Monday, 28 Sept 2015 - AMC

Dow -312.78 at 16001.89, Nasdaq -142.53 at 4543.96, S&P -49.57 at 1881.78

There is only one direction in the market - down. It was a downside follow through from last Friday weakness. Not surprising as we saw a bearish engulfing pattern in that session. I suppose that validates the bears are still very much in control of the market. 

Mixed performance around the global markets with Asia markets generally flattish and Europe markets mostly suffered around 2% loss. 
  

Market Summary

Industry Watch

Strong: 

Weak: Health Care, Materials, Energy, Industrials, Financials, Consumer Discretionary

Other Market Moving Factor:

• Commodity price weakness
• Global growth concerns
• Continued slide in biotech stocks

[BRIEFING.COM] The new week got off to a very poor start for the major indices, which experienced steady selling pressure from the opening bell in a trend-down day.  Global growth concerns were at the heart of Monday's pullback along with another dastardly performance by the biotechnology sector.

The growth concerns were triggered anew by a caustic research note on the business prospects for commodity producer Glencore (GLCNF 1.07, -0.41), an 8.8% year-over-year decline in China's industrial profits, a disappointing 1.4% monthly decline in pending U.S. home sales for August, and a declaration from International Monetary Fund (IMF) head Christine Lagarde that the IMF's forecasts for global growth of 3.3% this year and 3.8% next year are no longer realistic due principally to the weakness in emerging markets.

These factors, and an allegation from famed investor Carl Icahn that there could be another financial catastrophe looming with the persistence of the Federal Reserve's policy rate near the zero bound, cast a pall on investor sentiment that hung over the capital markets all day.

To that end, oil (-2.7% to $44.47 per barrel) and other commodity prices got knocked back noticeably, high-yield bond prices continued to weaken, cyclical sectors like the energy (-3.6%), materials (-3.2%), and consumer discretionary (-2.9%) sectors were among the hardest hit areas, and Treasuries rallied in a flight-to-safety bid.

In turn, investors sought downside protection, evidenced by the 17% surge in the CBOE Volatility Index (VIX 27.58, +3.96), and generally shied away from buying much of anything in the equity market.

All ten sectors finished lower.  The health care sector (-3.8%) fared the worst as price control concerns continued to percolate on the back of reports that lawmakers in Washington are working to get a subpoena to obtain documents from Valeant Pharmaceuticals (VRX 166.50, -32.97) that discuss big price increases for two heart drugs.

That news compounded the recent selling pressure in the biotech group, which had to contend with the double whammy of valuation concerns.  The iShares Nasdaq Biotechnology ETF (IBB 290.61, -19.63) dropped 6.3% and is now down 27.5% from its July high.

The weakness in the biotech space took a heavy toll on the Nasdaq Composite (-3.0%) and Russell 2000 (-2.9%).  Separately, the weight of large losses in market darlings Facebook (FB 89.21, -3.56), Amazon.com (AMZN 504.06, -20.19), Netflix (NFLX 99.47, -2.77), and Google (GOOG 594.89, -17.08) -- the so-called "FANG" stocks -- took a big bite out of the Nasdaq and the broader market.

Today's negative disposition was cemented in the fact that Apple (AAPL 112.44, -2.27) couldn't escape the selling pressure even though it announced record sales of more than 13 million units of its iPhone 6s and iPhone 6s Plus just three days after launch.

The Personal Income and Spending report for August was decent, showing a 0.3% increase in income (Briefing.com consensus +0.4%) and a 0.4% jump in spending (Briefing.com +0.3%) on top of modest upward revisions to July's data for both series.  The report also revealed subdued inflation pressures, which were painted by a miniscule 0.3% year-over-year increase in the Personal Consumption Expenditures Price Index (PCE) and a modest 1.3% year-over-year increase excluding food and energy.

The latter news also helped underpin the Treasury market and particularly the back end of the curve.  The 10-yr note yield dropped seven basis points to 2.09%.

There were two Fed officials who gave speeches today during market hours -- New York Fed President Dudley and Chicago Fed President Evans.  Both men are voting members on the 2015 Federal Open Market Committee, yet their somewhat opposing views failed to alter today's downtrend.  To wit, stocks traded lower after both presentations in which Mr. Dudley said he thinks the Fed should be able to raise rates before the end of the year and Mr. Evans said a later liftoff would create better positioning for economic challenges.

