Thursday, 22 Oct 2015 - AMC

Dow +320.55 at 17489.16, Nasdaq +79.93 at 4920.05, S&P +33.57 at 2052.51

That was some kind of a rally we are seeing. Market bounced back from the slight pullback and surprisingly the buying were very strong. DOW is showing the most strength on Thursday as big caps manage to outperform. 

Plenty of upside across Europe and Asia markets too. Europe markets were rallying after a dovish statement from the ECB. On the China side, the PBoC lower the one year lending rate which gave the market a boost. 
  

Market Summary

Industry Watch

Strong:

Weak: 

Other Market Moving Factor:

• Equity futures spike to highs after People's Bank of China cuts one-year lending rate by 25 basis points to 4.35%

[BRIEFING.COM] It was a running of the bulls on Thursday and "re-examine" was the trigger that sparked the charge. The S&P 500 soared 1.7%, overtaking its 100-day moving average (2,038) in the process. The benchmark index settled near its best level of the day, registering its first close above the 100-day average since August 17, as hopes for more stimulus overshadowed mixed corporate earnings. 

The stock market was off to the races after equity futures revved higher an hour before the opening bell. The pre-market activity took place in response to comments from European Central Bank President Mario Draghi, who addressed the media following the latest ECB policy meeting. During his press conference, Mr. Draghi said that the central bank will "re-examine" its asset purchases at the December meeting. This was immediately interpreted as a harbinger of more monetary easing in the near future, sending the euro lower while European equities and U.S. futures spiked. Those moves accelerated after Mr. Draghi revealed that the governing council had discussed lowering the deposit facility rate at today's policy meeting. Markets in France, Germany, Spain, and Italy jumped between 2.0% and 2.5% while the euro slid throughout the session to 1.1110 against the dollar after trading just above 1.1300 prior to Mario Draghi's press conference. As a result, the Dollar Index (96.44, +1.37) spiked 1.4%, returning to levels last seen in late September. 

Nine sectors ended the day with gains of 1.2% or more, masking the mixed nature of quarterly reports released between yesterday's closing bell and today's open. For instance, Caterpillar (CAT 70.88, +1.98) spiked 2.9% despite missing estimates and lowering its earnings guidance while 3M (MMM 156.00, +6.18) jumped 4.1% after missing revenue estimates, lowering its guidance, and announcing restructuring plans that will involve 1,500 layoffs worldwide. Meanwhile, American Express (AXP 72.50, -4.01) also delivered a disappointing report, but did not get lifted by the tide, falling 5.2%. 

To be fair, a few companies delivered better than expected reports with McDonald's (MCD 110.87, +8.33) surging 8.1% to a fresh all-time high and Texas Instruments (TXN 58.09, +6.19) spiking 11.9% after both beat their respective estimates. Texas Instruments contributed to a 3.5% spike in the PHLX Semiconductor Index, which in turn, underpinned the technology sector (+2.3%). That being said, even the two standouts of the day fit an all-too-familiar theme of bottom-line beats combined with sluggish revenue growth. 

Elsewhere, PulteGroup (PHM 18.16, -1.29) and Kinder Morgan (KMI 29.75, -1.67) posted respective losses of 6.6% and 5.3% in reaction to disappointing reports; however, their weakness was overshadowed by the broad market strength. 

Similarly, Valeant Pharmaceuticals (VRX 109.87, -8.74) had another woeful showing, tumbling 7.4% to extend its two-day loss to 24.7% after Citron Research voiced concerns of potential accounting fraud at the biotech company. On a related note, the health care sector (-0.6%) spent the day in negative territory. 

Treasuries bounced around their flat lines throughout the day with the 10-yr yield respecting a six-basis point range before ending unchanged at 2.03%. 

Today's trading volume was well above average with more than a billion shares changing hands at the NYSE floor.

