Monday, 31 Aug 2015 - AMC

Dow -114.98 at 16528.03, Nasdaq -51.82 at 4776.51, S&P -16.69 at 1972.18

I would say the bears are slowly regaining control in the market with another DFDM. I suppose we are seeing more profit-taking as the pullback seems to be more or less done with. Today session was mostly influenced by the big surge in oil price after production report was released by EIA. Oil rebounded and has been rallying since it hit the bottom previously. 

Asia and Europe markets were closing in red again to start the week. 
  

Market Summary

Industry Watch

Strong: Energy

Weak: Utilities, Health Care, Industrials, Technology

Other Market Moving Factor:

• Fed Vice Chairman Fischer suggests in weekend speech that a September rate hike remains a possibility
• Month-end trading activity
• Oil experiences sharp reversal to the upside on supportive monthly production numbers and talk out of OPEC that it is willing to talk to other producers about low prices

[BRIEFING.COM] There was oil today and then there was everything else.  That doesn't mean, though, that "everything else" wasn't interesting.  It's just that the movement in oil prices was so spectacular that it garnered top billing throughout the session.

To the latter point, crude prices were down 3.6% in early trading to $43.60 per barrel.  They would settle the day up 8.8% at $49.20 per barrel, representing a huge 13% swing from low to settlement price.

There were several factors contributing to the sharp reversal:

• The Energy Information Administration released a report showing monthly production in the U.S. in June was estimated to be 9.3 million barrels per day or roughly 100,000 barrels per day less than May and 300,000 barrels per day less than April
• OPEC published a bulletin in which it said it stands ready to talk to other producers about the low oil prices; and
• Big short-covering activity on the last day of the month (with Monday's move, oil prices have surged 27% over the last three sessions)

The reversal in oil prices triggered a reversal in the S&P 500 energy sector, which was down 2.6% shortly after the start of trading.  It would end the day up 1.1%, which left it as the best-performing sector in the S&P 500, as well as the only sector to finish the day in positive territory.

By and large, the stock market was stymied by selling efforts on Monday that were rooted in the following factors:

• An awareness that Fed Vice Chairman Fischer suggested in a speech over the weekend that a rate hike at the September Federal Open Market Committee meeting is still a possibility
  • Mr. Fischer indicated his belief that inflation should move higher as the effects of falling oil prices and the stronger dollar dissipate  
• A sense the market was due for a pullback after rallying 6.5% from the low it hit last Monday
• Last Friday's low in the S&P 500 (1975.19) being taken out in early action and an inability to take out last Friday's closing level (1988.87) on a subsequent rebound try; and
• A general lack of convincing sector leadership

The Chicago Purchasing Managers Index (PMI) for August was the only economic release on today's docket.  It checked in weaker than expected at 54.4 (Briefing.com consensus 54.7), which was down slightly from 54.7 in July.  It didn't carry much weight in moving the market since participants were keyed in more on Tuesday's release of the national ISM Index and a battery of PMI readings out of China, Japan, and the eurozone.

Notably, the Treasury market coughed up early gains even as the stock market struggled to gain upside traction.  Its turnaround was precipitated by the spike in oil prices, which played into Mr. Fischer's view that inflation should move higher.  The yield on the 10-yr note, which dipped to 2.14%, eventually pushed back up to 2.21%; meanwhile, the yield on the 2-yr Treasury note, which stood at 0.72%, bumped up to 0.74%.

The U.S. Dollar Index, however, was a bit weaker, falling 0.3% to 95.87 as both the euro and the yen gained ground against the greenback.

The majority of Dow components ended the day lower, led by Boeing (BA 130.68, -2.56, -1.9%), which was the biggest price loser.  Conversely, Goldman Sachs (GS 188.60, +0.85, +0.6%) was the biggest price gainer and helped the Dow cut an early 199-point loss.  

