Thursday, 8 Oct 2015 - AMC

Dow +138.46 at 17050.75, Nasdaq +19.64 at 4810.79, S&P +17.60 at 2013.43

Market started off rather flat-ish but eventually it rallied after the FOMC minutes was released. The Fed decided to hold on to the near zero interest rate as they are cautious on whether the global economic slowdown is going to drag down on US recovery. However most of the Fed members believe it is appropriate to raise interest rate by end of 2015 and that is possibly the reason which gave market the upside nudge. 

Both Europe and Asia markets were continuing to show upside. But Europe were mostly flat while Asia were mixed with Shanghai up by 3% after it reopens from holiday break.  
  

Market Summary

Industry Watch

Strong: Consumer Discretionary, Energy, Industrials, Materials

Weak: Financials, Health Care, Technology

Other Market Moving Factor:

• Biotechnology showing continued volatility
• Energy sector continues recent outperformance
• FOMC Minutes indicate all but one member believe a rate hike will be appropriate before year's end

[BRIEFING.COM] The stock market ended the Thursday session on a higher note after erasing its opening decline. The S&P 500 climbed 0.9% while the Nasdaq Composite (+0.4%) underperformed throughout the day. 

Equity indices struggled at the start of the trading day, responding to a mixed overnight session that featured losses among most Asian indices while European stocks fought to end the day with modest gains. The advance in Europe followed the release of the latest policy meeting minutes from the European Central Bank, which stressed that a lot more stimulus still has to work its way through the financial system. 

Once the U.S. session got going, stocks spent the first half in the red as heavily-weighted technology (+0.5%) and health care (+0.4%) struggled; however, the two sectors were lifted off their lows during afternoon action as the S&P 500 climbed above its 50-day moving average (1,995). 

The afternoon rebound accelerated after the release of the September FOMC minutes, which revealed that only one Committee member believed that economic conditions do not warrant a rate hike while other members believed that a rate hike will be appropriate before the end of 2015. Despite the majority view regarding the timing of the first rate hike, several members expressed concern over downside risks to inflation. 

Treasuries saw an immediate spike in reaction to the minutes, but they quickly slid to new lows where they ended the day with the 10-yr yield rising four basis points to 2.11%. Meanwhile, the Dollar Index (95.31, -0.18) briefly fell to lows, but returned to its early afternoon levels shortly thereafter. 

All ten sectors ended the day in the green with commodity-sensitive energy (+1.9%) and materials (+1.4%) continuing their recent outperformance. The two sectors extended this week's gains to 8.6% and 6.8%, respectively, while crude oil spiked 3.3% to $49.45/bbl. 

Elsewhere among cyclical sectors, the consumer discretionary space (+1.2%) ended among the leaders with shares of Netflix (NFLX 114.93, +6.83) surging 6.3% after the company announced it will raise the price of its streaming service by 11.1%. 

Staying on the cyclical side, the top-weighted technology sector (+0.5%) erased its loss by the close thanks to the broad strength. Lost in the shuffle was a 4.7% spike in EMC (EMC 27.18, +1.22) after The Wall Street Journal reported the company could be on track to merge with Dell. 

Similar to technology, the health care sector (+0.4%) erased its opening loss during the afternoon; however, biotech names struggled into the close with the iShares Nasdaq Biotechnology ETF (IBB 307.20, -0.59) ending lower by 0.2% after being down 3.6% in the early going. 

Today's participation was below recent totals as fewer than 900 million shares changed hands at the NYSE floor. 

Economic data was limited to weekly Initial Claims, which declined to 263,000 from a downwardly revised 276,000 (from 277,000) while the Briefing.com consensus a decline to 275,000. As a result, the four-week moving average has dipped to 267,500 from 270,500, which is the lowest level since the first week of August. These levels continue to support the idea that the economy is at full employment. 

Tomorrow, September Import/Export Prices will be reported at 8:30 ET while the August Wholesale Inventories report will be released at 10:00 ET (Briefing.com consensus 0.0%).

Global Market

ASIA
Markets in the Asia-Pacific region mostly gave way to a day of profit taking following some strong gains of late. A disappointing machinery orders report out of Japan contributed to the negative disposition. The notable exception Thursday was China’s Shanghai Composite. It rallied 3.0% in a catch-up trade following its weeklong closure.