Economic data included Initial Claims, Existing Home Sales, Leading Indicators, and FHFA Housing Price Index: 

• The weekly initial claims level increased to 259,000 for the week ending October 17 from an upwardly revised 256,000 (from 255,000) while the Briefing.com consensus expected an increase to 265,000 
  • The four-week moving average fell to 263,250 from 265,250, representing the lowest level since December 1973 
• Existing home sales increased 4.7% in September to 5.55 million from a downwardly revised 5.30 million (from 5.31 mln) while the Briefing.com consensus expected an increase to 5.39 million
  • Unfortunately, the growth in sales may not stable, considering much of the gain resulted from an increase in all-cash and investor demand 
    • All-cash sales accounted for 24% of all sales in September, up from 22% in August. Individual investors purchased 13% of existing homes in September, up from 12% in August 
• The Conference Board's Leading Economic Index declined 0.2% (consensus -0.1%) in September after a downward revision resulted in no change (from 0.1%) in August 
• The FHFA Housing Price Index for August rose 0.3%, which followed an unrevised increase of 0.6% in July 

There is no economic data on tomorrow's schedule.

Global Market

ASIA
It was a mixed day of trading Thursday for markets in the Asia-Pacific region, which had a lack of headline drivers to move things. The mixed sentiment was attributed in large part to Wall Street’s disappointing finish on Wednesday, angst about the renewed downturn in oil prices, and some hesitation ahead of the ECB policy decision today.

Economic data

• Hong Kong
• September CPI +2.0% year-over-year (expected +2.7%; prior +2.4%)
• Australia
• NAB Quarterly Business Confidence 0.0 (prior 4.0)

Equity Markets

• Japan’s Nikkei declined 0.6%, succumbing to selling interest in the afternoon trade. Losses were paced by weakness in the health care (-1.7%), consumer discretionary (-0.9%), and financials (-0.8%) sectors. The worst-performing issues were IHI Corp (-10.6%), Sumitomo Chemical (-5.6%), and FUJIFILM Holdings (-4.8%). The best-performing issues were SCREEN Holdings (+3.7%), Trend Micro (+3.3%), and JFE Holdings (+3.0%). Out of the 225 index members, 62 ended higher, 149 finished lower, and 14 were unchanged.
• Hong Kong’s Hang Seng declined 0.6% in its return from a Wednesday holiday. The Hang Seng had been down as much as 1.1% earlier in the session, but had some rebound spirit in the afternoon session. The top laggards were Lenovo Group (-4.1%), China Mobile (-3.1%), and China Unicom Hong Kong (-2.9%). Sitting atop the list of winners were China Merchants Holdings Intl. (+2.6%), Swire Pacific (+2.5%), and Bank of China (+1.3%). Out of the 50 index members, 26 ended higher, 22 finished lower, and 2 were unchanged.
• China’s Shanghai Composite increased 1.5%, with the entirety of the move coming in the last two hours of the session. Prior to that, the Composite was down 1.1%. There wasn’t any specific news catalyst for the shift in sentiment. Early weakness was attributed to Wall Street’s weak showing on Wednesday and some hesitation in front of the ECB decision. There were reports that Air China and China Southern Airline are mulling a possible merger. Notably, the small-cap Shenzhen Index surged 3.7% and also registered the entirety of its gain in the last two hours of trading action.
• India’s Sensex: closed for holiday (Dussehra)
• Australia’s S&P/ASX 200 increased 0.3% after being down 0.6% in early action. The index was helped by a 16.2% gain in energy company Santos, which reportedly said no to a takeover proposal from Scepter, a US-based fund manager. The best-performing sectors on Thursday were the energy (+3.1%), utilities (+1.2%), and REIT (+1.0%) sectors. Out of the 200 index members, 79 ended higher, 106 finished lower, and 15 were unchanged.
• Regional advancers: Singapore +0.4%, Thailand +0.04%, Vietnam +0.8%, Philippines +0.4%
• Regional decliners: South Korea -1.0%, Taiwan -0.01%, Malaysia -0.1%, Indonesia -0.5%

FX

• USD/CNY +0.14% at 6.3581
• USD/INR unch at 65.1675
• USD/JPY -0.2% at 119.73

EUROPE
Major European indices trade mostly higher while UK’s FTSE (-0.1%) underperforms. The European Central Bank made no changes to its policy stance, keeping its main refinancing rate at 0.05%. That being said, ECB President Mario Draghi said during his press conference that the central bank will re-evaluate its asset purchases at the December meeting, which was immediately interpreted as a sign of more easing. Accordingly, the euro has slid from 1.1300 to 1.1200 against the dollar while European equities and U.S. equity futures have spiked higher.

