Wednesday, 2 Sept 2015 - AMC

Dow +293.03 at 16351.38, Nasdaq +113.87 at 4749.98, S&P +35.01 at 1948.86

Third candle reversal probably? I suppose the dead cat bounce was somewhat limited and the session was a choppy one for sure. Market had a spike at the opening and remained sideway for most of the session except a last minute buying that managed to break above the intra-day resistance before closing. ADP number was not as expected but it did reflect growth on the employment in US. 

EIA inventory report reflected a rise in stockpiles and oil price took a plunge after the data released. However oil managed to recover shortly after but oversupply issues remains a factor to pay attention to. 

Europe saw some recovery as markets were mostly up while Asia markets were rather mixed. Shanghai Composite closed in red on Wednesday, which is also its last trading day of the week in celebration for WWII holidays.
  

Market Summary

Industry Watch

Strong: Consumer Discretionary, Consumer Staples, Financials, Technology

Weak: Energy, Utilities

Other Market Moving Factor:

• August ADP Employment slightly below expectations: 190K, Briefing.com consensus 201K
• China's Shanghai Composite sheds 0.2% ahead of four-day weekend

[BRIEFING.COM] The stock market snapped its two-day skid on Wednesday with the Nasdaq Composite leading the advance. The tech-heavy index climbed 2.5% while the Dow (+1.8%) and S&P 500 (+1.8%) registered slimmer gains. 

Although the market ended the midweek session on a higher note, the advance did not feature the characteristics of a sharp bounce. Instead, stocks traded in sideways fashion before spiking to new highs during the final 30 minutes of the day. Despite today's higher close, the S&P 500 remains lower by 2.0% for the week with all ten sectors showing week-to-date losses. 

Today, however, nine sectors posted gains while the utilities space (UNCH) underperformed amid higher Treasury yields. To that point, the 10-yr note slumped in the morning, briefly retraced its loss during the session, and fell back to lows into the close. As a result, the 10-yr yield increased three basis points to 2.19%. 

On the upside, the top-weighted technology sector (+2.6%) outperformed throughout the session, which kept the market afloat during the morning pullback that saw the S&P 500 trade within five points of its flat line. Large cap tech names like Apple (AAPL 112.34, +4.62), Facebook (FB 89.89, +2.66), Google (GOOGL 644.91, +15.35), and Microsoft (MSFT 43.36, +1.54) gained between 2.4% and 4.3% while high-beta chipmakers also fared better than the market with the PHLX Semiconductor Index climbing 2.3%. 

Elsewhere among influential sectors, health care settled in-line with the market while biotechnology outperformed, contributing to the relative strength in the Nasdaq as iShares Nasdaq Biotechnology ETF (IBB 346.23, +12.89) spiked 3.9%. 

Also of note, the heavily-weighted financial sector (+1.5%) began the day among the leaders, but the group slipped behind the broader market during intraday action after finishing yesterday's session well behind the market. 

With the exception of the final 30 minutes of the day, the Wednesday action in equities was fairly subdued, but the same could not be said for crude oil as the energy component remained volatile, ending the pit session higher by 1.9% at $46.25/bbl after testing the $43.22/bbl area. WTI crude slumped to lows after the latest inventory report showed a larger than expected build while news that Senate has enough votes to back the Iran nuclear deal also contributed to the brief weakness in oil. 

Today's trading volume was well above average, staying true to recent trends. With that in mind, more than a billion shares changed hands at the NYSE floor. 

Economic data included, ADP Employment Change, Q2 Productivity/Unit Labor Cost data, Factory Orders, and MBA Mortgage Index: 

• The ADP National Employment Report revealed that employment in the nonfarm private business sector rose by 190K in Augus while the Briefing.com consensus expected an increase of 201K 
  • The July reading was revised down to 177,000 from 185,000 
• Productivity data for the second quarter showed an increase of 3.3% (Briefing.com consensus 2.8%), which was better than the 1.3% increase that had been reported in the preliminary reading 
  • Unit labor costs for the second quarter were revised lower to reflect a decrease of 1.4% (Briefing.com consensus -0.9%) after they had reportedly increased 0.5% in the preliminary reading 
• Factory orders increased 0.4% in July after increasing an upwardly revised 2.2% (from 1.8%) in June while the Briefing.com consensus expected an increase of 0.9% 
  • The relative softness in the factory orders data was the result of declining oil prices weighing down sales at petroleum refineries as refinery orders fell 7.9% in July after increasing 0.8% in June 
• The weekly MBA Mortgage Index spiked 11.3% to follow last week's 0.2% uptick 

Tomorrow, the Challenger Job Cuts report for August will be released at 7:30 ET while weekly Initial Claims (Briefing.com consensus 273,000) and July Trade Balance (consensus -$42.70 billion) will both be released at 8:30 ET. The day's data will be topped off with the 10:00 ET release of the ISM Services Index for August (consensus 58.4).

