), July Leading Indicators (expected 0.2%), and the Philadelphia Fed survey for August (consensus 0.2%) will all be released at 10:00 ET.

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei -1.6%; Hong Kong’s Hang Seng -1.3%; China’s Shanghai Composite +1.2%

There was some wild trading action in China’s Shanghai Composite, which dropped as much as 5.1% in early action but then rallied back in afternoon trading to end the day up 1.2%. Despite the reversal, most other markets looked put off by the volatility and ended lower on continue concerns about an economic slowdown in the region. On a related note, Japan’s exports and imports were both better than expected in July but slowed from the prior month.

Economic Data

• Japan
• July Trade Balance JPY -268.0 bln (expected JPY -57 bln; prior JPY -69 bln)
• Exports +7.6% year-over-year (expected +5.5%; prior +9.5%)
• Imports -3.2% year-over-year (expected -7.9%; prior -2.9%)
• All Industries Activity Index +0.3% month-over-month (expected +0.4%; prior -0.5%)
• China
• July FDI +7.9% (prior +8.0%)
• South Korea
• July PPI -0.3% month -over-month (prior 0.0%); -4.0% year-over-year (prior -3.6%)
• Australia
• MI Leading Index 0.0% month-over-month (prior 0.0%)

Equity Markets

• Japan’s Nikkei declined 1.6% and ended at its low for the session. July trade data showed both exports and imports being better than expected but decelerating from the prior month. Losses were broad based and paced by the industrials (-2.8%), materials (-2.1%), and technology (-2.0%) sectors. Daiichi Sankyo (-5.4%), Advantest (-5.2%), and Sumco (-5.0%) were the weakest issues. Toshiba (+5.4%), Citizen Holdings (+3.2%), and Tokyo Gas (+1.6%) topped a small group of winners. Out of the 225 index members, 18 ended higher, 201 finished lower, and 6 were unchanged.
• Hong Kong’s Hang Seng declined 1.3% and ended at its lows for the session, weighed down by volatility in the mainland markets and festering worries about an economic slowdown in the region. Cathay Pacific Airways (-7.7%), Galaxy Entertainment Group (-4.4%), and China Mengniu Dairy (-3.7%) paced the laggards while Lenovo Group (+4.3%), Li & Fung (+2.9%), and Sino Land (+1.4%) led a small group of winners. Out of the 50 index members, 5 ended higher, 44 finished lower, and 1 was unchanged.
• China’s Shanghai Composite increased 1.2% after being down as much as 5.1% in early trading. The reversal came in the afternoon session and, according to Reuters, was spurred on by “state-backed” buyers. The Composite rallied as much as 5.2% in the final two hours of trading. The CSI 300 Index for its part jumped 1.6% in a similarly volatile session.
• India’s Sensex increased 0.4%, bolstered by strength in the health care (+1.8%) and consumer discretionary (+0.9%) sectors. Sun Pharmaceuticals (+4.3%), Lupin (+2.5%), and Wipro (+2.4%) topped the list of winners while Hindalco Industries (-3.1%), State Bank of India (-2.4%), and Coal India (-2.3%) brought up the rear. Out of the 30 index members, 18 ended higher and 12 finished lower.
• Australia’s S&P/ASX 200 increased 1.5%, led in part by a strong showing from the banks. The energy (+3.0%), consumer staples (+2.1%), and financials (+2.0%) sectors were the strongest areas overall. Out of the 200 index members, 128 ended higher, 65 finished lower, and 7 were unchanged.
• Regional advancers: Malaysia +0.2%, Thailand +0.3%, Philippines +0.2%
• Regional decliners: South Korea -0.9%, Taiwan -1.9%, Indonesia -0.6%, Singapore -0.3%, Vietnam -0.4%

FX

• USD/CNY +0.02% at 6.3956
• USD/INR -0.1% at 65.2688
• USD/JPY -0.04% at 124.36

EUROPE

Major European indices trade lower across the board with Germany’s DAX (-1.3%) leading the retreat. Meanwhile, the German parliament has passed the third Greek bailout program, but there was increasing opposition with 113 lawmakers voting against the package.