Boeing's weakness weighed on the industrials sector (-0.9%), but it was the health care sector (-1.9%) that was the weakest area, pressured by losses in the medical equipment and major pharmaceutical stocks.  Separately, the biotech stocks also succumbed to selling efforts, evidenced by the 3.3% decline in the iShares Nasdaq Biotechnology ETF (IBB 341.80, -11.48).

Volume was again relatively heavy with 1.08 billion shares changing hands at the NYSE.

For the month of August, the Dow, Nasdaq, S&P 500, and Russell 2000 declined 6.6%, 6.9%, 6.3%, and 6.3%, respectively.

Global Market

ASIA

Asian stock markets closed their worst monthly performance in more than three years in August, as shares struggled to recover from a global selloff sparked by worries about China.

A slowdown in China’s economy, magnified by a surprise devaluation of the Chinese yuan earlier this month, accelerated a rout in Shanghai that spread across the globe, pushing down everything from stocks in the U.S. and Europe, to commodities and emerging market-currencies. While stability has returned in recent days in Asia, the selloff has left currencies in the region near multiyear lows and stocks at their lowest levels in months.

Read More: http://www.marketwatch.com/story/asian-stocks-poised-for-worst-month-in-more-than-three-years-2015-08-31

EUROPE

European stocks ended lower Monday, registering their worst monthly performances since Europe’s debt crisis four years ago roiled global markets.

The Stoxx Europe 600 fell 0.5% to 362.79, leaving Europe’s benchmark index with a monthly fall of about 8.5%, its largest tumble since August 2011 when the index fell nearly 10.5%, according to FactSet data.

Read More: http://www.marketwatch.com/story/europe-stocks-poised-for-worst-monthly-performance-since-2011-2015-08-31

Closing Prices
UK’s FTSE: CLOSED
Germany’s DAX: -0.4%
France’s CAC: -0.5%
Spain’s IBEX: -0.9%
Portugal’s PSI: -0.6%
Italy’s MIB Index: -0.2%
Irish Ovrl Index: + 1.0%
Greece ASE General Index: -1.5%

Macroeconomic Data

Economic Data

from Briefing.com

• Chicago PMI : 54.4 vs 54.7 (Prior 54.7)

CHICAGO PMI

Highlights

• The Chicago PMI declined to 54.4 in August from 54.7 in July. The Briefing.com Consensus expected the Chicago PMI to remain at 54.7.

Key Factors

• Prior to July, the Chicago PMI was mired in a two-month contraction. 
• Production levels remained robust as the related index declined to 59.0 from 61.8 in July. Orders growth softened, falling from 58.5 in July to 56.7 in August, but remained well above the expansion/contraction threshold. The ongoing contraction in backorders moved into its seventh consecutive month as the related index fell to 46.2 in August from 47.9 in July.
• The Employment Index increased to 49.1 in August from 46.2 in July. That was the fourth consecutive contraction.

Big Picture

• The Chicago PMI has little overall economic value, and is only watched by the financial markets because it is usually released one day in advance of the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index.

Market Internals

NYSE:

Higher Volumes than the day before – 1105.6M vs 997.2M 


Decliners outpaced Advancers (adv/dec): 1353 / 1728

New Lows outpaced New Highs (highs/lows): 5 / 35

NASDAQ:

Lower Volumes than the day before – 1823.1M vs 1907.6M

Decliners outpaced Advancers (adv/dec): 1400 / 1450

New Lows outpaced New Highs (highs/lows): 22 / 24

VOLATILITY S&P500 (VIX)
28.43 +2.38 (+9.14%)

Internals were pointing to more bearishness than bullishness. New Lows seems to be picking up slowly while New Highs has been literally insignificant for the past few sessions. It is unlikely to see the market continue to rally in this kind of situation. VIX is also looking to tick higher from here. Certainly this is not a sign of confidence...

