DOW 16662.91 -50.67 (-0.30%), NASDAQ 4464.93 +11.93 (+0.27%),
S&P500 1955.06 -0.12 (-0.01%)
Tomorrow is August Expiration Day, which has seen the DOW up 8 of the last 10. We will also receive the heaviest data lot, though perhaps not the most significant. Data to watch will be the PPI and Michigan Consumer Sentiment, as well as the UK GDP.
It’s only a matter of when this whole thing starts to crash and burn. With such poor volumes, this bull run shouldn’t take us any higher and instead set us up nicely for next week.
Direction for Friday 15 Aug: DOWN▼
August expiration week tends to be stronger, and is the most bullish week in the entire month.
Direction for the Week of 11 Aug to 15 Aug: UP▲
Crash and burn indeed… Okay, nothing crashed and burn except for a handful of Russian vehicles. The initial shock was quite bad, however – triggered by reports that Ukraine had attacked a Russian armoured column.
Ultimately after everything fizzled out the market kinda got hold of its senses again and stabilised. Ukraine apparently appeared to be a one-time thing and nothing more.
On the week, we closed to the upside, as expected. Friday shaved off some of those gains, but it remains a strong week. And that concludes the most bullish week of August.
Market Summary
Economic Data & News
Technical Analysis
Market Internals
Bonds, Currencies & Commodities
Market Summary
Industry Watch
Strong: Energy, Utilities
Weak: Consumer Discretionary, Financials, Health Care, Industrials, Telecom Services
Other Market Moving Factors
S&P 500 enters Friday session +1.2% for the week (Nasdaq +1.9%)
Stocks slump from highs on reports Ukraine’s troops hit an armed convoy from Russia
[BRIEFING.COM] The stock market finished an upbeat week on a cautious note after a late-morning headline interrupted an extension of this week’s rally. Despite the intraday weakness, the major averages were able to climb off their lows into the close. The S&P 500 settled right below its flat line with six sectors ending in the green. The benchmark index posted a 1.2% gain for the week while the Nasdaq outperformed. The tech-heavy index added 0.3% to extend this week’s advance to 2.2%.
Like yesterday, equities climbed out of the gate with biotechnology claiming the lead at the start of the session. However, the advance was halted after the spokesman for Ukraine’s National Security and Defense Council said the country’s army destroyed a part of an armed convoy from Russia. The news sent U.S. and European equity indices to lows, while boosting German Bunds, U.S. Treasuries, and the yen.
Notably, Germany’s Bunds finished on their highs with the 10-yr yield down seven basis points at 0.95%. Similarly, the U.S. 10-yr note rallied in reaction to the news from Ukraine, but surrendered a portion of its gain during afternoon action. The benchmark yield fell six basis points to 2.34% to register its lowest close since mid-June of last year.
One could argue that the market was ripe for some profit taking after a run that saw the S&P 500 log four gains over the past five sessions. Similarly, European equities were forced to give back a portion of their gains from this week.
Six sectors registered losses with telecom services (-0.4%) finishing at the bottom of the leaderboard. Meanwhile, heavily-weighted consumer discretionary (-0.1%), financials (-0.4%), and industrials (-0.3%) also ended among the laggards, which prevented the S&P 500 from returning into the green.
However, the Nasdaq Composite was able to claw its way back into positive territory with help from biotechnology and chipmakers. The iShares Nasdaq Biotechnology ETF (IBB 263.41, +2.21) added 0.9% to end the week higher by 4.7%. Microchip manufacturers also contributed to the outperformance of the Nasdaq with the PHLX Semiconductor Index climbing 1.0%. Applied Materials (AMAT 22.48, +1.33) was a standout, surging 6.3% after reporting a one-cent beat. For its part, the technology sector (+0.1%) ended little changed.
Also of note, the energy space (+0.5%) finished in the lead, rebounding from this week’s underperformance. The sector trimmed its weekly loss to 0.5%, while crude oil jumped 1.9% to $97.31/bbl. Despite the advance, the energy component shed 0.3% during the week.