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei -0.4%; Hong Kong’s Hang Seng -1.2%; China’s Shanghai Composite -0.2%

Most markets in the Asia-Pacific region suffered further losses on Wednesday, only they were much more modest in scope following Tuesday’s selling pressure. Several markets rebounded from large losses that followed on the heels of Wall Street’s ugly showing. China’s Shanghai Composite, for instance, was down 4.6% shortly after it opened but ended the day down just 0.2%. In other developments, Australia’s Q2 GDP growth of 0.2% was weaker than expected and down from 0.9% growth in the prior quarter, underscoring the drag of slumping commodity prices and economic slowing in the region.

Economic data

• Japan
• Monetary Base +33.3% year-over-year (expected +33.2%; prior +32.8%)
• Australia
• Q2 GDP +0.2% quarter-over-quarter (expected +0.4%; prior +0.9%); +2.0% year-over-year (expected +2.2%; prior +2.5%)

Equity Markets

• Japan’s Nikkei declined 0.4%, coughing up a 1.7% gain on the heels of a renewed bout of selling interest in the afternoon session. The materials (-1.9%), financials (-1.3%), and consumer staples (-0.9%) sectors were the weakest areas. Yokohama Rubber Co. (-4.6%), Showa Shell Sekiyu (-4.4%), and Mazda Motor (-4.2%) paced losing issues while Sumitomo Dainippon Pharma (+4.8%), Kyowa Hakko Kirin (+2.7%), and Mitsubishi Logistics (+2.3%) led the winners. Out of the 225 index members, 33 ended higher, 188 finished lower, and 4 were unchanged.
• Hong Kong’s Hang Seng declined 1.2% in a roller-coaster trading session. The index was down 2.0% shortly after the start of trading, gained all of that loss back, and then dove in the afternoon session on renewed selling interest. Bank of Communications (-5.7%), Kunlun Energy (-4.3%), and Galaxy Entertainment Group (-4.2%) were the worst-performing issues. Belle International Holdings (+1.5%), CK Hutchison Holdings (+1.4%), and Want Want China Holdings (+1.3%) topped the small list of winners. Out of the 50 index members, 10 ended higher and 40 finished lower.
• China’s Shanghai Composite ended down 0.2%, but staged quite a comeback from an opening 4.6% decline. The scope and speed of the rebound, which occurred in the morning session, stirred some speculation that it was government-sponsored in front of the country’s celebration of the end of World War II and the defeat of Japan. China’s stock market will be closed on Thursday and Friday to commemorate Victory Day.
• India’s Sensex declined 0.9% in a day of steady selling that left the market near its worst levels at the close. A weak showing from the industrials (-2.2%), financials (-1.9%), consumer staples (-1.8%), and consumer discretionary (-1.8%) sectors pressured the Sensex. Bharat Heavy Electricals (-4.9%), Oil & Natural Gas Co (-3.8%), and Mahindra & Mahindra (-3.7%) were downside leaders. Tata Consultancy Services (+2.5%), Tata Steel (+2.1%), and ITC Ltd (+1.6%) led a small group of winners. Out of the 30 index members, 7 ended higher and 23 finished lower.
• Australia’s S&P/ASX 200 increased 0.1%, rebounding in afternoon trade from an early 1.6% decline that followed a weaker than expected Q2 GDP report. The healthcare (+0.8%), financials (+0.4%), and industrials (+0.4%) sectors were instrumental in driving the turnaround effort. Out of the 200 index members, 79 ended higher, 105 finished lower, and 16 were unchanged.
• Regional advancers: South Korea +0.1%, Taiwan +0.2%, Thailand +1.0%
• Regional decliners: Malaysia -1.2%, Indonesia -0.3%, Singapore -0.2%, Philippines -0.2%
• Closed for holiday: Vietnam (National Day)