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

16,528.03 -114.98 (-0.69%)

Volume: 141,435,175 (above average of 106,064,227)
Range: 16,444.05 - 16,632.02

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,776.51 -51.82 (-1.07%)
Volume: 498,165,036 (above average of 461,577,747)

Range: 4,763.42 - 4,824.61

S&P 500 INDEX (SPX: CBOE)

1,972.18 -16.69 (-0.84%)

Volume: 764,741,000 (above average of 593,015,754)

Range: 1,965.98 - 1,986.73

The 3 indices could not break above their respective resistance levels at - 16,680 for DOW, 4,840 for NASDAQ and 1,990 for S&P, and continue to slide lower. This indicates the end of the pullback. It seems that both DOW and S&P were approaching the 61.8% Fib level and we might see the support hold for the next few sessions before market break lower. As the bears are still in control of the market, it is also possible that the support could not hold and drop all the way down.  

Commodities

Closing Commodities: WTI Oil Surges Again; Up 27.7% In Last Three Sessions

• WTI crude oil prices surged again today, in the last day of trading for the month
• Today’s oil rally, following the rally seen Thursday and Friday, is the largest three-day rally since January 2009 as some short covering helped today’s move higher
• Overall, front-month October crude oil has rallied 27.7% since the close of Wednesday
• In today’s pit trading session, Oct crude oil closed +8.8% at $49.19/barrel
• In other energy, Sept natural gas dropped -0.7% to $2.69/MMBtu
• Metals were mostly flat/mixed
• Sept copper finished the day flat at $2.34/lb
• Dec gold lost -0.2% to $1131.70/oz, while Sept silver gained +0.3% to $14.58/oz

Energy

• October crude oil futures rose $3.99 (+8.8%) to $49.19/barrel
• September natural gas closed $0.02 lower (-0.7%) at $2.69/MMBtu
• RBOB Gasoline closed $0.10 higher at $1.50/gallon
• Heating oil futures closed $0.11 higher at $1.70/gallon

Agriculture

• December corn closed $0.01 higher at $3.75/bushel
• December wheat closed $0.08 higher at $4.84/bushel
• November soybeans closed $0.02 higher to $8.87/bushel
• Sugar #11 closed $0.28 cents lower at 10.69 cents/lb

Metals

• December gold ended today’s session $1.90 lower (-0.2%) at $1131.70/oz
• September silver closed today’s session $0.05 higher (+0.3%) at $14.58/oz
• September copper closed flat at $2.34/lb

Currencies

Dollar Pulls Back

• The U.S. Dollar Index fell 0.21% to 95.90 as traders took profits from the sharp rally that began last Tuesday
• EUR/USD: -0.40% to $1.1225
  • The eurozone's Consumer Price Index climbed 0.2% y/y in August, higher than expectations and in line with the prior reading
    • The Core CPI, which excludes alcohol, food, energy, and tobacco, rose 1.0% y/y, in line with estimates and the prior reading
  • German Retail Sales surpassed expectations, growing 1.4% m/m in July versus a 1% contraction in June
  • Italy's CPI climbed a larger-than-expected 0.2% m/m in August, reversing a 0.1% fall in July
• GBP/USD: -0.30% to $1.5344
• USD/JPY: -0.18% to 121.16
  • In Japan, Industrial Production fell a worse-than-expected 0.6% m/m in July, reversing some of the 1.1% growth seen in June 
    • Housing Starts rose 7.4% in the year to July, less than expectations and the 16.3% reading from June
• USD/CHF: +0.34% to 0.9662
  • KOF Leading Indicators unexpectedly jumped to 100.7 in August from 100.4 in July. The index comprises 12 economic indicators that measure factors like banking confidence and housing
• USD/CAD: -0.23% to 1.3174
  • Canada's Current Account Deficit narrowed by a smaller-than-expected 17.4 bln CAD in the second quarter from -18.2 bln in Q1
• AUD/USD: -0.67% to $0.7117
  • HIA New Home Sales fell 0.4% m/m in July versus a 0.5% increase in June
  • Private Sector Credit expanded by 0.6% m/m in July, more than expected and more than the previous month's growth of 0.4%
• NZD/USD: -1.75% to $0.6350
  • The ANZ Business Confidence index fell a greater-than-expected 29.1% in August versus a 15.3% decline in July
  • Building Consents rose 20.4% m/m in July versus a 3.3% fall in June