After registering the lowest NYSE floor volume of the year yesterday, today’s participation was boosted by options expiration. As a result, more than 740 million shares changed hands at the NYSE.
Economic data included the PPI report, Empire Manufacturing survey, Net Long-Term TIC Flows, Industrial Production, Capacity Utilization, and the preliminary reading of the Michigan Sentiment survey:
Producer prices increased 0.1% in July after increasing 0.4% in June, while the Briefing.com consensus expected an increase of 0.2%
As expected, energy prices declined in July, falling 0.6%
Excluding food and energy, core PPI rose 0.2% for a second consecutive month, as expected by the consensus
The Empire Manufacturing Survey for August registered a reading of 14.7, which was below the prior month’s reading of 25.6
The Briefing.com consensus expected a decline to 15.5
The June net long-term TIC flows report showed an $18.70 billion outflow of foreign capital from U.S.-denominated assets to follow last month’s inflow of $19.40 billion
Industrial production increased 0.4% in July after an upwardly revised 0.4% (from 0.2%) gain in June, while the Briefing.com consensus expected an increase of 0.3%
Capacity utilization hit 79.2%, as expected by the Briefing.com consensus
The University of Michigan Consumer Sentiment Index fell to 79.2 in the August preliminary reading from 81.8 in July, while the Briefing.com consensus expected an increase to 81.7
Global Markets
Asia
Markets gained across most of Asia amid a lack of data and news
Japan’s Nikkei (+0.0%) was flat
Hong Kong’s Hang Seng (+0.6%) put in its best close since November 2010
China’s Shanghai Composite (+0.9%) finished at an eight-month high
India’s Sensex (+0.7%) closed just shy of all-time highs
Europe
UK’s FTSE: + 0.1%
Germany’s DAX: -1.4%
France’s CAC: -0.7%
Spain’s IBEX: -0.7%
Portugal’s PSI: + 0.3%
Italy’s MIB Index: Closed
Irish Ovrl Index: + 0.6%
Greece ATHEX Composite: Closed
Economic Data
from Briefing.com
Economic Data is listed as Actual vs Consensus. Prior Data is given in brackets. If Prior Data has been revised, revised data will be given instead, together with an indication whether it was revised upward or downward.
PPI – 08:30 : 0.1% vs 0.2% (Prior 0.4%)
Core PPI – 08:30 : 0.2% vs 0.2% (Prior 0.2%)
Empire Manufacturing – 08:30 : 14.7 vs 15.5 (Prior 25.6)
Net Long-Term TIC Flows – 09:00 : -$18.7B (Prior $19.4B)
Industrial Production – 09:15 : 0.4% vs 0.3% (Prior 0.2%)
Capacity Utilisation – 09:15 : 79.2% vs 79.2% (Prior 79.1%)
Michigan Sentiment – 09:55 : 79.2 vs 81.7 (Prior 81.8)
PRODUCERS PRICE INDEX
Highlights
Producer prices increased 0.1% in July after increasing 0.4% in June. The Briefing.com consensus expected the PPI to increase 0.2%.
Excluding food and energy, core PPI rose 0.2% for a second consecutive month. The consensus expected these prices to increase 0.2%.
Key Factors
As expected, energy prices declined in July, falling 0.6%. Gasoline prices fell 2.1% and led the decline.
After two months of 0.2% declines, food prices edged up 0.4% in July. Much of the gain was the result of higher meat (5.5%) and poultry (4.4%) prices.
Prices of final goods demand were flat after increasing 0.5% in June. A 1.0% in pharmaceutical preparations costs were instrumental in keeping overall goods prices from declining.
Producer services prices increased 0.1% in July, down from a 0.3% gain in June. Transportation and warehousing prices increased 0.5% as prices on freight trucking increased 0.7%.
Pipeline pressures remain weak. Processed intermediate goods prices increased 0.1% in July, down from a 0.4% increase in June. Unprocessed intermediate prices fell 2.7% after declining 0.9% in June. Much of that decline was the result of a 6.4% drop in unprocessed energy materials prices.
Big Picture
Pipeline pressures have not intensified, and headline producer price growth are likely to remain weak.
