DOW 17652.79 +40.59 (+0.23%), NASDAQ 4680.14 +5.00 (+0.11%),
S&P500 2039.33 +1.08 (+0.05%)
The market is showing signs of topping out, but continues to retain its bullish nature. The likelihood is that we’ll take a reversal before resuming the uptrend.
Tomorrow’s session should confirm the next move with convergence. I’m not particularly optimistic.
Direction for Thursday 13 Nov 2014: DOWN▼
Another divergent session as the market rallied to new highs in the opening hour, but failed to sustain the rally and collapsed into the red in the afternoon. Only a late surge pushed it into the green – barely, except for the DOW.
The broader session was mostly more bearish than bullish, despite what the close suggests. And with Energy, Financials and Utilities – the three market leaders of late – showing weakness throughout the session, I reckon this rally might be done and dusted with.
Market Summary
from Briefing.com
Industry Watch
Strong: Consumer Discretionary, Consumer Staples, Technology
Weak: Energy, Financials, Utilities
Other Market Moving Factors
ECB Survey of Professional Forecasters lowers 2014 harmonized inflation projections to 0.5% from 0.7% and cuts 2015 outlook to 1.0% from 1.2%
China’s Industrial Production misses expectations (7.7%; expected 8.0%)
Crude oil under pressure once again
[BRIEFING.COM] The major averages settled near the middle of their ranges after sliding from early highs. The S&P 500 gained a point while the Russell 2000 (-0.9%) underperformed throughout the trading day.
Equity indices started the day on an upbeat note with the S&P 500 rising into fresh record territory with help from three sectors that represent roughly 40% of the market. To that point, consumer discretionary (+0.6%), consumer staples (+0.5%), and technology (+0.6%) rallied at the start and displayed relative strength throughout the day.
However, the strength in the influential trio was not enough to keep the benchmark index near its high with the energy sector (-1.4%) acting as a big drag. The sector, and crude oil, spent the day in a steady retreat after China’s Industrial Production growth slowed to 7.7% (expected 8.0%) and the ECB’s Survey of Professional Forecasters lowered the region’s 2014 harmonized inflation outlook to 0.5% from 0.7% and cut the 2015 forecast to 1.0% from 1.2%. Crude plunged 3.9% at $74.17/bbl after a daylong retreat that was capped with a $1.33 straight-line dive from the $75.50 level.
As for the energy sector, the group cut its loss in half in reaction to afternoon reports indicating Halliburton (HAL 53.79, +0.56) is in talks to buy Baker Hughes (BHI 58.75, +7.77). Baker Hughes surged 15.2%. The weakness in energy did not stop the Dow Jones Industrial Average (+0.2%) from registering a modest gain since the index contains just two members of the energy sector. Chevron (CVX 116.45, -1.20) and ExxonMobil (XOM 94.66, -0.72) lost 1.0% and 0.8%, respectively. Outside of the two names, Caterpillar (CAT 101.11, -1.88), which relies heavily on China, was the only other laggard of note within the Dow. Shares of CAT ended lower by 1.9%.
On the upside, the consumer discretionary sector received support from media names after the House Energy and Commerce Committee told the Federal Communications Commission that reclassifying the internet as a utility is outside of its authority. Time Warner Cable (TWC 141.05, +4.57) climbed 3.4% to underpin the sector after Comcast (CMCSA 54.30, +0.70) said its merger with TWC remains on track.
Meanwhile, the other consumer sector—staples—spent the day in the green thanks to a better than expected report from Wal-Mart (WMT 82.94, +3.74). The bottom-line beat overshadowed the company’s guidance for flat comparable store sales in Q4.
Elsewhere, the technology sector advanced amid gains in top-weighted components. Apple (AAPL 112.82, +1.57), Intel (INTC 33.68, +0.30), and Microsoft (MSFT 49.61, +0.83) added between 0.9% and 1.7% while Cisco Systems (CSCO 25.68, +0.57) jumped 2.3% after beating earnings estimates on light guidance.
Treasuries climbed throughout the day, but backed away from highs into the close. The 10-yr yield fell three basis points to 2.35%.
Participation was a bit below long-term average as 690 million shares changed hands at the NYSE floor.