The major indices closed just off their worst levels of the day on heavy volume.  Reflecting the entrenched negative bias, decliners led advancers by nearly a 9-to-1 margin at the NYSE and a nearly 6-to-1 margin at the Nasdaq.

Global Market

ASIA
The Asian equity markets were generally mixed on Monday. Much of the Asian session was quiet with Hong Kong, Taiwan and South Korea closed for public holiday today. There was a considerable amount of corporate news items out over the weekend (particularly in the US and Europe), but a couple of key macro developments seem to be applying pressure to the world indices. IMF President Lagarde had some negative comments surrounding global growth, stating that the +3.3% Global GDP target is essentially unattainable. Another negative variable was China’s Industrial Profits for August that fell 8.8% from July’s 2.9% decline. It appears that the devalued currency, fall in equity prices and overall weak demand finally reared its head in the Mainland’s corporations. The Shanghai managed to close marginally higher, after traders bought the dip while the index was down nearly 2% after the release. Japanese shares took it on the chin by 1.3% today with the yen seeing strength against all major currencies.

Economic Data

• China
• Aug Industrial Profits: -8.8% vs -2.9% in July

Equity markets

• Japan’s Nikkei closed 1.3% lower with the index giving back much of Friday’s gains on the back of the stronger yen. All of the Nikkei’s main sectors closed in negative territory with Consumer Staples (-0.2%) outperforming the broader index. Of the major laggards, Telecom (-2.8%), Health Care (2.4%) and Energy names (2.2%) outpaced the declines.
• Hong Kong’s Hang Seng was closed for public holiday
• China’s Shanghai Composite advanced 0.3%, ending near its the highs for the day. Rail names were under pressure today with reports that rail-freight volume fell over 15% YoY, which also signals a troubling sign for the Chinese growth story.
• India’s Sensex fell 1% to start the week. Among the top gainers, Dr Reddy’s advanced 5.6% after it launched generic Nexium capsules. Tata Motors was 6.1% weaker as the automaker fell in sympathy with many of the European Auto OEMs

FX

• USD/CNY +0.1% at 6.3658
• USD/INR -0.1% at 66.4600
• USD/JPY -0.4% at 120.10

Closing Prices

• UK’s FTSE: -2.5%
• Germany’s DAX: -2.1%
• France’s CAC: -2.8%
• Spain’s IBEX: -1.2%
• Portugal’s PSI: -1.8%
• Italy’s MIB Index: -2.7%
• Irish Ovrl Index: -1.3%
• Greece ASE General Index: -3.0%

Macroeconomic Data

Economic Data

from Briefing.com

• Personal Income : 0.3% vs 0.4% (Prior 0.5% - Up)
• Personal Spending : 0.4% vs 0.3% (Prior 0.4% - Up) 
• PCE Prices - Core : 0.1% vs 0.1% (Prior 0.1%)
• Pending Home Sales : -1.4% vs 0.5% (Prior 0.5%)

PERSONAL INCOME & SPENDING

Highlights

• Personal income increased 0.3% in August after increasing an upwardly revised 0.5% (from 0.4%) in July. The Briefing.com Consensus expected personal income to increase 0.4%.
• Personal spending rose 0.4% for a second consecutive month in August following a small upward revision (from 0.3%) to the July data. The consensus expected spending to increase 0.3%.

Key Factors

• Wages and salaries increased 0.5% in August, down from a 0.6% gain in July. That increase, however, was in-line with the 0.7% gain in aggregate earnings reported in the August employment report.
• The big news in August was the modest decrease in the personal savings rate, from 4.7% to 4.6%. 
• A disappointing August retail sales report suggested that consumers were again holding off on spending in order to keep a higher savings rate. While goods spending growth did slow in August to 0.4% after increasing 0.7% in July, the softness was offset by an unexpectedly strong 0.5% increase in services spending.
• Combined with inflation levels that reported no change in August, real consumption growth increased by its largest amount (0.4%) since a 0.6% gain in May.
• PCE-core prices increased 0.1% in August for a fourth consecutive month. Year-over-year, core prices are up just 1.3%. That is well below the Fed’s target of 2.0% inflation growth. Headline year-over-year PCE prices were up only 0.3% in August, and have remained steady at 0.2% or 0.3% yearly growth for all of 2015 thus far.