INDUSTRIAL PRODUCTION & CAPACITY UTILISATION
Highlights
Industrial production increased 0.4% in July after an upwardly revised 0.4% (from 0.2%) gain in June. The Briefing.com consensus expected industrial production to increase 0.3%.
Key Factors
The gains would have been much stronger if not for mild temperatures in July reducing air condition demand. As a result, utilities production dropped 3.4%.
Manufacturing production increased 1.0% in July, up from a 0.3% increase in June. That was the strongest increase since a 1.3% gain in February.
The strength in manufacturing production matched the Federal Reserve and national ISM manufacturing surveys, which strong production levels in all regions.
Most of the production growth came from the motor vehicles and parts sector. Production in that area increased 10.1% in July after posting no growth in June. Excluding motor vehicles, total industrial production was flat while manufacturing production increased a modest 0.4%.
The surge motor vehicle manufacturing confirms that the recent decline in the initial claims was likely the result of seasonal biases and not a change in labor market conditions. For the past several weeks, the initial claims level averaged below 300,000 per week. Even though the DOL reported that there were no special factors related to the decline, it was believed that motor vehicle manufacturers may have kept their plants open during normal retooling periods. That would artificially reduce the weekly claims reports as auto workers don’t need to file for temporary unemployment insurance.
In July, motor vehicle assemblies jumped to 13.19 mln SAAR from 11.65 mln SAAR in June, which was the most assemblies since July 2002. This type of spike could not happen if motor vehicle manufacturers closed their plants for retooling.
Auto assemblies rose to 4.79 mln SAAR in July from 4.35 mln SAAR in June. Truck assemblies increased to 8.40 mln SAAR from 7.30 mln SAAR.
Mining production increase 0.3% in July after increasing 1.3% in June.
Big Picture
A surge in motor vehicle production was the primary cause for the industrial production gains. These levels are unsustainable and a pullback is likely to occur in August.
MICHIGAN CONSUMER SENTIMENT INDEX
Highlights
The University of Michigan Consumer Sentiment Index fell to 79.2 in the August preliminary reading from 81.8 in July. The Briefing.com consensus expected the index to fall to 81.7.
Key Factors
Even though gasoline prices improved and employment conditions firmed, a large decline in equity prices was likely responsible for the drop in consumer sentiment.
The Current Conditions Index increased to 99.6 in the preliminary August reading from 97.4 in July.The Expectations Index fell to 66.2 from 71.8. That was the lowest expectations reading since it fell to 62.5 in October 2013.
Consumption growth is not reliant upon sentiment. As long as income growth remains on a positive trend, the drop in consumer sentiment should have a limited effect in reducing consumption growth.
Big Picture
Consumer sentiment has little influence on consumption. As long as payroll levels continue to expand, the resulting income growth should keep consumption gains steady regardless of the monthly ebbs and flows in sentiment.
