Wednesday, 4 Nov 2015 - AMC

Dow -50.57 at 17867.58, Nasdaq -2.65 at 5142.48, S&P -7.47at 2102.32

Market went down today but it was not an overwhelming bearish session. However this is likely to indicate the weakness in the market after it was overbought. Maybe we should see a correction in the market if the sellers come into play. 

Both Europe and Asia markets were showing some upside with Shanghai Composite closed at around 4.5% gain.  
  

Market Summary

Industry Watch

Strong: Technology, Industrials, Utilities

Weak: Consumer Staples, Financials, Health Care, Utilities

Other Market Moving Factor:

• October ADP Employment report beats estimates (182,000; Briefing.com consensus 180,000)
• Dollar Index working on third consecutive advance

[BRIEFING.COM] The stock market snapped its two-day streak on Wednesday, but the midweek pullback was fairly modest in scope. The S&P 500 shed 0.4% while the Nasdaq Composite (-0.1%) outperformed, settling just below its flat line. 

Equity indices began the day on a modestly higher note, but the slight early strength faded quickly, sending the major averages into the red during the opening hour. In addition, investors heard from Fed Chair Janet Yellen who addressed the House Financial Services Committee to discuss regulation and supervision of financial institutions; however, the Q&A portion drifted towards questions about the upcoming December policy meeting with Fed Chair Yellen reiterating that a rate hike could happen in December if economic data shows improvement. 

Eight sectors ended the day in negative territory with energy (-1.0%) spending the bulk of the session behind the remaining nine groups. It is worth noting that today's slide followed a 5.0% gain over the past two days and the sector also had to contend with selling in the commodity market where crude oil fell 3.4%, ending the pit session at $46.32/bbl. 

Unlike energy, the remaining decliners posted slimmer losses than 0.7%, but relative weakness among the likes of consumer discretionary (-0.6%) and health care (-0.5%) kept the market in negative territory until the close. 

The discretionary sector underperformed with apparel retailers ending mostly lower, which overshadowed a better than expected earnings report from Michael Kors (KORS 42.58, +3.26). Shares of KORS spiked 8.3% after better than expected results and upbeat fiscal-year 2016 guidance overshadowed a cautious outlook for Q3. Elsewhere in the sector, media names also lagged even though CBS (CBS 47.96, -0.28) and Time Warner (TWX 72.19, -5.11) reported better than expected results. 

On the upside, the technology sector (+0.1%) outperformed, spending the trading day in the neighborhood of its flat line, which prevented a larger pullback from taking shape. Large cap components ended the day on a mixed note while chipmakers outperformed with the PHLX Semiconductor Index climbing 0.3%. 

Similar to stocks, Treasuries retreated with the 10-yr yield rising two basis points to 2.23%. 

Today's participation was ahead of average as more than 900 million shares changed hands at the NYSE floor. 

Economic data included ADP Employment, Trade Balance, and ISM Services: 

• The ADP National Employment Report revealed that employment in the nonfarm private business sector rose by 182,000 in October while the Briefing.com consensus expected a reading of 180,000 
  • The September reading was revised down to 190,000 from 200,000 
• The U.S. trade deficit narrowed in September to $40.80 billion from an upwardly revised $48.00 billion (from -$48.30 bln) in August while the Briefing.com consensus expected a reading of $43.00 billion 
  • Notably, the September trade deficit was not that far off from the BEA's estimate of -$40.60 billion that was embedded in the advance Q3 GDP report. Accordingly, revisions to net exports shouldn't have much bearing on the second estimate for Q3 GDP 
  • The improvement in September was owed to imports being $4.20 billion less than August imports and exports being $3.00 billion more than August exports 
• The ISM Services index jumped to 59.1 in October from 56.9 in September while the Briefing.com consensus expected a reading of 56.6 
  • The October reading was the second-highest mark this year, preceded only by the 60.3 reading in July, which was the highest level since August 2005 

Tomorrow, weekly Initial Claims (Briefing.com consensus 262,000) and preliminary Q3 Productivity/Unit Labor Cost data will be reported at 8:30 ET.

Global Market (currently unavailable)

Macroeconomic Data

Economic Data

from Briefing.com

• MBA Mortgage Index : -0.8% (Prior -3.5%)
• ADP Employment Change : 182K vs 180K (Prior 190K - Down)
• Trade Balance : -$40.8B vs -$43.0B (Prior -$48.0B - Up)
• ISM Services : 59.1 vs 56.6 (Prior 56.9)
• Crude Inventories : 2.85M (Prior 3.38M) 

TRADE BALANCE

Highlights

• The U.S. trade deficit narrowed in September to $40.8 billion from an upwardly revised $48.0 billion (from -$48.3 bln) in August. That was better than the $43.0 billion deficit projected by the Briefing.com consensus.