Economic data included Initial Claims, JOLTs, and the Treasury Budget:
The initial claims level increased to 290,000 from an unrevised 278,000 while the Briefing.com consensus expected an increase to 280,000
The Department of Labor said there were no special factors influencing the report
The Job Openings and Labor Turnover Survey for September indicated job opening decreased to 4.735 million from 4.853 million
The Treasury Budget for October showed a deficit of $121.70 billion, which followed the prior deficit of $90.60 billion while the Briefing.com consensus expected the deficit to hit $122.00 billion
Global Markets
Asia
Markets finished mixed across Asia
Confusion reigns in Japan amid talk of early elections and a possible delay in the consumption tax hike
Bank of Korea held its key rate at 2.00%, as expected
Bank Indonesia unexpectedly holds its benchmark rate at 7.50% (7.75% expected)
Japan’s core machinery orders (2.9% MoM actual v. -1.0% MoM expected) outpaced estimates
China’s industrial production (7.7% YoY actual v. 8.0% YoY expected) and fixed asset investment (15.9% YTDoY actual v. 16.0% YTDoY expected) both disappointed
Australia’s MI Inflation Expectations jumped to 4.1% (3.4% expected)
Japan’s Nikkei (+1.1%) surged to its best levels since October 2007
Hong Kong’s Hang Seng (+0.3%) saw a fourth day of gains lift action to its best close in one and a half months
China’s Shanghai Composite (-0.4%) slipped off three-year highs
Europe
UK’s FTSE: + 0.4%
Germany’s DAX: + 0.4%
France’s CAC: + 0.2%
Spain’s IBEX: -0.2%
Portugal’s PSI: + 1.1%
Italy’s MIB Index: + 0.4%
Irish Ovrl Index: -0.2%
Greece ASE General Index: + 1.3%
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
Initial Claims – 08:30 : 290K vs 281K (Prior 278K▲)
Continuing Claims – 08:30 : 2392K vs 2355K (Prior 2356K▲)
JOLTS – Job Openings – 10:00 : 4.735M (Prior 4.853M)
Crude Inventories – 11:00: -1.735M (Prior 0.460M)
Treasury Budget – 14:00 : -$121.7B vs – $122.0B (Prior -$90.6B)
INITIAL CLAIMS
Highlights
The initial claims level increased to 290,000 for the week ending November 8 from an unrevised 278,000 for the week ending November 1. The Briefing.com consensus expected the initial claims level to increase to 280,000.
The continuing claims level increased to 2.392 mln for the week ending November 1 from an upwardly revised 2.356 mln (from 2.348 mln) for the week ending October 25. The consensus pegged the continuing claims level at 2.353 mln.
Key Factors
Over the past several weeks, the initial claims level has stabilized below 300,000, a level that is normally associated with employment conditions at, or near, full employment. According to the DOL, no special factors caused the drop in claims.
Clearly, businesses have reduced layoff activities, but there has been no clear acceleration in hiring activities. Companies seem to be content with their current labor needs.
Big Picture
Initial claims remain at levels normally associated with full employment.
TREASURY BUDGET
Highlights
The Treasury budget showed a deficit of $121.7 bln in October, up from a deficit of $90.6 bln in October 2013. The Treasury data are not seasonally adjusted, and the October data cannot be compared to the $105.8 bln surplus in September. The Briefing.com consensus expected a budget deficit of $122.0 bln.
Key Factors
The reported October deficit was in-line with the CBO’s forecast of a $122 bln deficit.
Total revenues increased to $212.7 bln in October 2014 from $198.9 bln in October 2013, a gain of $13.8 bln.
Total outlays increased by $44.9 bln to $334.4 bln in October 2014 from $289.5 bln in October 2013.
October was the first month of fiscal year 2015. Thus, fiscal year-to-date the deficit is also $121.7 bln, up $31.1 bln from FY 2014.