In Other News…
HEADLINE NEWS
Alibaba.com‘s (BABA) Alibaba Pictures Group unit has discovered possible accounting issues, according to reports
Caesars Entertainment (CZR) bondholders pushing back on plans to spin off rewards program, according to reports
China Mobile (CHL) +2.8% following reports it plans to cut subsidies related to Apple (AAPL) iPhone and Samsung (SSNLF) smartphones
eBay (EBAY) may soon accept bitcoins at its payment unit, according to reports
Fannie Mae (FNMA) and Freddie (FMCC) being sued by Bill Ackman, according to reports
Ford Motor (F) is recalling select model year 2012-2014 Ford Edge and Lincoln MKX vehicles
Gannett (GCI): Icahn discloses 6.63% active stake in 13D filing; supports split of the company
General Motors (GM) recalling certain model year 2014 Chevrolet Impala vehicles
Monster Beverage (MNST) +22.33% after announcing a long-term strategic partnership with Coca-Cola (KO) ; KO to purchase 16.7% stake in MNST
Sprint (S) plans to introduce new pricing next week, according to reports
Supervalu (SVU) notifies customers of criminal computer intrusion at some of its owned and franchised stores
Taiwan Semi (TSM) supply chain may be impacted by Apple (AAPL) CPUs, according to reports
Tim Hortons (THI) plans to compete with Starbucks (SBUX) and price hikes may occur, according to reportse
EARNINGS/GUIDANCE
Agilent (A) beats by $0.04, beats on revs; guides OctQ EPS below consensus, revs in-line
Applied Materials (AMAT) beats by $0.01, reports revs in-line; guides Q4 EPS in-line, revs in-line
Autodesk (ADSK) beats by $0.07, beats on revs; guides Q3 EPS below consensus, revs above consensus; guides FY15 revs above consensus and raises FY15 billings growth range
Estee Lauder (EL) beats by $0.11, beats on revs; guides Q1 EPS in-line, revs below consensus; guides FY15 EPS in-line, revs below consensus
J. C. Penney (JCP) beats by $0.20, reports revs in-line; Q2 comps +6.0% ahead of ests; reaffirms FY15 comp guidance
Nordstrom (JWN) reports EPS in-line, revs in-line; raises FY15 guidance slightly
SINA (SINA) beats by $0.08, beats on revs; guides Q3 revs below consensus
Weibo (WB) reports EPS in-line, beats on revs; guides Q3 revs above consensus
ANALYST ACTIONS
Upgrades
Anglo American (AAUKY) upgraded to Sector Perform at RBC Capital Mkts
Perrigo (PRGO) upgraded to Buy from Neutral at B. Riley & Co.; tgt raised to $180 from $157
Starwood Hotels (HOT) upgraded to Overweight from Equal Weight at Barclays
Downgrades
Apollo Global Management (APO) downgraded to Market Perform from Outperform at Wells Fargo
bebe (BEBE) stores downgraded to Neutral from Buy at Janney
DaVita (DVA) downgraded to Hold from Buy at Deutsche Bank
KKR (KKR) downgraded to Market Perform from Outperform at Wells Fargo
Other
Advance Auto (AAP) target raised to $155 at RBC Capital Mkts
Gilead Sciences (GILD) initiated with a Outperform at FBR Capital; tgt $125
Monster Beverage (MNST) target raised to $94 at Stifel
Technical Analysis
Range: 16575.42 – 16775.27
NASDAQ COMPOSITE
4464.93 +11.93 (+0.27%)
Volume: 507.6M (above average of 446.1M)
Range: 4427.13 – 4482.47
S&P500 INDEX
1955.06 -0.12 (-0.01%)
Volume: 599.6M (above average of 445.1M)
Range: 1941.50 – 1964.04
50% Fibonacci and 20MA resistance on the DOW. 50% channel resistance and 50MA resistance on the S&P500. The NASDAQ hit its high at 4485 once again – potentially giving us a triple top here that will likely end badly.
I maintain my downside targets for the DOW at 16400 and 15900, the S&P500 at 1910 and 1860, and the NASDAQ 4300 and potentially to 4000.
Market Internals
New Highs outpaced New Lows (highs/lows): 108 / 36
New Highs outpaced New Lows (highs/lows): 66 / 58
VOLATILITY S&P500 (VIX)
13.15 +0.73 (+5.88%)
Decliners outpaced Advancers by 1.18 on higher volumes than the day before (+562.1M +28.50%).
A modestly bearish day, although it was more flattish by the close. DVOLs outpaced UVOLs for a good part of the session, albeit not by much.
The VIX hit a session high of 15.00, but closed around the 13 handle. Regardless, that’s a bullish engulfing pattern…
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Longer Dated Yields Press to Lowest Levels in Over a Year: 10-yr: +15/32..2.343%..USD/JPY: 102.33..EUR/USD: 1.3392
Treasuries posted strong gains this week as global growth concerns and a reemergence of geopolitical worries dropped yields to multi-month lows. Click here to see an intraweek yields chart.
Flat growth in the eurozone and France and negative growth in Germany (-0.2% QoQ) and Japan (-1.7% QoQ) stoked fears of a global slowdown.