• Eurozone June Current Account surplus expanded to EUR25.40 billion from EUR19.10 billion (expected surplus of EUR19.20 billion)

Closing Prices

• UK’s FTSE: -1.9%
• Germany’s DAX: -2.1%
• France’s CAC: -1.8%
• Spain’s IBEX: -1.1%
• Portugal’s PSI: -1.8%
• Italy’s MIB Index: -1.8%
• Irish Ovrl Index: -1.1%
• Greece ASE General Index: + 0.3%

Macroeconomic Data

Economic Data

from Briefing.com

• MBA Mortgage Index : (Prior 0.1%)
• CPI : 0.1% vs 0.2% (Prior 0.3%)
• Core CPI : 0.1% vs 0.2% (Prior 0.2%)
• Crude Inventories : 2.620M (Prior -1.682M)
• FOMC Minutes 

CONSUMER PRICE INDEX

Highlights

• The July Consumer Price Index (CPI) produced some headline disappointment with both total CPI and CPI, excluding food and energy, increasing just 0.1%. The Briefing.com consensus estimate called for 0.2% increases in both readings. Fed's monetary policy.

Key Factors

• The indexes for food (+0.2%) and energy (+0.1%) helped push up the all items index. 
• A 0.4% increase in the shelter index was the key driver behind the increase in the all items index, excluding food and energy. 
• The advance in the shelter index helped offset declines in airline fares, used cars and trucks, household furnishings and operations, and new vehicles.
• Over the last 12 months, the all items index is up 0.2%, having been suppressed by the energy index which is down 14.8% over the past year.
• Excluding food and energy, the all items index rose 1.8% for the 12 months ending July. That is unchanged from June and is the fourth time in the last five months the 12-month change was 1.8%. The average annualized increase for core CPI over the last 10 years is 1.9%.

Big Picture

• The stability of core CPI is a development participants might construe as a basis for the Fed to rationalize a rate hike in the near term considering one side of its dual mandate is price stability. In this regard, market participants aren't necessarily viewing the headline readings for July as a friendly surprise when it comes to thinking about the Fed's monetary policy.

Market Internals

NYSE:

Higher Volumes than the day before – 843.9M vs 689.3M 


Decliners outpaced Advancers (adv/dec): 772 / 2286

New Lows outpaced New Highs (highs/lows): 36 / 280

NASDAQ:

Higher Volumes than the day before – 1776.2M vs 1496.5M

Decliners outpaced Advancers (adv/dec): 760 / 2090

New Lows outpaced New Highs (highs/lows): 32 / 161

VOLATILITY S&P500 (VIX)
15.25 +1.46 (+10.59%)

Internals were certainly showing more bearishness and there were also more participation in the market. That shows a convincing statement on where the market might go from here. New Lows also spiked higher while New Highs continued to slide lower. VIX broke above its MAs and it is looking to break above the resistance at 15.00. In general, I think there is hardly any bullishness to pick up.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,348.73 -162.61 (-0.93%)

Volume: 104,717,299 (above average of 93,084,307)
Range: 17,282.42 - 17,517.19

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

5,019.05 -40.30 (-0.80%)
Volume: 399,246,525 (below average of 430,702,713)

Range: 4,992.85 - 5,060.93

S&P 500 INDEX (SPX: CBOE)

2,079.61 -17.31 (-0.83%)

Volume: 571,231,000 (above average of 532,681,985)

Range: 2,070.53 - 2,096.17

DOW went down to its support level at 17,340. NASDAQ also broke out of its channel and went lower to find its support at around 5,010. As its 20MA is about to cross below the 50MA, I reckon there is not much of any big upside movement at the moment. S&P did broke down its 200MA (again) and manage to stay above its ascending trend line and support level at about 2,080 area. Looking at the 3 indices, there is little chance that we would see the market return to the upside as it is quite done with the pullback already. If we see the support fails, that is where the market is about to head for more downside. Nonetheless, looks like the bearish trend has already begun for a while and it ain't looking tired. 