Big Picture
Raw data available at http://www.fms.treas.gov/mts/index.html
Ticker News
from Briefing.com
HEADLINE NEWS
Allergan (AGN) announced that it has received approval from the FDA to market two new styles, X and L, of the Natrelle 410 Highly Cohesive Anatomically Shaped Silicone-Filled Breast Implants
Apple (AAPL) iPad Pro maybe dealyed until Q2 of next year, according to reports
Baxano Surgical (BAXS) announced the co has filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code
BGC Partners (BGCP) issues letter to GFI Group (GFIG) shareholders; reiterates that $5.25 per share offer is ‘clearly superior’ to the proposed CME Group (CME) transaction
Cisco Systems (CSCO) CFO to step down — Cisco plans to appoint Kelly Kramer to succeed Mr. Calderoni
McDonald’s (MCD) announced that it will open restaurants in Kazakhstan in 2015
Microsoft (MSFT) to purchase security co Aorato for $200 mln, according to reports
Newell Rubbermaid (NWL) announced that its Board approved an extension and expansion to the Company’s on-going share repurchase program; co is authorized to repurchase up to $500 mln of its outstanding shares through the end of 2017
Berkshire Hathaway Inc. (BRK.A) announced that it has entered into a definitive agreement to acquire the Duracell battery business from Procter & Gamble (PG)
Sony (SNE) announced last night that unveiled PlayStationVue, a new cloud-based TV service
Wells Fargo (WFC) announced that Navient (NAVI) will purchase a principal balance of $8.5 bln of Federal Family Education Loan Program loans, which are included in Wells Fargo’s held-for-sale loan portfolio
EARNINGS / GUIDANCE
Cisco Systems (CSCO) beats by $0.01, reports revs in-line; on conference call said it expects Q2 Non-GAAP EPS of $0.50-0.52 (increase of 6-11%), Capital IQ consensus $0.53; Expects Q2 revenues of 4-7% vs. the Capital IQ Consensus Estimate of +8.3%
J. C. Penney (JCP) beats by $0.04, misses on revs; Q3 comps flat, missing expectations; sees Q4 comps +2-4%
Kohl’s (KSS) misses by $0.04, reports revs in-line
Netease.com (NTES) misses by $0.04, beats on revs
Popeyes Louisiana Kitchen (PLKI) beats by $0.01, misses on revs; raises FY14 EPS in-line; raises FY14 guidance for same-store sales growth to 5.0-5.5%
Rocket Fuel (FUEL) beats by $0.12, beats on revs; guides Q4 revs above consensus
Sally Beauty (SBH) misses by $0.01, reports revs in-line; guides FY15 store sales growth to be slightly above 3%
Tetra Tech (TTEK) beats by $0.01, misses on revs; guides Q1 EPS in-line, revs in-line; guides FY15 EPS in-line, revs in-line; Board authorized a new $200 mln share repurchase program
Wal-Mart (WMT) beats by $0.03, reports revs in-line; guides Q4 EPS in-line; Q3 US comps +0.5%; sees US Q4 comps flat to 1%
ANALYST ACTIONS
Upgrades
Applied Materials (AMAT) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $26 from $22
Broadcom (BRCM) upgraded to Buy from Neutral at Goldman; tgt raised to $48 from $40
Genworth Financial (GNW) upgraded to Outperform from Mkt Perform at Raymond James
HCP (HCP) upgraded to Overweight from Equal-Weight at Morgan Stanley
Quest Diagnostics (DGX) upgraded to Buy from Hold at Deutsche Bank; tgt raised to $75 from $64
SanDisk (SNDK) upgraded to Buy from Neutral at Goldman
Downgrades
Beazer Homes (BZH) downgraded to Neutral from Overweight at JP Morgan
Bristol-Myers (BMY) downgraded to Equal-Weight from Overweight at Morgan Stanley
Discover Financial Services (DFS) downgraded to Hold from Buy at Deutsche Bank
Jabil Circuit (JBL) downgraded to Neutral from Buy at Goldman
Macy’s (M) downgraded to Market Perform from Outperform at Wells Fargo
Madison Square Garden (MSG) downgraded to Equal-Weight from Overweight at Morgan Stanley
Other
American Express (AXP) initiated with a Hold at Deutsche Bank; tgt $99
Capital One (COF) initiated with a Buy at Deutsche Bank; tgt $92
Philips Electronics (PHG) added to Europe Best Ideas list at Morgan Stanley
Tyson Foods (TSN) initiated with a Outperform at RBC Capital Mkts; tgt $48
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
17652.79 +40.59 (+0.23%)
Volume: 80,543,386 (below average of 86,190,424)
Range: 17,583.88 – 17,705.48
NASDAQ COMPOSITE
4680.14 +5.00 (+0.11%)
Volume: 458.3M (below average of 488.2M)
Range: 4,664.27 – 4,703.11
S&P500 INDEX
2039.33 +1.08 (+0.05%)
Volume: 470.7M (below average of 509.1M)
Range: 2,030.44 – 2,046.18
Is that a tri-star on the S&P500? Ouch. We’ve got dojis and spinning tops across the three major indices, pointing to a continued pause as this market trudges on.