The situation in Eastern Europe re-escalated as reports from Ukraine suggested the country’s defense had destroyed parts of a Russian armored convoy.
Economic data was light, and mixed, as retail sales (0.0% actual v. 0.3% expected), Empire Manufacturing (14.7 actual v. 15.5 expected), and Michigan Sentiment (79.2 actual v. 81.7 expected) missed while industrial production (0.4% actual v. 0.3% expected) beat and Fed Chair Janet Yellen’s favorite indicator, JOLTs – Job Openings (4.671M actual v. 4.577M prior), improved.
Auctions for the week started out slow and gradually improved.
Tuesday’s average $27 bln 3y note auction drew 0.924% and a tepid 3.03x bid/cover.Indirect bids (36.2%) slightly outpaced their 12-auction averages and direct bids (19.0%) were in-line, leaving primary dealers with 44.8% of the supply.
Wednesday’s average $24 bln 10y note auction drew 2.439% (WI 2.434%) and a 2.83x bid/cover. A slightly better than average indirect bid (47.0%) helped offset the light direct bid (15.1%). Primary dealers ended up with 37.9% of the supply.
Thursday’s strong $16 bln 30y bond auction drew 3.224% (WI 3.247%) and a solid 2.60x bid/cover (12-auction average 2.38x) as indirect (45.9%) and direct (24.4%) bids both outpaced their 12-auction averages. Primary dealers were left with just 29.7% of the supply.
Up front, the 2y shed -4bps to 0.411%. Buying over the course of the week pushed action down to levels last seen at the beginning of June.
The 5y fell -7bps to 1.541%. Action pressed below the 200 dma (1.593%) and even probed the 1.500% level before finishing Friday’s session near 1.550% support.
The 10y tumbled -9bps to 2.345%. The benchmark yield hit a 13-month low of 2.305% before seeing a bounce into week-end.
At the long end, the 30y plunged -9bps to 3.135%. The yield on the long bond hit 3.107%, its lowest since May 2013, before inching up into Friday’s close.
Aggressive flattening along the yield curve saw the 2-10-yr spread narrow to 193.5bps and the 5-30-yr spread tighten to 159.5bps.
2Yr 0.42 (unch), 5Yr 1.55 (-0.03), 10Yr 2.34 (-0.06), 30Yr 3.13 (-0.07)
2/10 Spread: 192bps (-6); 2/30 Spread: 271bps (-7)
Currencies
Dollar Slips in Quiet Trade: 10-yr: +17/32..2.339%..USD/JPY: 102.33..EUR/USD: 1.3391
The Dollar Index holds on session lows as trade probes the 81.45 level. Click here to see a daily Dollar Index chart.
An overnight bid tested the 81.60 area, but trade once again stalled in the area. U.S. trade has spent the majority of the day trapped in tight range between 81.40/81.50 despite reports suggesting a re-escalation in Ukraine.
EURUSD is +25 pips @ 1.3390 as trade contends with its best close in a week. The single currency saw a quiet overnight trade as French and Italian banks were shuttered for Assumption Day, and action has been generally muted despite the developments in Eastern Europe. Support near 1.3550 has held up for much of the past two weeks as the bulls work to keep the tradable bottom intact. Germany’s Bundesbank will release its monthly report on Monday.
GBPUSD is +5 pips @ 1.6690 as trade steadies near the 200 dma, which coincides with four-month lows. Sterling has come under immense pressure since the middle of July as disappointing data has pushed back expectations of a Bank of England rate hike. Action has tumbled close to 500 pips over the past month.
USDCHF is -35 pips @ .9030 as trade flushes to its lowest level in three weeks. Today’s weakness follows the strength of the euro, and has pushed action below the lower bound of the .9040/.9100 range that has been in place.
USDJPY is -15 pips @ 102.30 as trade has surrendered its early gains in response to the headlines out of Ukraine, and is now on track for its first loss in five days. An early bid lifted the pair to nearly 102.80, but trade quickly backed off the key level as news of a re-escalation between Russia and Ukraine crossed the wires. Support near 102.00 is defended by the 50 and 100 dma.