• UK’s September Retail Sales +1.9% month-over-month (expected 0.3%; prior -0.4%); +6.5% year-over-year (consensus 4.8%; last 3.5%). Separately, Core Retail Sales +1.7% month-over-month (expected 0.3%; last -0.7%); +5.9% year-over-year (consensus 4.6%; previous 3.2%)
• French Business Survey ticked down to 103 from 104, as expected
• Spain’s Q3 Unemployment Rate 21.18% (consensus 22.15%; prior 22.37%) while trade deficit widened to EUR3.20 billion from EUR1.40 billion
• Italy’s September Non-EU trade surplus was little changed at EUR1.43 billion (prior EUR1.38 billion)

Closing Prices

• UK’s FTSE: + 0.4%
• Germany’s DAX: + 2.5%
• France’s CAC: + 2.3%
• Spain’s IBEX: + 2.1%
• Portugal’s PSI: + 0.4%
• Italy’s MIB Index: + 2.0%
• Irish Ovrl Index: + 0.8%
• Greece ASE General Index: + 1.6%

Macroeconomic Data

Economic Data

from Briefing.com

• Initial Claims : 259K vs 265K (Prior 256K - Up)
• Continuing Claims : 2170K vs 2185K (Prior 21164K - Up)
• FHFA Housing Price Index : 0.3% (Prior 0.6%)
• Existing Home Sales : 5.55M vs 5.38M (Prior 5.31M)
• Leading Indicators : -0.2% vs -0.1% (Prior 0.1%)
• Natural Gas Inventories : 81 bcf (Prior 100 bcf)

UNEMPLOYMENT CLAIMS

Highlights

• The initial claims level increased to 259,000 for the week ending October 17 from an upwardly revised 256,000 (from 255,000) for the week ending October 10. The Briefing.com Consensus expected the initial claims level to increase to 265,000.
• The continuing claims level increased to 2.170 mln for the week ending October 10 from an upwardly revised 2.164 mln (from 2.158 mln) for the week ending October 3. The consensus expected the continuing claims level to increase to 2.198 mln.

Key Factors

• Layoff trends remain at historic lows, and businesses have clearly curtailed layoff activities over the past several weeks.
• In fact, the four-week moving average fell to 263,250 from 265,250. That is the lowest four-week moving average since December 1973.
• The four-week moving average of the continuing claims level dropped to 2.185 mln from 2.203 mln. That was the lowest moving average in continuing claims since November 2000.

Big Picture

• The overall trend in claims supports a labor market that is at, or very near, full employment.

EXISTING HOME SALES

Highlights

• Existing home sales increased 4.7% in September to 5.55 mln from a downwardly revised 5.30 mln (from 5.31 mln) in August. Sales nearly returned to the 5.58 mln high reached in July, which was the best performing month since 2007. The Briefing.com Consensus expected existing home sales to increase to 5.39 mln.

Key Factors

• The National Association or Realtors suggested that a slight deceleration in price growth combined with sub 4.0% mortgage rates fueled the increase in September demand.
• Unfortunately, the growth in sales may not stable. Much of the gain came from an increase in all-cash and investor demand. All-cash sales accounted for 24% of all sales in September, up from 22% in August. Individual investors purchased 13% of existing homes in September, up from 12% in August.
• Purchases by first-time buyers, which are the lifeblood of the industry, slipped to 29% of total sales in September from 32% in August.
• Inventories remain constrained. Total inventories fell 2.6% to 2.21 mln in September. That represents a 4.8 months' supply at the current sales rate, down from 5.1 months in August. A 6 months' supply is generally maintained during normal periods of buying and selling.
• The median existing home price increased 6.1% y/y in September to $221,900.

Big Picture

• Weak affordability conditions have the potential to lead to a slowdown in sales in coming months, particularly if mortgage rates rise. On the latter note, the National Association of Realtors suggested the prospect of higher mortgage rates and home prices have likely been factors in the recent strength, implying that some demand has been pulled forward.

LEADING INDICATORS

Highlights

• The Conference Board's Leading Economic Index declined 0.2% in September after a downward revision resulted in no change (from 0.1%) in August. The Briefing.com Consensus expected the index to decline 0.1%.

Key Factors

• Since 8 of the 10 components of the index are known prior to the release, the difference between the consensus forecast and the actual result are generally minor.
• In this case, the building permits data, which unexpectedly declined in September, was released after the consensus provided their forecast. That surprise caused the bigger-than-expected drop in the Leading Economic Index.
• Other negative contributors in September included the average workweek, ISM New Orders Index, and stock prices.