Big Picture

• A slight decline in the savings rate gives hope that consumption growth could accelerate soon.

Market Internals

NYSE:

Higher Volumes than the day before – 1053.5M vs 873.8M 


Decliners outpaced Advancers (adv/dec): 319 / 2812

New Lows outpaced New Highs (highs/lows): 2 / 481

NASDAQ:

Higher Volumes than the day before – 2374.9M vs 2022.9M

Decliners outpaced Advancers (adv/dec): 487 / 2428

New Lows outpaced New Highs (highs/lows): 14 / 358

VOLATILITY S&P500 (VIX)
27.63 +4.01 (+16.98%)

I would say the internals look convincing on the bearishness. Volume was also strong which suggests the bears are committed. VIX broke above the resistance at 25.00 and certainly brings in more fear to the market. I reckon the bulls would probably go into hiding as the bears are coming in fiercely. As such, more downside seems to be imminent in the short-term.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

16,001.89 -312.78 (-1.92%)

Volume: 139,927,738 (above average of 112,988,141)
Range: 15,981.85 - 16,313.26

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,543.97 -142.53 (-3.04%)
Volume: 558,003,966 (above average of 458,605,235)

Range: 4,529.41 - 4,665.21

S&P 500 INDEX (SPX: CBOE)

1,881.77 -49.57 (-2.57%)

Volume: 776,043,000 (above average of 632,417,708)

Range: 1,879.21 - 1,929.18

More selling pressure in the market as the 3 indices broke lower. DOW could not hold its support level at 16,000. Next support level is around 15,650. NASDAQ also went below its 61.8% Fib level and it is approaching another support at 4,490. S&P continue to go lower as it is also approaching its next support level at around 1870. Market is likely to retest August's low and before then I doubt we should see any recovery. 

Commodities

Closing Commodities: Commodities End The Day In The Red

• Commodities sold off today and held losses. Commodities, as measured by the Bloomberg Commodity Index, extended losses from this morning and are now -1.3%
• Nov crude oil finished today’s session -2.7% at $44.47/barrel. In other energy, Nov nat gas rose +1.5% to $2.67/MMBtu
• Metals lost steam today, led by silver
• Dec silver closed up today’s pit session -3.6% at $15.08/oz
• Dec gold fell -1.2% to end at $1131.40/oz, while Dec copper ended -1.3% at $2.28/lb.

Metals

• December gold ended today’s session $14.10 lower (-1.2%) at $1131.40/oz
• December silver closed today’s session $0.55 lower (-3.6%) at $15.08/oz
• December copper closed $0.03 lower (-1.3%) at $2.28/lb

Agriculture

• December corn closed $0.02 lower at $3.87/bushel
• December wheat closed $0.02 lower at $5.06/bushel
• November soybeans closed $0.12 lower at $8.77/bushel
• Sugar #11 closed $0.01 cents higher at 11.75 cents/lb

Energy

• November crude oil futures fell $1.25 (-2.7%) to $44.47/barrel
• Nov natural gas closed $0.04 higher (+1.5%) at $2.67/MMBtu
• RBOB Gasoline closed $0.02 lower at $1.33/gallon
• Heating oil futures closed $0.05 lower at $1.50/gallon

Currencies

Safe Haven Currencies Rally

• The euro, yen, and Swiss franc all rallied today as investors shunned risk and then turned against the U.S. dollar after pending home sales for August missed estimates. The U.S. Dollar Index fell 0.28% to 96.00
  • Pending home sales unexpectedly declined 1.4% m/m in August, confounding expectations for a gain. The Briefing.com consensus was for growth of 0.5% and the change in July was +0.5% as well
• EUR/USD: +0.34% to $1.1232
  • Italian consumer confidence soared past expectations to hit 112.7 in September versus 109.3 in August
    • Business confidence unexpectedly jumped to 104.2 from 102.7
• GBP/USD: -0.05% to $1.5172
  • The Bank of England's deputy governor, Jon Cunliffe, spoke in Paris at a bank regulation conference
    • He said that he was worried about financial risk emerging in new areas
• USD/JPY: -0.70% to 119.82
  • The final reading of the Leading Indicators Index showed a decline to a better-than-expected 105.0 in July from 104.9 in June
• USD/CHF: -0.53% to 0.9738
• USD/CAD: +0.28 to 1.3373
• AUD/USD: -0.44% to $0.6993
• NZD/USD: -0.82% to 0.6332