AUDUSD is flat @ .9315 amid a quiet trade. The hard currency tested .9340 resistance and the 100 dma in early action, but has slipped off the level. Australian data scheduled for Sunday night is limited to new motor vehicle sales.
USDCAD is -10 pips @ 1.0895 as sellers try to put in the fourth loss in five days. The pair spiked to session highs near 1.0920 in response to the manufacturing sales beat and the large upward revisions to the recent jobs report, but has surrendered those gains. Support near 1.0860 is guarded by the 100 and 200 dma. Canada’s foreign securities purchases are due out Monday.
Commodities
Closing Commodities: Crude Oil Rises 2%, Precious Metals Fall
Dec gold traded lower today but erased some losses after the spokesman for Ukraine’s National Security and Defense Council said the country’s forces destroyed a part of an armed convoy from Russia.
The precious metal dipped to a session low of $1293.00 per ounce in early morning action and reversed back above the $1300 per ounce level following the Ukraine headlines. It eventually settled 0.7% lower at $1306.60 per ounce, booking a loss of 0.3% for the week.
Sep silver also spent today’s session in the red, sliding as low as $19.51 per ounce. Unable to gain buying support, it settled 1.9% lower at $19.52 per ounce, bringing losses for the week to 2.1%.
Sep crude oil lifted from its session low of $95.66 per barrel in early morning floor trade and trended higher on the Ukraine news. The energy component touched a session high of $95.70 per barrel moments before settling with a 1.9% gain at $97.31 per barrel. Today’s move higher helped cut losses for the week to 0.3%.
Sep natural gas, on the other hand, traded in negative territory today. It tumbled as low as $3.76 per MMBtu and settled 3.3% lower at $3.77 per MMBtu, booking a weekly loss of 4.8%.
NYMEX Energy Closing Prices
Sep crude oil rose $1.77 to $97.31/barrel
Crude oil lifted from its session low of $95.66 in early morning floor trade and trended higher on news that Ukraine’s army destroyed a part of an armed convoy from Russia. The energy component touched a session high of $95.70 moments before settling with a 1.9% gain. Today’s move higher helped cut losses for the week to 0.3%.
Sep natural gas fell 13 cents to $3.77/MMBtu
Natural gas, on the other hand, traded in negative territory today. It tumbled as low as $3.76 and settled 3.3% lower, booking a weekly loss of 4.8%.
Sep heating oil rose 3 cents to $2.85/gallon
Sep RBOB rose 3 cents to $2.70/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Prices
Sep corn rose 3 cents to $3.66/bushel
Sep wheat rose 15 cents to $5.52/bushel
Nov soybeans fell 4 cents to $10.52/bushel
Sep ethanol fell 2 cents to $2.16/gallon
Nov sugar (#16 (U.S.)) settled unchanged at 25.88 cents/lb
COMEX Metals Closing Prices
Dec gold fell $8.60 to $1306.6/oz
Gold traded lower today but erased some losses after the spokesman for Ukraine’s National Security and Defense Council said the country’s forces destroyed a part of an armed convoy from Russia. The precious metal dipped to a session low of $1293.00 in early morning action and reversed back above the $1300 level following the Ukraine headlines. It eventually settled 0.7% lower, booking a loss of 0.3% for the week.
Sep silver fell $0.38 to $19.52/oz
Silver also spent today’s session in the red, sliding as low as $19.51. Unable to gain buying support, it settled 1.9% lower, bringing losses for the week to 2.1%.
Sep copper rose 1 cent to $3.10/lbs
Commentary
Looks like Ukraine is nothing more than a blip. Or are we being too complacent here?
The market will be eyeing developments over the weekend. But I suspect caution will be the name of the game and expect participants to be hedging, profit-taking, or selling. Warren Buffett has already increased his hedge on the SPY – massively.
With the yield curve continuing to flatten and press lows, I’m not comfortable with calling a market bottom – not just yet.
Daily Directional Accuracy (from 14 May 2014): 43/65 (66.15%)
Weekly Directional Accuracy (from 16 May 2014): 8/13 (61.54%)