Big Picture

• The last time the Leading Economic Index declined was in February 2015.

Market Internals

NYSE:

Higher Volumes than the day before – 1049.5M vs 852.4M 


Advancers outpaced Decliners (adv/dec): 2314 / 789

New Highs outpaced New Lows (highs/lows): 113 / 53

NASDAQ:

Higher Volumes than the day before – 2143.9M vs 1885.2M

Advancers outpaced Decliners (adv/dec): 1800 / 1023

New Lows outpaced New Highs (highs/lows): 87 / 90

VOLATILITY S&P500 (VIX)
14.45 -2.25 (-13.47%)

Volume gets stronger and internals are showing strength in bullishness. New Highs also spiked up. However VIX did not really move much lower despite it stays under 15.00. There is some sense of cautious in the market.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,489.16 +320.55 (+1.87%)

Volume: 152,420,603 (above average of 116,566,827)
Range: 17,180.88 - 17,505.18

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,920.05 +79.93 (+1.65%)
Volume: 504,997,070 (above average of 478,812,317)

Range: 4,861.80 - 4,926.99

S&P 500 INDEX (SPX: CBOE)

2,052.51 +33.57 (+1.66%)

Volume: 786,028,000 (above average of 651,212,967)

Range: 2,021.88 - 2,055.20

That strong rebound are pushing the 3 indices closer to their respective 200MAs. That I reckon is likely to be a very significant resistance. NASDAQ was actually rejected by its 200MA as it went back to re-test the resistance. I suppose at this moment the bulls vs bears fight is going to get more intense. I will be looking to be if the market could break above the 200MA with this rally it is having. If not, maybe we would see a correction there.

Commodities

Closing Commodities: Oil Erases Losses, Closes Modestly Higher

• The dollar index continued to climb higher today, which helped weigh in commodities today
• However, commodities, as measured by the Bloomberg Commodity Index, are currently near the unchanged line overall
• WTI oil came back some as floor trading came to a close, erasing some of today’s losses.
• Dec crude ended the day +0.4% at $45.39/barrel.
• In other energy, Nov natural gas futures traded in the red all day following the release of the weekly EIA storage data
• The data was actually bullish, but overall storage continues to weigh on the market
• Nov nat gas ended -0.8% at $2.38/MMBtu today
• Silver and copper mostly held gains today. Dec silver closed +0.7% at $15.84/oz, while Dec copper finished +0.8% at $2.38/lb
• Dec gold slipped $1 to end at $1166.10/oz

Energy Closing Prices

• December crude oil futures rose $0.17 (+0.4%) to $45.39/barrel
• November natural gas closed $0.02 lower (-0.8%) at $2.38/MMBtu
• RBOB Gasoline closed $0.02 higher at $1.30/gallon
• Heating oil futures closed $0.01 lower at $1.46/gallon

Agriculture Closing Prices

• December corn closed $0.03 lower at $3.78/bushel
• December wheat closed $0.07 lower at $4.91/bushel
• November soybeans closed $0.07 lower at $8.99/bushel
• Sugar #11 closed $0.42 cents higher at 14.60 cents/lb

Metals Closing Prices

• December gold ended today’s session $1.00 lower at $1166.10/oz
• December silver closed today’s session $0.11 higher (+0.7%) at $15.84/oz
• December copper closed $0.02 higher (+0.8%) at $2.38/lb

Currencies

Traders Buy Euro Against Greenback on ECB Stimulus Hopes

• EUR/USD: -1.93% to $1.1120
  • The single currency was sold aggressively this morning after ECB President Mario Draghi said that the European Central Bank's governing council had discussed cutting the deposit rate from its current level at -0.2%. Draghi said that while the council had previously seen this level as a floor, they have learned from the experiences of other central banks that there may be room for further cuts
  • Spain's unemployment rate fell to 21.18% in the third quarter, better than both expectations and the 22.37% from the second quarter
• GBP/USD: -0.14% to $1.5396
  • Retail sales in the U.K. jumped a better-than-expected 1.9% m/m in September, reversing August's 0.4% decline
    • Core retail sales grew by 1.7% in September versus a 0.7% drop in August
• USD/CHF: +1.37% to 0.9734
• USD/JPY: +0.63% to 120.66
• USD/CAD: -0.21% 1.3108
  • Core retail sales in Canada missed expectations in August, remaining flat m/m. Core sales grew an upwardly-revised 0.1% in July
    • Headline retail sales rose a better-than-expected 0.5% m/m in August after growing an upwardly-revised 0.6% in July
• AUD/USD: -0.07% to $0.7207
  • In Australia, the NAB business confidence index fell to 0 for the third quarter from 4 in Q2
    • National Australia Bank noted in a statement that Australia is experiencing a two-speed economy with the mining sector suffering from the global commodities bust
• NZD/USD: +0.87% to $0.6774
• USD/BRL: -0.72% to 3.9112
  • The Brazilian central bank kept its main policy rate at 14.25% as it said that high rates are still needed to get inflation back to the bank's 4.5% target. Inflation has more than doubled that target since July