Economic data

• Japan
• August Core Machinery Orders -5.7% month-over-month (expected +3.2%; prior -3.6%); -3.5% year-over-year (expected +4.2%; prior +2.8%)
• September Economy Watchers Current Index 47.5 (expected 48.6; prior 49.3)

Equity Markets

• Japan’s Nikkei declined 1.0% and ended at its lows for the session following a much weaker-than-expected report for core machinery orders. The biggest losers were the health care (-2.8%) and consumer staples (-2.7%), and consumer discretionary (-1.6%) sectors. Aeon (-7.2%), Shionogi & Co (-6.7%), and MEIJI Holdings (-5.5%) paced declining issues. Sumco Corp (+4.1%), Chiyoda Corp (+3.9%), and Minebea (+3.6%) topped the list of winners. Out of the 225 index members, 89 ended higher, 129 finished lower, and 7 were unchanged.
• Hong Kong’s Hang Seng declined 0.7%, spending nearly the entirety of its session in negative territory. Prior to Thursday’s trade, the Hang Seng had risen 9.5% over a span of just five trading sessions beginning on September 30. CNOOC (-6.0%), China Resources Enterprise (-5.5%), and Belle International Holdings (-3.7%) were the worst-performing issues. Sino Land Co (+2.3%), Sands China (+1.6%), and Galaxy Entertainment (+1.4%) were the best-performing issues. Out of the 50 index members, 14 ended higher and 36 finished lower.
• China’s Shanghai Composite increased 3.0% in its reopening after a weeklong holiday. It was a catch-up trade that many saw coming with other markets having rallied hard since the Shanghai Composite closed on September 30. At its best level of the day, the Composite was up 3.9%.
• India’s Sensex declined 0.7% and closed near its lows for the day. The materials sector (+1.5%) was the only sector to gain ground in Thursday’s trade. Leading laggards included Reliance Industries (-2.7%), GAIL India (-2.4%), and ITC Ltd (-2.1%). The best-performing stocks were Vedanta (+2.4%), Tata Steel (+1.7%), and Tata Motors (+0.7%). Out of the 30 index members, 9 ended higher and 21 finished lower.
• Australia’s S&P/ASX 200 increased 0.2% but finished well off its high for the day seen shortly after the start of trading when it was up 1.1%. Thursday’s modest gain was underpinned by strength in the metals & mining (+2.4%), resources (+2.1%), and materials (+1.7%) sectors. Out of the 200 index members, 79 ended higher, 109 finished lower, and 12 were unchanged.
• Regional advancers: South Korea +0.7%, Malaysia +0.2%, Indonesia +0.1%, Vietnam +1.2%
• Regional decliners: Taiwan -0.6%, Singapore -0.5%, Thailand -0.1%, Philippines -0.03%

FX

• USD/CNY -0.04% at 6.3534
• USD/INR +0.2% at 65.0887
• USD/JPY -0.2% at 119.74

EUROPE
Major European indices trade near their flat lines while UK’s FTSE (+0.4%) outperforms. The Bank of England made no changes to its policy stance, leaving its key interest rate and the purchasing program unchanged at 0.50% and GBP375 billion, respectively. On a separate note, the latest policy meeting minutes from the European Central Bank indicated there is still “substantial degree of stimulus” in the pipeline.

• Germany’s August Trade surplus narrowed to EUR19.60 billion from EUR22.40 billion (expected surplus of EUR22.50 billion) as imports fell 3.1% (consensus -1.2%; prior 2.3%) and exports declined 5.2% (expected -1.2%; last 2.2%)
• Swiss September Unemployment Rate ticked up to 3.4% from 3.3%, as expected

Closing Prices

• UK’s FTSE: + 0.6%
• Germany’s DAX: + 0.2%
• France’s CAC: + 0.2%
• Spain’s IBEX: + 0.1%
• Portugal’s PSI: 0.0%
• Italy’s MIB Index: + 0.7%
• Irish Ovrl Index: -0.1%
• Greece ASE General Index: -0.3%

Macroeconomic Data

Economic Data

from Briefing.com

• Initial Claims : 263K vs 275K (Prior 276K - Down)
• Continuing Claims : 2204K vs 2205K (Prior 2195K - Up)
• Natural Gas Inventories : 95 bcf (Prior 98 bcf)
• FOMC Minutes 

UNEMPLOYMENT CLAIMS

Highlights

• The initial claims level declined to 263,000 for the week ending October 3 from a slightly downwardly revised 276,000 (from 277,000) for the week ending September 26. The Briefing.com Consensus expected the initial claims level to decline to 275,000.
• The continuing claims level increased to 2.204 mln for the week ending September 26 from an upwardly revised 2.195 mln (from 2.191 mln) for the week ending September 19. The consensus expected the continuing claims level to increase to 2.202 mln.