FX

• USD/CNY -0.1% at 6.3559
• USD/INR -0.1% at 66.1850
• USD/JPY +0.6% at 120.10

EUROPE

Major European indices hold modest gains after slipping from their opening highs. Overall, the trading action in Europe has been relatively subdued with the European Central Bank’s latest policy statement set to be released tomorrow morning. The euro has retreated about 0.4% against the dollar, slipping to 1.1255. ark

• Eurozone July PPI -0.1% month-over-month, as expected (prior -0.1%); -2.1% year-over-year (consensus -2.1%; last -2.1%)
• UK’s August Construction PMI 57.3 (expected 57.5; last 56.1)
• Spain’s Unemployment Change 21,700 (consensus 35,500; last -74,000)

Closing Prices

• FTSE100 +0.40%
• DAX +0.32%
• CAC40 +0.30%
• IBEX35 -0.55%
• Stoxx 600 +0.31%

Macroeconomic Data

Economic Data

from Briefing.com

• MBA Mortgage Index : 11.3% (Prior 0.2%)
• ADP Employment Change : 190K vs 201K (Prior 185K)
• Productivity - Rev : 3.3% vs 2.7% (Prior 1.3%)
• Unit Labor Costs - Rev : -1.4% vs -0.8% (Prior 0.5%)
• Factory Orders : 0.4% vs 0.9% (Prior 1.8%)
• Crude Inventories : 4.670M (Prior -5.452M)
• Fed's Beige Book

NONFARM LABOUR PRODUCTIVITY 

Highlights

• Nonfarm labor productivity was revised up to 3.3% in Q2 2015 in the revised estimate from an originally reported 1.3% in the preliminary report. The Briefing.com Consensus expected nonfarm productivity to be revised up to 2.8%.

Key Factors

• That was the biggest increase in productivity since a 3.5% increase in Q4 2013.
• The upward revisions to productivity came from large positive revisions to output levels. Total output growth was revised up to 4.7% in Q2 2015 from a previously reported 2.8%. That was in-line with the revisions in the second estimate of Q2 2015 GDP, which increased to 3.7% from 2.3% in the advance estimate.
• Hours worked were revised down to 1.4% in Q2 2015 from a previously reported 1.5%. Hourly compensation was unrevised and increased 1.8%.
• The combination of an upward revision to output and a downward revision to hours worked resulted in a large downward revision to unit labor costs. Labor costs now show a 1.4% decline in the second quarter after originally showing a 0.5% gain. That was the first decline in unit labor costs since a 3.5% decline in Q2 2014.

Big Picture

• Productivity gains help keep cost-push inflation pressures from rising wages in check. Over the long term, it is productivity gains that provide the increase in output that have led to the consistent gains in living standards in free market economies.

FACTORY ORDERS

Highlights

• Factory orders increased 0.4% in July after increasing an upwardly revised 2.2% (from 1.8%) in June. The Briefing.com Consensus expected factory orders to increase 0.9%.

Key Factors

• The relative softness in the factory orders data was the result of declining oil prices weighing down sales at petroleum refineries. Refinery orders fell 7.9% in July after increasing 0.8% in June. That decline caused nondurable goods orders to decline 1.3% in July after increasing 0.4% in June.
• Durable goods orders growth was revised up to 2.2% in July from 2.0% in the advance release. Orders are still down from a 4.1% increase in June. Excluding transportation, durable goods orders were revised down to 0.4% from a previously reported 0.6% gain.
• Orders of nondefense capital goods excluding aircraft were revised down to 2.1% in July from a previously reported 2.2% gain. Shipments, which factor into GDP, were unrevised and increased 0.6% in July.

Big Picture

• Factory orders increased for two consecutive months for the first time since June and July 2014.