With the DOW finding resistance along that channel trendline, we might just be in the right place to take a slight dip.
Market Internals
NYSE:
New Highs outpaced New Lows (highs/lows): 177 / 62
NASDAQ:
New Highs outpaced New Lows (highs/lows): 148 / 66
VOLATILITY S&P500 (VIX)
13.79 +0.77 (+5.91%)
Decliners outpaced Advancers by 1.35 on higher volumes than the day before (+553.3M +27.69%).
The fact is internals were more bearish than bullish, and the bears had support. The VIX rose before getting rejected off its 200MA.
Nonetheless, the market continues to remain divergent in more ways than one…
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Treasuries Eke Out Gains:
Treasuries eked out small gains amid a volatile session.
The complex held small losses into the cash open and rallied into the disappointing initial (290K actual v. 280K expected) and continuing claims (2392K actual v. 2353K expected) data.
Maturities slide back towards their early lows as some selling developed in response to the claims data, but were unable to make for a full retest of those levels.
Buying developed into today’s 30Y auction, but quickly stalled.
The $16 bln 30Y bond auction was tepid, drawing 3.092% (WI 3.078%) and a weak 2.29x bid/cover. Indirect (43.8%) and direct (13.8%) bids were short of their 12-auction averages, but primary dealers were left with just 42.4% of the supply.
Post-auction selling provoked a retest of the early lows before heavy buying emerged in what seemed to correspond to UPS lowering its EPS guidance for 2015.
A sharp rally from session lows to session highs developed afternoon trade before some profit-taking emerged ahead of the cash close.
Up front, the 2Y fell -3.6bps to 0.507%. Action once again failed at resistance in the 0.550% area.
In the belly, the 5Y slid -1.7bps to 1.623%. Resistance in the 1.650% area once again proved difficult to conquer as buyers defended the 50, 100, and 200 dma.
The 10Y erased -1.2bps to 2.347%. The benchmark yield remains unable to reclaim resistance in the 2.350%/2.400% region that is guarded by the 50 dma.
The long end lagged with the 30Y slipping -0.4bps to 3.076%. The yield on the long bond tested resistance at 3.100%, but was once again unable to capture the level.
A slightly steeper curve took holds as the 2-10-yr spread widened to 184bps.
2Yr 0.53 (-0.02), 5Yr 1.64 (-0.01), 10Yr 2.35 (-0.02), 30Yr 3.08 (-0.01)
2/10 Spread: 182bps (unch); 2/30 Spread: 255bps (+1)
Currencies
Dollar Slips in Choppy Trade:
The Dollar Index continues to hold small losses near 87.75.
The greenback has spent the entire session below the flat line with most of the action taking place in a tight 15 cent range.
EURUSD is +40 pips @ 1.2480 as trade has recovered all of yesterday’s losses. The single currency hovers near 27-month lows as a lack of tradable news and data from the region has made for a choppy session. Tomorrow, Eurozone Final CPI and French nonfarm payrolls accompany GDP data from across the region.
GBPUSD is -70 pips @ 1.5710 as action presses to its lowest levels in 14 months. Sterling remains under pressure following yesterday’s dovish inflation report, which suggested inflation could slide below 1% by mid-2015 and that rate hikes are no sure thing. Britain’s construction output will be released tomorrow.
USDCHF is -30 pips @ .9635 as trade slides off 16-month highs. Traders remain more focused on EURCHF as trade holds unchanged @ 1.2020, and remains just above the Swiss National Bank’s 1.2000 floor.
USDJPY is +20 pips @ 115.70, and threatens its best close in seven years. The pair saw a volatile trade early as confusion over possible early elections and a delay to the consumption tax hike continue to garner headlines. The 116.00 level has been a headwind over the past couple of sessions.
AUDUSD is flat @ .8720 after surrendering its early gains. The hard currency climbed to a high of .8765 following the jump in inflation expectations, but trade has been capped thanks to disappointing Chinese data.
USDCAD is +50 pips @ 1.1365 as action holds near its best levels of the day. The pair found a bid following the disappointing New Home Price Index (0.1% MoM actual v. 0.2% MoM expected) as buyers emerged in defense of 1.1300 support. Canadian data scheduled for tomorrow is limited to manufacturing sales.