Key Factors

• The four-week moving average dipped to 267,500 from 270,500, which is its lowest level since the first week of August. These levels continue to support the idea that the economy is at full employment.

Big Picture

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

Market Internals

NYSE:

Lower Volumes than the day before – 919.9M vs 1178.6M 


Advancers outpaced Decliners (adv/dec): 2395 / 691

New Highs outpaced New Lows (highs/lows): 57 / 12

NASDAQ:

Lower Volumes than the day before – 1973.1M vs 2141.2M

Advancers outpaced Decliners (adv/dec): 1826 / 991

New Highs outpaced New Lows (highs/lows): 64 / 34

VOLATILITY S&P500 (VIX)
17.42 -0.98 (-5.33%)

Although volume took a dip but generally the internals are still looking bullish. Adv/Decl ratio is also showing a bullish tone and New Highs are rising as well. VIX tried to test the 200MA as it broke below the support at 17.50, but it remains to be held above by the lower bound of Bollinger Bands. Maybe we should see a pullback soon. Looking at these signs, I suppose market is getting more optimistic here.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,050.75 +138.46 (+0.82%)

Volume: 100,733,682 (below average of 113,523,821)
Range: 16,859.34 - 17,081.28

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,810.79 +19.64 (+0.41%)
Volume: 441,396,000 (below average of 467,673,901)

Range: 4,737.93 - 4,819.07

S&P 500 INDEX (SPX: CBOE)

2,013.43 +17.60 (+0.88%)

Volume: 604,478,000 (below average of 637,559,209)

Range: 1,987.53 - 2,016.50

DOW had a breakout and is approaching another resistance at 17,730. However volume did not increase along with the price action and that is something to be concerned. NASDAQ also went up to test its resistance at 4,820 and it is likely to go higher towards its 50MA. As S&P managed to rally above both 50MA and support level at 1,990, it is probably forming a breakout soon with August's high serves as the crucial resistance level at around 2,020.

Commodities

Closing Commodities: WTI Oil Rallies, Temporarily Cross Above $50

• Oil prices were big movers today with WTI and Brent rallying.
• NYMEX crude oil futures crosses the widely watched $50 handle for the 1st time since Aug. 31 for the lead-month November contract.
• By the end of today’s pit session, Nov crude closed 3.3% to $49.45/barrel. Nov natural gas rallied 1.2% to $2.50/MMBtu.
• Gold sold off in electronic trade, extending losses.
• In floor trade, Dec gold fell 0.4% to $1144.40/oz. Dec silver dropped 2% to $15.76/oz, while in industrial metals, Dec copper lost 1.3% to $2.34/lb.

Energy Closing Prices

• November crude oil futures rose $1.60 (+3.3%) to $49.45/barrel
• November natural gas closed $0.03 higher (+1.2%) at $2.50/MMBtu
• RBOB Gasoline closed flat at $1.39/gallon
• Heating oil futures closed $0.02 higher at $1.60/gallon

Agriculture Closing Prices

• December corn closed $0.03 lower at $3.92/bushel
• December wheat closed $0.06 lower at $5.11/bushel
• November soybeans closed $0.09 lower at $8.81/bushel
• Sugar #11 closed $0.03 cents higher at 14.01 cents/lb
• Note: Tomorrow at Noon ET, the USDA will release its market-moving WASDE report, which will likely stand to drive price action in corn, wheat and soybeans intraday

Metals Closing Prices

• December gold ended today’s session $4.30 lower (-0.4%) at $1144.40/oz
• December silver closed today’s session $0.31 lower (-1.9%) at $15.76/oz
• December copper closed $0.03 lower (-1.3%) at $2.34/lb