Bonds

Treasury Yields Climb 

• U.S. government debt took losses today as WTI crude jumped more than $3 per barrel. Over the weekend, Stanley Fischer, vice-chairman of the Federal Reserve, said he was confident that inflation would return to the Fed's target of 2%
• Yield Check:
  • 2-yr: +1 bp to 0.74%
  • 5-yr: +3 bps to 1.54%
  • 10-yr: +2 bps to 2.21%
  • 30-yr: +4 bps to 2.95%

• News:
  • August's Chicago Purchasing Managers' Index slightly missed expectations at 54.4 versus the Briefing.com consensus of 54.7. The July reading was also 54.7
    • The Chicago PMI has been exhibiting significant weakness this year
    • Production levels remained robust as the related index declined to 59.0 from 61.8 in July. Orders growth softened, falling from 58.5 in July to 56.7 in August, but remained well above the expansion/contraction threshold. The ongoing contraction in backorders moved into its seventh consecutive month as the related index fell to 46.2 in August from 47.9 in July
    • The Employment Index increased to 49.1 in August from 46.2 in July. That was the fourth consecutive contraction
  • The S&P 500 is down 0.93% to 1,970.45

• Commodities:
  • WTI Crude: +7.39% to $48.56/bbl.
    • Crude oil rallied to its best gain since the Persian Gulf War as OPEC has started making noise about cutting supply
    • Implied volatility in the options market is also increasing, as market participants rush to buy insurance against wild price swings
  • Gold: -0.02% to $1,133.80/troy oz.
  • Copper: -0.40% to $2.3365/lb.

• Currencies:
  • EUR/USD: +0.41% to $1.1226
  • USD/JPY: -0.18% to 121.16

• Data Out Tuesday:
  • August ISM Index (10:00 ET)
  • July Construction Spending (10:00 ET)
  • August Auto and Truck Sales (17:00 ET)
• Fed Speaker:
  • Boston Fed President Rosengren (FOMC non-voter) (13:10 ET); 

Treasury Yields:

• 2 Year Note 0.74% +0.02
• 5 Year Note 1.54% +0.02
• 10 Year Note 2.21% +0.02
• 30 Year Bond 2.95% +0.03

2/30 Spread: 221 bps ( +1 ) …  2/10 Spread: 147 bps ( UNCH )

Preview for Tuesday 1 Sept, 2015

Economic Data

Tuesday (1 Sept) :

• ISM Index : 52.6 (Prior 52.7)
• Construction Spending : 0.6% (Prior 0.1%)
• Auto Sales : (Prior 5.8M)
• Truck Sales : (Prior 8.4M)

Earnings Highlights

Tuesday (1 Sept) :
BMO - DLTR DCI QIWI SAIC
AMC - AVAV AMBA BOBE EXA GWRE HRB PRGN QIHU SCVL

Summary
I think we are probably just at the early stage of a bearish market. As the bulls are taken aback in the market, I suppose things could get much worse. At this point in time, it is getting difficult to predict price patterns when extreme volatility and fear are in play. Not to mention there are a lot of market has been sensitive to many factors such as China and oil prices.

I am looking if the morning low holds as support on Tuesday. That should give me a indication on the direction in the market for the week...

Quoting from Scott Redler from T3 Live:

Mkts R still in "wait & see" mode. Unless U have a "thesis" like being short for a test last of week's lows. Or a retest long -back to 2040

— Scott Redler (@RedDogT3) August 31, 2015

Direction for Tuesday 1 Sept, 2015: Down

2015 Daily Directional Accuracy: 87/138  (63.04%) 

2015 Weekly Directional Accuracy: 19/32 (59.38%)