Market Internals

NYSE:

Lower Volumes than the day before – 1068.3M vs 1154.2M 


Advancers outpaced Decliners (adv/dec): 2280 / 792

New Lows outpaced New Highs (highs/lows): 8 / 69

NASDAQ:

Lower Volumes than the day before – 1902.2M vs 2232.4M

Advancers outpaced Decliners (adv/dec): 1974 / 889

New Lows outpaced New Highs (highs/lows): 20 / 50

VOLATILITY S&P500 (VIX)
26.09 -5.31 (-16.91%)

Internals were turning to bullishness. But volume was dropping and New Lows/New Highs weren't showing any significant movement. Not quite of a convincing say. VIX fell back to 25.00 which suggests some underlying strength in the market.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

16,351.38 +293.03 (+1.82%)

Volume: 133,482,703 (above average of 108,436,549)
Range: 16,058.35 - 16,352.58

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,749.98 +113.87 (+2.46%)
Volume: 472,708,429 (above average of 465,162,832)

Range: 4,659.41 - 4,749.98

S&P 500 INDEX (SPX: CBOE)

1,948.86 +35.01 (+1.83%)

Volume: 732,830,000 (above average of 601,257,125)

Range: 1,916.52 - 1,948.91

DOW stay above yesterday's close and went up to test its resistance level at 16,360. NASDAQ bounced from the support at 4,610 and broke above 61.8% Fib level. Next resistance is likely to be around 4,760 level. S&P also stay above previous day close and likely to find a resistance at its 61.8% Fib level which is around 1,970. As the indices are forming a higher low but lower highs, it seems that there might be a wedge pattern before we continue to see more downside. 

Commodities

Closing Commodities: WTI Oil Displays Notable Volatility, Again; Closes +2% Near $47

• Oil was volatile once again. WTI crude oil fell as much as 5% off of its morning highs, falling to today’s low of $43.21/barrel.
• However, following that low, crude began to climb and rallied as much as 8.2% to $46.77/barrel, which was hit five minutes after floor trading closed.
• At the end of today’s pit trading session, Oct crude finished +2% at $46.30/barrel.
• In other energy, Sept natural gas dropped 2% today to end at $2.65/MMBtu, as the market remains in oversupply mode.
• Copper posted some gains today, rising +1.3% (or $0.03) to $2.33/lb.
• Meanwhile, precious metals ended mixed with Dec gold -0.6% to $1133.10/oz and Dec silver +0.3% to $14.66/oz.

Energy

• October crude oil futures rose $0.89 (+2.0%) to $46.30/barrel
• October natural gas closed $0.05 lower (-1.9%) at $2.65/MMBtu
• RBOB Gasoline closed $0.04 higher at $1.43/gallon
• Heating oil futures closed $0.04 higher at $1.61/gallon

Agriculture

• December corn closed $0.02 lower at $3.67/bushel
• December wheat closed $0.06 lower at $4.79/bushel
• November soybeans closed $0.01 lower to $8.74/bushel
• Sugar #11 closed $0.02 cents higher at 10.73 cents/lb

Metals

• December gold ended today’s session $6.30 lower (-0.6%) at $1133.10/oz
• December silver closed today’s session $0.05 higher (+0.3%) at $14.66/oz
• December copper closed $0.03 higher (+1.3%) at $2.33/lb

Currencies

Dollar and Kiwi Rally, Safe Havens Decline

• The U.S. Dollar Index resumed its rally that began last Monday, demonstrating strength despite a renewed push lower in global equity markets. The basis for the stronger dollar is higher yields on U.S. Treasuries, and those have bounced right back up despite global financial stress 
  • DXY: +0.37% to 95.80
• EUR/USD: -0.54% to $1.1237
  • The eurozone's Producer Price Index fell 0.1% in July, in line with expectations and the prior reading
  • Spanish Unemployment grew by a smaller-than-expected 21,000 in August versus a 74,000 person drop in July. The increase in UE ended a six-month streak of improving job figures
• GBP/USD: +0.04% to $1.5311
  • In the U.K., the Construction Purchasing Managers' Index rose to a lower-than-expected 57.3 in August from 57.1 in July
• USD/JPY: +0.48% to 120.25
• USD/CHF: +0.98% to 0.9672
• USD/CAD: +0.12% to 1.3264
• AUD/USD: +0.34% to $0.7035
  • Australia's GDP grew at 0.2% in the second quarter of 2015, falling short of the expected 0.4%. The economy grew by 0.9% in Q1
    • Declines in construction and mining activity contributed to the slowdown
    • The announcement pushed the Australian dollar down to a six-year low against the U.S. dollar
• NZD/USD: +0.40% to $0.6346