Currencies

Dollar Declines 

• The U.S. Dollar Index fell 0.21% to 95.30 today as investors bought commodity currencies on the back of higher oil prices
• EUR/USD: +0.32% to $1.1272
  • German exports declined 5.2% m/m in August, much worse than analysts had expected. Exports grew by a downwardly-revised 2.2% in July
    • This weakness follows misses for factory orders and industrial production data for August, released earlier this week
  • Home prices in the eurozone grew by 1.1% y/y in the second quarter of 2015
• GBP/USD: +0.27% to $1.5353
  • The Bank of England's monetary policy committee voted 8-1 to keep its main policy rate at 0.5% this month
    • The central bank said that the current bout of disinflation is a result of weak global demand, as opposed to the supply side-driven disinflation of late 2014 that resulted from collapsing oil prices
    • The MPC noted that income and consumption growth are robust, although "encouraging improvements in productivity growth have so far limited the impact" on inflation
    • The BoE maintained its portfolio of purchased assets at GBP 375 bln 
    • Ian McCafferty was the sole dissenter, as he was at the September meeting
• USD/CHF: -0.70% to 0.9667
  • Switzerland's unemployment rate rose to a seasonally-adjusted 3.4% in September from 3.3% in August, in line with expectations
• USD/JPY: +0.01% to 119.98
  • Japan's current account surplus narrowed less than expected to Y1.65 tln in August from Y1.8 tln in July
    • Machine orders fell 5.7% m/m in August, marking the third consecutive decline. Economists had forecast a gain
• USD/CAD: -0.44% to 1.3005
  • Housing starts in Canada numbered 230.7K in September, much better than expected and an increase from the downwardly-revised August reading of 214.3K
  • Canada's New Housing Price Index grew a better-than-expected 0.3% m/m in August after inching up 0.1% in July
• AUD/USD: +0.95% to $0.7267
• NZD/USD: +0.92% to $0.6669

Bonds

Yield Curve Steepens after FOMC Minutes

• The U.S. Treasury market held slightly lower for most of the session until the release of the minutes from the September FOMC meeting set off a sharp stock rally and triggered a steep slide in 10 and 30-year government debt. WTI crude added to its gains for the week and the U.S. Dollar Index lost 0.22% to 95.29
• Yield Check:
  • 2-yr: +1 bp to 0.64%
  • 5-yr: +3 bps to 1.40%
  • 10-yr: +5 bps to 2.11%
  • 30-yr: +6 bps to 2.96%

• News:
  • Initial jobless claims fell to 263K for the week ending October 3 from a downwardly-revised 276K (from 277K) for the week ending September 26. The Briefing.com consensus was for 275K initial claims
    • Continuing jobless claims rose to 2.204 mln for the week ending September 26 from an upwardly-revised 2.195 mln (from 2.191 mln) for the week ending September 19. The consensus expected the continuing claims level to increase to 2.202 mln
  • Republican majority leader, Kevin McCarthy, dropped out of the race for Speaker of the House
  • Natural gas inventories for the week ending Oct 3rd rose by a smaller-than-expected 95 billion cubic feet
  • The $13 bln 30-year auction (reopening) was met with strong demand
    • High yield: 2.914%
    • Bid-to-cover: 2.46
    • Indirect bid: 56.4%
    • Direct bid: 15.5%
  • The FOMC minutes from the September 16-17 meeting showed that many members saw the economy on track to warrant a rate hike later this year
    • The pause at the September meeting was "to wait for additional information confirming that the economic outlook had not deteriorated.’’

• Commodities:
  • WTI crude: +3.79% to $49.62/bbl.
  • Gold: -0.77% to $1,139.80/troy oz.
  • Copper: -0.59% to $2.353/lb.

• Currencies:
  • EUR/USD: +0.37% to $1.1278
  • USD/JPY: -0.04% to 119.93

• Data Out Friday:
  • September Export Prices ex-ag. and Import Prices ex-oil (08:30 ET)
  • August Wholesale Inventories (10:00 ET)
• Fed Speakers:
  • Atlanta Fed President Lockhart (FOMC voter) (9:10 ET)
  • Chicago Fed President Evans (FOMC voter) (13:30 ET)

Treasury Yields:

• 2 Year Note 0.65% UNCH
• 5 Year Note 1.40% +0.03
• 10 Year Note 2.12% +0.04
• 30 Year Bond 2.96% +0.07

2/30 Spread: 231 bps ( +7 ) …  2/10 Spread: 147 bps ( +4 )

Preview for Friday 9 Oct, 2015

Economic Data

Friday (9 Oct) : 

• Export Prices ex-agri :
• Import Prices ex-oil :
• Wholesale Inventories : 0.0% (Prior -0.1%)

Earnings Highlights 

Friday (9 Oct) : 

BMO - None
AMC - None

Summary

It looks like the market has shown an all-clear signal tentatively and we should see more upside as market recovers. Right now, the buyers definitely have the control on the market.

I suppose there would be some profit-taking as we finished the week strong, but I believe the market is more likely to set up for next week.

Direction for Friday 9 Oct, 2015: Up

2015 Daily Directional Accuracy: 101/159  (63.52%) 

2015 Weekly Directional Accuracy: 23/37 (62.16%)