Key Factors

• The September trade deficit was not that far off from the BEA's estimate of -$40.6 billion that was embedded in the advance Q3 GDP report. Accordingly, revisions to net exports shouldn't have much bearing on the second estimate for Q3 GDP.
• The improvement in September was owed to imports being $4.2 billion less than August imports and exports being $3.0 billion more than August exports.
• The decrease in the goods and services deficit was paced by a $7.3 billion decrease in the goods deficit and a $0.1 billion decrease in the services surplus.
• The bump in exports came primarily from consumer goods (+$1.28 bln), which was led by increases in artwork, jewelry, and cell phones, and a $0.89 billion increase in capital goods, excluding autos. 
• Imports of industrial supplies and materials fell by $1.58 billion, the bulk of which was related to crude oil (-$1.28 bln), capital goods dropped by $1.04 billion, auto imports decreased by $0.84 billion, consumer goods declined by $0.44 billion, and imports of other goods were down $0.49 billion.

Big Picture

• The drop in imports was surprisingly broad-based given the dollar's strength and didn't exactly connote an element of strong demand in the US.

ISM SERVICES

Highlights

• The ISM Services index jumped to 59.1 in October from 56.9 in September. That was above the Briefing.com consensus estimate, which was pegged at 56.6.

Key Factors

• There were upticks for all indexes, with the exception of supplier deliveries (to 52.0 from 52.5), inventory sentiment (to 63.0 from 65.0), and backlog of orders (unchanged at 54.5), all of which still rwmaind in an expansion mode with a reading above 50.0.
• The new orders index jumped 5.3 points to 62.0; the employment index edged up 0.9 points to 59.2; inventories increased 1.5 points to 52.5; prices were up 0.7 points to 49.1 (revealing a slowdown in the pace of price declines); new export orders increased 2.0 points to 54.5; and imports added 1.5 points to 54.5.

Big Picture

• The October reading is the second-highest reading this year, preceded only by the 60.3 reading in July, which was the highest reading since August 2005. Translation: purchasing and supply executives in the non-manufacturing sector are feeling pretty darn good about business conditions.
• October marked the 69th straight month of growth for the non-manufacturing sector. A reading above 50.0, therefore, wasn't a surprise; however, a reading close to 60.0 was; and it created a nice distraction from the budding concern about the slowdown in the pace of growth for the manufacturing sector.

Market Internals

NYSE:

Lower Volumes than the day before – 933.5M vs 936.4M 


Decliners outpaced Advancers (adv/dec): 1217 / 1842

New Highs outpaced New Lows (highs/lows): 93 / 32

NASDAQ:

Higher Volumes than the day before – 2085.8M vs 2010.4M

Decliners outpaced Advancers (adv/dec): 1393 / 1412

New Highs outpaced New Lows (highs/lows): 77 / 48

VOLATILITY S&P500 (VIX)
15.51 +0.97 (+6.67%)

Internals are turning slightly bearish and there is a weakening in the bullish strength. VIX rebound and went above its resistance at 15.00. I reckon we should VIX moves higher as we continue to see a correction in the market.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,867.58 -50.57 (-0.28%)

Volume: 99,893,534 (below average of 116,782,274)
Range: 17,828.83 - 17,964.12

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

5,142.48 -2.65 (-0.05%)
Volume: 466,939,968 (below average of 469,472,231)

Range: 5,122.78 - 5,162.57

S&P 500 INDEX (SPX: CBOE)

2,102.31 -7.48 (-0.35%)

Volume: 615,424,000 (below average of 653,537,725)

Range: 2,096.98 - 2,114.59

The indices are indicating a likelihood of reversal in the market. DOW is forming an inside day candlestick and likewise NASDAQ could not break above yesterday high. I reckon they might come down to retest the breakout point. S&P was rejected at 2,110 and it is likely to find a support at around 2,080 level. If the indices broke below their support, I think we should see the market gets more bearish.