Bonds

Long-Term Yields Plunge

• U.S. Treasuries rallied sharply today in a curve-flattening move as investors fled equities amidst concerns about global growth. Personal spending beat estimates in August while personal income missed, indicating a lower-than-expected savings rate. The savings rate has been stubbornly high throughout the economic recovery and has been impeding short-term growth (in the short run, spending = income. Pending home sales missed estimates in August. NY Fed President Dudley, a permanent voting member of the FOMC, said that he still expects a rate hike by the end of 2015 while Charles Evans, the president of the Chicago Fed and an ultra-dove, said that liftoff might not be appropriate until mid-2016. Evans is not a swing vote on the FOMC
• Yield Check:
  • 2-yr: -2 bps to 0.68%
  • 5-yr: -5 bps to 1.42%
  • 10-yr: -7 bps to 2.09%
  • 30-yr: -9 bps to 2.87%

• News:
  • Personal income grew by 0.3% m/m in August, worse than the Briefing.com consensus of 0.4%. Personal income rose 0.5% in July (revised up from 0.4%)
    • The big news in August was the modest decrease in the personal savings rate, from 4.7% to 4.6%
    • A disappointing August retail sales report suggested that consumers were again holding off on spending in order to keep a higher savings rate. While goods spending growth did slow in August to 0.4% after increasing 0.7% in July, the softness was offset by an unexpectedly strong 0.5% increase in services spending
    • Combined with inflation levels that reported no change in August, real consumption growth increased by its largest amount (0.4%) since a 0.6% gain in
  • Personal spending rose more quickly than expected in August, growing by 0.4% m/m versus an upwardly-revised 0.4% gain in July. The Briefing.com consensus was for 0.3%
  • PCE-core prices, the FOMC's preferred measure of inflation, rose 0.1% m/m in August, in line with the Briefing.com consensus and the past three months' readings
  • New York Fed President Dudley (FOMC voter) said that the U.S. economy is doing "pretty well" and that a rate hike before year-end is "likely." Dudley also said that the October meeting is "live"
  • Pending home sales unexpectedly declined 1.4% m/m in August, confounding expectations for a gain. The Briefing.com consensus was for growth of 0.5% and the change in July was +0.5% as well
  • Chicago Fed President Evans (FOMC voter) said that "it could well be the middle of 2016" before headwinds dissipate enough for an upward move in core inflation

• Commodities:
  • WTI crude: -2.43% to $44.59/bbl.
  • Gold: -1.06% to $1,134.40/troy oz.
  • Copper: -1.58% to $2.2475/lb.

• Currencies:
  • EUR/USD: +0.36% to $1.1235
  • USD/JPY: -0.70% to 119.82 

• Data Out Tuesday:
  • July Case-Shiller 20-City Index (09:00 ET)
  • September Consumer Confidence (10:00 ET)

Treasury Yields:

• 2 Year Note 0.67% -0.03
• 5 Year Note 1.42% -0.06
• 10 Year Note 2.10% -0.07
• 30 Year Bond 2.87% -0.09

2/30 Spread: 220 bps ( -6 ) …  2/10 Spread: 143 bps ( -4 )

Preview for Tuesday 29 Sept, 2015

Economic Data

Tuesday (29 Sept) :

• Case-Shiller 20-city Index : 5.0% (Prior 5.0%)
• Consumer Confidence : 96.0 (Prior 101.5)

Earnings Highlights 

Tuesday (29 Sept) :
BMO - AZZ CMN FGP IHS WBA
AMC - CUDA COST DMND LNDC

Summary

Maybe the quick selling we are seeing in the market were more or less influenced by portfolio dumping/window dressing period during the last week of September. There were other factors contributing to the sell-off as well, for example China's continuation of weakening growth. However as we can observe in the market internals, there is hardly any sign of bullishness.

I am looking to see if the market will retest its support at August's low and then decide on the market outlook. But meanwhile I think sellers are still going to pressure down the market.

Direction for Tuesday 29 Sept, 2015: Down

2015 Daily Directional Accuracy: 97/152  (63.82%) 

2015 Weekly Directional Accuracy: 23/36 (63.89%)