Bonds

2-Year Note Gains After ECB  

• The yield curve steepened today as the 2-year note moved higher but the belly and long end of the curve failed to find inspiration from a dovish ECB press conference. In the morning, ECB President Mario Draghi said that the European Central Bank's governing council had discussed cutting the deposit rate from its current level at -0.2%. Draghi said that while the council had previously seen this level as a floor, they have learned from the experiences of other central banks that there may be room for further cuts. Analysts had been expecting an expansion/extension of the EUR 1.1 tln asset purchase program but few had expected a deposit rate cut to be in the cards. Treasuries whipsawed initially, rallied later in the day, and then fell back
• Yield Check:
  • 2-yr: -4 bps to 0.59%
  • 5-yr: unch at 1.35%
  • 10-yr: unch at 2.03%
  • 30-yr: unch at 2.86%
    
• News:
  • Existing home sales grew to a seasonally adjusted 5.55 mln annual rate in September from 5.3 mln in August. The Briefing.com consensus was for 5.39 mln  
    • 2.21 mln homes were available for sale, a 3% decline from the prior month and 4.8 months worth of supply at the current rate. 6 month's of inventory is typical
    • Unfortunately, the growth in sales may not stable. Much of the gain came from an increase in all-cash and investor demand. All-cash sales accounted for 24% of all sales in September, up from 22% in August. Individual investors purchased 13% of existing homes in September, up from 12% in August
  • Initial jobless claims rose to 259K for the week ending 10/17 from a prior reading of 256K. The Briefing.com consensus was for 265K
    • Continuing claims rose to 2.170 mln for the week ending 10/10 from the prior reading (upwardly-revised) of 2.164 mln. The Briefing.com consensus was 2.198 mln continuing claims
  • The U.S. Treasury announced that it would postpone the 2-year note auction scheduled for October 27th due to debt-ceiling concerns
  • The Conference Board's Leading Economic Index fell 0.2% to 123.3 in September. The Briefing.com consensus was for a decline of 0.1%. The index was unchanged in August, although the initial reading showed a gain of 0.1%
  • The FHFA Housing Price Index rose 0.3% m/m in August versus a gain of 0.6% in July

• Commodities:
  • WTI crude: +0.66% to $45.50/bbl.
  • Gold: -0.13% to $1,165.60/troy oz.
  • Copper: +0.91% to 2.382/lb.

• Currencies:
  • EUR/USD: -1.96% to $1.1116
  • USD/JPY: +0.66% to 120.69

• Data Out Friday:
  • There are no scheduled market-moving events

Treasury Yields:

• 2 Year Note 0.61% -0.03
• 5 Year Note 1.36% -0.01
• 10 Year Note 2.04% UNCH
• 30 Year Bond 2.87% UNCH

2/30 Spread: 226 bps ( +3 ) …  2/10 Spread: 143 bps ( +3 )

Preview for Friday 23 Oct, 2015

Economic Data

Friday (23 Oct) : 

• No Economic Data

Earnings Highlights 

Friday (23 Oct) : 

BMO - AIMC AAL ALV B COG CFG DTE FNFG GRC LEA ERIC LYB OFG BPOP PGPB RCL SFE SHPG STT TEN TRI VFC VTR WHR
AMC - None

Summary

We have been seeing the market move to the upside this week and I think we could see some profit-taking as we approach the 200MA.

Given there is no economic data on Friday, I suppose it is likely to be another quiet session to set up for next week.

Direction for Friday 23 Oct, 2015: Up

2015 Daily Directional Accuracy: 108/168  (64.29%) 

2015 Weekly Directional Accuracy: 24/38 (63.16%)