Currencies

Greenback Continues on Path Higher 

• The U.S. Dollar Index rallied 0.84% today to 97.98, touching a fresh, multi-week high. Currency markets continue to be dominated by the prospect for higher rates in the U.S. and more monetary policy accommodation in the eurozone
  • The ISM Services Index unexpectedly jumped to 59.1 in October from a prior reading of 56.9
• EUR/USD: -0.96% to $1.0855
  • The eurozone's purchasing managers' index for the services sector was revised down to 54.1 for October from an initial estimate of 54.2. The services PMI was 53.7 in September
    • The eurozone's composite PMI for October was revised lower to 53.9 from 54.0. September's reading was 53.6. Readings above 50 indicate expansion
  • The eurozone's producer price index fell 0.3% m/m in September after declining 0.8% in August
• GBP/USD: -0.30% to $1.5374
  • The U.K.'s services PMI rose more than expected to 54.9 in October from 53.3 in September
• USD/CHF: +0.34% to 0.9943
• USD/JPY: +0.38% to 121.56
  • In Japan, household confidence rose more than expected to 41.5 in October from 40.6 in September
• USD/CAD: +0.80% to 1.3163
  • Canada's trade deficit narrowed more than expected in September to CAD -1.73 bln from an upwardly-revised CAD -2.66 bln in August
• AUD/USD: -0.58% to $0.7152
  • In Australia, retail sales rose 0.4% m/m in September, in line with estimates and the growth in August
  • Australia's trade deficit unexpectedly narrowed to AUD -2.32 bln in September from a downwardly-revised AUD -2.71 bln in August
  • The AIG Services Index fell 3.4 points to 48.9 in October
• NZD/USD: -1.16% to $0.6585
  • In New Zealand, the number of employed workers fell 0.4% q/q in the third quarter, confounding economists' expectations for growth
    • The unemployment rate ticked up to 6.0% in Q3 from 5.9% in the second quarter, as expected

Bonds

Treasury Prices Fall 

• U.S. Treasury yields moved higher today as the ISM Services Index for October handily beat estimates and Fed Chair Janet Yellen and New York Fed President William Dudley both said that December's FOMC meeting is a "live" one for liftoff. The $26 bln 2-year note auction was poorly received and this contributed to some of the curve flattening we saw today
• Yield Check:
  • 2-yr: +3 bps to 0.80%
  • 5-yr: +5 bps to 1.64%
  • 10-yr: +2 bps to 2.23%
  • 30-yr: unch at 3.00%

• News:
  • Fed Chair Yellen said that the FOMC is expecting the economy to grow at a pace that is sufficient to improve the labor market and improve inflation. If that happens, she said, December will be a live possibility   
    • New York Fed President Dudley spoke later in the day and said that he agrees with Yellen that December is a "live" meeting
  • The Mortgage Bankers' Association reported that weekly mortgage applications fell 0.8% versus a decline of 3.5% in the prior week
  • Fed Governor Brainard said that the improvement in the U.S. labor market has been extremely steady and slack is diminishing, but core inflation remains below the Fed's target and certain measures of wage inflation have declined
  • The Institute for Supply Management's services index jumped to a three-month high of 59.1 in October from 56.9 in September. The Briefing.com consensus was for 56.6
    • The optimism was embedded in upticks for all sub-indices, with the exception of supplier deliveries (to 52.0 from 52.5), inventory sentiment (to 63.0 from 65.0), and backlog of orders (unchanged at 54.5) 
  • The U.S. trade deficit narrowed in September to $40.8 billion from a downwardly-revised $48.0 billion deficit (from $48.3 bln) in August. That was better than the $43.0 billion deficit projected by the Briefing.com consensus
    • Notably, the September trade deficit was not that far off from the BEA's estimate of -$40.6 billion that was embedded in the advance Q3 GDP report. Accordingly, revisions to net exports shouldn't have much bearing on the second estimate for Q3 GDP
  • The $26 bln 2-year note auction was met with weak demand. The bid-to-cover ratio was the lowest since May of 2010, when Greece was in turmoil: 
    • High yield 0.84%
    • Bid-to-cover 3.01
    • Indirect bid 40.0%
    • Direct bid 11.0%

• Commodities:
  • WTI crude: -2.80% to $46.56/bbl.
  • Gold: -0.60% to $1,107.40/troy oz.
  • Copper: -0.34% to $2.3225/lb.

• Currencies:
  • EUR/USD: -0.93% to $1.0859
  • USD/JPY: +0.37% to 121.55

• Data Out Thursday:
  • October Challenger Job Cuts (07:30 ET)
  • Initial Jobless Claims for the week ending 10/31 and Continuing Jobless Claims for the week ending 10/24 (08:30 ET)
  • Q3 Productivity and Unit Labor Costs – Preliminary (08:30 ET)
  • Natural Gas Inventories for the week ending 10/31 (10:30 ET)
• Fed Speakers:
  • Philadelphia Fed President Harker (non-FOMC voter) gives welcome remarks (09:30 ET)
  • Chicago Fed President Evans (FOMC voter) gives introductory remarks before 18th Annual International Banking Conference (11:40 ET)
  • Atlanta Fed President Lockhart (FOMC voter) (14:30 ET) 