Commodities
Closing Commodities: WTI Crude Oil Drops Below $75/Barrel, Nat Gas Back Below $4/MMBtu
Crude broke down hard today, down sharply even after crude oil inventories showed a draw -1.735 mln vs consensus for a build of 0.7 mln.
The move is highly technical, breaking below what was an important level of support at $75/barrel.
Over the past three years, futures have tested, but not broken through that level three times. This big leg lower comes ahead of the Nov 27 OPEC meeting.
Natural gas is also tumbling, filling the the 11/3 gap higher and breaking an important level of support at $4. There is a potential support level at its 50 DMA, right around 3.95. On the intraday chart, you can see the move lower started this morning, and has continued falling from there, hitting a LoD of 3.971 just after settlement. The move comes ahead of tomorrow’s inventory data due out at 10:30 ET.
Energy price action: WTI Crude breaking down through important support level, trading at three year lows, as natural gas tumbles and breaks below support at $4/MMBtu
Crude oil fell $3.01 (-3.90%) to $74.17/barrel
Crude is breaking down hard today, down sharply even after crude oil inventories showed a draw -1.735 mln vs consensus for a build of 0.7 mln. The move is highly technical, breaking below what was an important level of support at 75. Over the past three years, futures have tested, but not broken through that level three times. This big leg lower comes ahead of the Nov 27 OPEC meeting.
Natural gas fell 21.2 cents (-5%) to $3.975/barrel
Natural gas is also tumbling, filling the the 11/3 gap higher and breaking an important level of support at $4. There is a potential support level at its 50 DMA, right around 3.95. On the intraday chart, you can see the move lower started this morning, and has continued falling from there, hitting a LoD of 3.971 just after settlement. The move comes ahead of tomorrow’s inventory data due out at 10:30 ET.
Heating oil fell 8.25 cents (-3.28%) to $2.366/gallon
RBOB fell 10.2 cents (-4.85%) to $2.0047/gallon
Agricultural price action
Corn rose 7.75 cents (+2%) to $3.8550/bushel
Wheat rose 11 cents (+2%) to $5.5375/bushel
Soybeans rose 7.75 cents (+0.7%) to $10.555/bushel
Ethanol rose 4.6 cents (2.4%) to $1.978/gallon
Sugar #11 fell 2% to 16.03 cents/lb
Metals price action
Gold rose $2.40 (+0.2%) to $1161.50/oz
Gold hit a LoD of 1153 in overnight trading but has since pushed higher, trading in a range right around the 1162.5 level.
Silver rose 0.7 cents (+0.04%) to $15.63/oz
Silver has been stuck in a range between 15.75 and 15.5 throughout the session, only briefly breaking out above that range to a HoD of 15.79 for what appears to be one or two ticks before falling back into the range.
Copper fell 3.75 cents (-1.2%) to $2.9875/lb
Preview: Friday 14 Nov
Economic Data
Economic Data is listed as Consensus by default. Prior data will be given in brackets. If Consensus Data is not available, Prior data will be given without brackets. If Prior Data has been revised, the revised data will be given together with an indication whether it was an upward or downward revision.
Retail Sales – 08:30 : 0.3% (Prior -0.3%)
Retail Sales ex-auto – 08:30 : 0.3% (Prior -0.2%)
Export Prices ex-ag. – 08:30 : Prior -0.2%
Import Prices ex-oil – 08:30 : Prior -0.1%
Michigan Sentiment – 09:55 : 87.5 (Prior 86.9)
Business Inventories – 10:00 : 0.2% (Prior 0.2%)
Corporate Earnings
BMO :
BITA IOC LEAF MEA MONT SFXE
AMC :
EGLE VPCO
Other Events of Interest
Fed/Treasury/Political Events
Fed’s Bullard (non-voting) – 09:10
Economic Events
German GDP – 04:00
Commentary
The market continues to show signs of topping out, but continues to remain in this consolidation phase where it’s really going nowhere.
A pullback is likely, and we’re likely to get one before December. For now I continue to maintain my short-term downside view.
Direction for Friday 14 Nov 2014: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 83/125 (66.40%)
Weekly Directional Accuracy (from 16 May 2014): 13/24 (54.16%)