Commodities

Closing Commodities: Oil Prices Fall Sharply, WTI Crude Falls Below $41, Brent Below $47

• In commodities, the big story is WTI crude falling below $41/barrel briefly
• WTI oil is now at a 6 ½-year low. Both brent and WTI crude oil fell sharply today
• In electronic trade, both are still sitting near today’s lows
• Sept WTI crude oil finished the floor session -4.4% at $41.25/barrel
• In other energy, Sept natural gas gained one cent to finish at $2.71/MMBtu
• Following the FOMC minutes headlines earlier, the dollar index sold off, which gave some commodities a boost
• However, it really wasn’t a notable boost.
• In recent trade, the euro spiked further, which caused the dollar index to push lower
• In current trade, the index is -0.7% at 96.37, near today’s new low now, which is helping gold and silver futures remain near today’s high in electronic trade
• In floor trading, Dec gold ended the day +1.0% at $1128.00/oz, while Sept silver finished +2.6% at $15.19/oz
• Since the close, gold has inched higher by a few dollars and just hit a new high for today

Energy

• October crude oil futures fell $1.89 (-4.4%) to $41.25/barrel
• September natural gas closed $0.01 higher (+0.4%) at $2.71/MMBtu
• RBOB Gasoline closed $0.10 lower at $1.55/gallon
• Heating oil futures closed $0.04 lower at $1.52/gallon

Agriculture

• December corn closed $0.02 higher at $3.79/bushel
• September wheat closed $0.03 higher at $4.97/bushel
• November soybeans closed $0.09 lower to $8.94/bushel
• Sugar #11 closed $0.14 cents lower at 10.59 cents/lb

Metals

• December gold ended today’s session $11.00 higher (+1.0%) at $1128.00/oz
• September silver closed today’s session $0.38 higher (+2.6%) at $15.19/oz
• September copper closed $0.01 lower (-0.4%) at $2.28/lb

Currencies

Dollar Drops on Fed Minutes

• The U.S. Dollar Index fell ?0.63% to 96.43 today as Treasury yields dropped sharply following the release of the FOMC minutes from the July meeting. The market's interpretation is that the minutes generally do not provide enough support for a September meeting hike
• EUR/USD: +0.84% to $1.1121
  • The eurozone's current account surplus grew more than expected to 25.4 bln euro in June from 19.1 bln euro in May
• GBP/USD: +0.16% to $1.5685
• USD/JPY: -0.49% to 123.78
  • Japan's adjusted trade deficit unexpectedly widened to 268 bln yen in July from 69 bln in June
  • The All Industries Activity Index rose a less-than-expected 0.3% in June versus a decline of 0.5% in May
• USD/CHF: -1.25% to 0.9655
• USD/CAD: +0.34% to 1.3103
• AUD/USD: +0.19% to $0.7352
• NZD/USD: +0.33% to $0.66009

Bonds

Treasuries Gain Big on FOMC Minutes

• Treasury yields moved sharply lower today after investors construed the Fed minutes from the July FOMC meeting to be rather dovish. The July CPI (both Core and headline) came out lower than expected, but rates did not begin to move seriously lower until after the Fed minutes
• Yield Check:
  • 2-yr: -7 bps to 0.65%
  • 5-yr: -9 bps to 1.50%
  • 10-yr: -7 bps to 2.13%
  • 30-yr: -5 bps to 2.81%

• News:
  • The MBA Mortgage Index for the week ended 8/15 increased 3.6% versus a 0.1% rise in the prior week
  • The headline Consumer Price Index added 0.1% in July, less than the Briefing.com consensus of 0.2% and the prior reading of 0.3%
    • The Core CPI rose 0.1%, also lower than the Briefing.com consensus of 0.2% and the 0.2% gain in June
    • The rise in the CPI, such as it was, was fueled by a 0.4% increase in housing costs
  • Joseph LaVorgna, chief economist at Deutsche Bank, said that the "FOMC minutes were slightly dovish relative to the meeting statement as most judged that conditions for hiking rates were not there yet."