Treasury Yields:

• 2 Year Note 0.84% +0.04
• 5 Year Note 1.64% +0.05
• 10 Year Note 2.25% +0.02
• 30 Year Bond 3.00% UNCH

2/30 Spread: 216 bps ( -4 ) …  2/10 Spread: 141 bps ( -2 )

Preview for Thursday 5 Nov, 2015

Economic Data

Thursday (5 Nov) :

• Challenger Job Cuts : (Prior 93.2%)
• Initial Claims : 262K (Prior 260K)
• Continuing Claims : 2145K (Prior 2144K)
• Productivity - Prel : -0.2% (Prior 3.3%)
• Unit Labour Costs - Prel : 2.2% (Prior -1.4%)
• Natural Gas Inventories : (Prior 63 bcf)

Earnings Highlights 

Thursday (5 Nov) :

BMO - ACIW ACTA WMS AES AGIO AGU ALSK AFAM AMCX AMED AMRC ANSS APA AINV ACRE AZN AAWW ATHM BCE BCRX NILE BDBD BBEP BR CCC CNQ CRME CECE FUN CELG CNP CSG CLDT CC CNK CWEI CCOI SCOR CNSL CSTM CORE COTY CROX CONE DNR DUK DVAX ENB ENDP ENOC EGL EVA ESNT IT GLOG GEO GLP GOGO HGG HRC HFC HMHC HWCC HII IDRA IPCC IRC INSY SNOW ITG ITC ESI KATE KOP LAMR LPI LXP LBY LCUT LINE MSG MGA MSO MZOR MEG MPW MPEL VIVO MVIS MITL TAP MSGN NHI NGS NRP NTWK NWHM NDLS OGE ZEUS OMED OPK ORN PDCE PWE PRFT PBH PRIM PGNX PWR RDUS RL ROLL RLGY RGEN RVLT RWLK RICE RMP RGLD RRD SRPT SEAS MCRB SSTK SFUN SJI SPAR SRC SFM STN STWD STCK BEE SNSS SFY SYMC TEDU TE TK TNK TU TDC TIME TRXC TLP THS TPUB GTS USPH USAC VER VC VWR WAC WPP WIN
AMC - ACAD ACET ACHN AEGR AL AIRM ATSG ALDR ALEX ALIM LNT MDRX AMBR AMH AHS AMRS AMTG AGTC AAOI PETX ANET ASPN AGO ATHX ABTL AVNW RATE BEBE BBG WIFI BCEI BBRG BPI BFAM BRS BRKS BLDR CALD CPST CTRE CBI CCS CERS ECOM CLNE CLVS ED CTCT CORT CSOD CUBE CMLS CYBR CYTX DMD DEPO DRH DIOD DWA DRYS ELON EFC EBS ENTA ECPG EGN ERII EXXI ENTL ETM EVC EOG EAC EVH EXAR FICO FNGN FTEK FRM FXCM GST GERN GSAT GLOB GSM GLUU GSBD GXP GDOT HAIN HK HNSN HTGC HIL HBM ICUI IRG INFI INWK PODD ICPT INAP SNAK NVTA JJSF KMPR KHC KTOS LBTYA MAIN MASI MCFT MED MDVN MTD MSCC MITK MHK MNST MRC MFLX NFG NAVG NKTR NNI UEPS NEWR EGOV NVAX NVDA ORIG ONTY OREX OUT PRGN PGRE PCTY PKI PXLW PLNR PLT PRAA PRO QRVO QUMU RPTP RMAX RWT RLYP RBA RRTS RRMS RBCN SEMG SREV SHAK SWIR SSRI SKUL SWKS SLH SPPI STMP SRDX DATA TTWO TNGO TCPI TEAR TCRD TRMR TRIP TRUE TCX TRQ TPC UBNT UEIC OLED VRNS VVC VCYT VTL WAGE DIS WTW WG WING WK XOMA YUME ZGNX

Summary

I believe market was overbought previously and we have seen some profit taking on Wednesday. The market is somehow losing the bullish steam and now is whether or not we would see more sellers coming in to bring the price lower. Meanwhile it seems that the yield curve is getting slightly inverted.

Tomorrow we also have some FOMC members speaking and BoE monetary policy summary. Prior to  NFP releasing on Friday, I suppose it is going to be a rather sideway session.

Direction for Thursday 5 Nov, 2015: Down

2015 Daily Directional Accuracy: 112/175  (64.00%) 

2015 Weekly Directional Accuracy: 25/40 (62.50%)