Bonds

Treasuries Fall on Beige Book, Productivity, and Oil Rally

• U.S. Treasuries declined today in a curve-steepening sell-off after Q2 productivity figures came out better than expected and the Fed's Beige Book noted reports of increasing wage pressures. The July Factory Orders growth was weaker than expected, but the June figure was revised up by almost the same amount as the miss for July. Crude inventories data showed a much larger than expected build for the week ended August 29th, but WTI crude futures shook off the number and rallied into the close, potentially adding to the pressure on Treasuries
• Yield Check:
  • 2-yr: unch at 0.71%
  • 5-yr: +2 bps to 1.52%
  • 10-yr: +3 bps to 2.19%
  • 30-yr: +5 bps to 2.96%

• News:
  • The MBA Mortgage Index for the week ended August 29 rose 11.3% versus a prior reading of -0.2%  
  • Private-sector employers added 190K jobs in August according to ADP, short of the Briefing.com consensus of 201K. The July number was revised down to 177K from the initial release of 185K
  • Productivity growth in the U.S. economy for the second quarter was revised up to 3.3% from an initial estimate of 1.3%. The Briefing.com consensus was for an upward revision to 2.8%
  • Unit Labor Costs fell 1.4% in Q2 versus the initial estimate for a rise of 0.5%. The Briefing.com consensus was for a decline of 0.9%
  • July Factory Orders missed expectations but the June number was revised up by almost the same amount
  • The Fed's Beige Book showed modest to moderate growth in the 12 Federal Reserve Districts between July and mid-August
    • "Wages were relatively stable in most Districts, with slight to moderate increases since the last report. However, several Districts reported increasing wage pressures caused by labor market tightening."
    • The last statement is presumably what induced the Treasury selling in the afternoon
    • Some Fed watchers thought that the tone was weaker than recent Beige Books, with much less optimism among contacts regarding the economic  outlook

• Commodities:
  • WTI crude: +1.23% to $45.97/bbl.
  • Gold: -0.56% to $1,133.40/troy oz.
  • Copper: +1.09% to $2.3265/lb.

• Currencies:
  • EUR/USD: -0.62% to $1.1229
  • USD/JPY: +0.46% to 120.24

• Data Out Thursday:
  • August Challenger Job Cuts (07:30 ET)
  • Initial Jobless Claims for the week ended 8/29 and Continuing Jobless Claims for the week ended 8/22 (08:30 ET)
  • July Trade Balance (08:30 ET)
  • August ISM Services (10:00 ET)
  • Natural Gas Inventories for the week ended 8/29 (10:30 ET)
• Fed Speaker:
  • Minneapolis Fed President Kocherlakota (non-FOMC voter) (21:00 ET)

Treasury Yields:

• 2 Year Note 0.72% +0.02
• 5 Year Note 1.52% +0.03
• 10 Year Note 2.20% +0.03
• 30 Year Bond 2.97% +0.04

2/30 Spread: 225 bps ( +2 ) …  2/10 Spread: 148 bps ( +1 )

Preview for Thursday 3 Sept, 2015

Economic Data

Thursday (3 Sept) :

• Challenger Job Cuts :
• Initial Claims : 273K (Prior 271K) 
• Continuing Claims : 2261K (Prior 2269K)
• Trade Balance : -$43.1B (Prior -$43.8B)
• ISM Services : 58.4 (Prior 60.3)
• Natural Gas Inventories : (Prior 69 bcf) 

Earnings Highlights

Thursday (3 Sept) :
BMO - CPB CIEN GCO GEF HOFT JOY LE MFRM MDT MEI XCRA
AMC - COO ESL BLOX MRVL UTIW PAY VNCE ZUMZ

Summary
I suppose market is still in a state of sit and watch like what we saw today. However with volume showing a dip when market bounced back up is not a sign of confidence. I reckon next few sessions are likely to stay the same prior to NFP on Friday. And so maybe we should see a follow through tomorrow but I don't think we should see a rally at the moment.

After Hours Report (Briefing)
Futures are higher after hours: S&P 500 futures are +1.13 from fair value of 1,946.82 and Nasdaq100 futures are +6.02 from fair value of 4,254.88.

Tomorrow morning before the open four economic reports scheduled to be released: 1) Challenger Job Cuts, 2) Initial Claims (Consensus 273K), 3) Continuing Claims (Cosnesus 2261K), and 4) Trade Balance (Consensus -$42.7B)

Tomorrow before the open the following companies are scheduled to report earnings: ISLE, GIII, NAV, VRA, WMS

Direction for Thursday 3 Sept, 2015: Up

2015 Daily Directional Accuracy: 89/140  (63.57%) 

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