• Commodities:
  • WTI crude: -4.89% to $41.01/bbl.
    • The EIA report for the week ended 8/15 showed a build of 2.62 mln bbl. while the market had been looking for a draw of 1.3 mln
  • Gold: +1.39% to $1,132.20/troy oz.

• Currencies:
  • EUR/USD: +0.87% to $1.1124
  • USD/JPY: -0.46% to 123.82

• Data Out Thursday:
  • San Francisco Fed President Williams (FOMC voter) (02:45 ET)
  • Initial Jobless Claims for the week ended 8/15 and Continuing Jobless Claims for the week ended 8/8 (08:30 ET)
  • July Existing Home Sales (10:00 ET)
  • August Philadelphia Fed (10:00 ET)
  • July Leading Indicators (10:00 ET)
  • Natural Gas Inventories for the week ended 8/15 (10:30 ET)
• Treasury Auction:
  • $16 bln 5-year TIPS auction (reopening, results at 13:00 ET)

Treasury Yields:

• 2 Year Note 0.67% -0.07
• 5 Year Note 1.50% -0.10
• 10 Year Note 2.12% -0.08
• 30 Year Bond 2.81% -0.06

2/30 Spread: 214 bps ( +1 ) …  2/10 Spread: 145 bps ( -1 )

Preview for Thursday 20 August, 2015

Economic Data

Thursday (20 Aug) :

• Initial Claims : 272K (Prior 274K) 
• Continuing Claims : 2265K (Prior 2273K)
• Existing Home Sales : 5.42M (Prior 5.49M)
• Philadelphia Fed : 7.0 (Prior 5.7)
• Leading Indicators : 0.2% (Prior 0.6%)
• Natural Gas Inventories : (Prior 65 bcf)

Earnings Highlights

Thursday (20 Aug) :
BMO - AMWD ANN BONT BKE CATO CYBX SNOW DATE JKS KIRK LANC LITB MSG NM OSIS PERY QIWI RGS SHLD SSI SMRT TECD TTC
AMC - WUBA ARAY CRMT BRCD GPS HPQ INTU JBSS MRVL MENT UEPS NWY NDSN NQ QUNR ROST CRM SCSC TFM TUES

Summary
Market has been volatile but I doubt there is still any significant bullish strength leftover. Referring to the technicals, we are already in a midst of a downtrend and S&P is looking to break out of the consolidation trading range since the start of the year. As the odds is towards the downside, things are not looking rosy anymore in the market. I did mentioned previously that the market has been on an uptrend since 2009 and we are forming sort of a rounding top at this point in time.

There's a saying "Don't buy the high, don't sell the low" and we are pretty much at a high right now.  

After Hours Report (Briefing)
Futures are lower after hours: S&P 500 futures are -2.02 from fair value of ?2,076.17 and Nasdaq100 futures are -4.46 from fair value of ?4,508.76.

Tomorrow morning before the open two economic reports are scheduled to be released: 1) Initial Claims (Consensus 272K), and 2) Continuing Claims (Consensus 2265K)

Tomorrow before the open the following companies are scheduled to report earnings: TECD, SHLD, TTC, BONT, JKS, SSI, MSG, SMRT, LANC, OSIS, CATO, BKE, AMWD, PERY, NM, KIRK, CYBX, DATE

Direction for Thursday 20 Aug, 2015: Down

2015 Daily Directional Accuracy: 82/130  (63.08%) 

2015 Weekly Directional Accuracy: 18/30 (60.00%)