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Market Intelligence Desk - Equity Market Insight August 2015 .

Nasdaq’s Market Intelligence Desk (MID) is designed to provide critical touch-points for timely trading analysis and market information. The Desk consists of a team of market professionals working to keep companies on top of the markets with up-to-the-minute information.

Market Intelligence Desk - Equity Market Insight August 2015

Monday, August 31, 2015, 1:01 PM, EST

The bulls are likely excited to see August come to a close, with the S&P 500 dropping (-6%), the most since May 2012. On the final day of the month, US stocks are sliding this morning with declines in commodities and more concerns out of China weighing on sentiment. At 12:30pm, Dow -0.17%, S&P 500 -0.45%, Nasdaq -0.1%, R2000 0.05%

  • Market Intelligence Desk Note: The Russell 2000 closed out last week on the best 3 day advance since July 2012, climbing by 5.3%, with 15% of the constituents climbing by more than 10% during that period. Amongst those advancers, 29% and 23% of them were Healthcare and Energy stocks, respectively.
  • Fed Vice Chairman, Stanley Fischer, said over the weekend that the committee shouldn’t wait until inflation hits goal to raise rate, raising speculations that a hike in September is more likely.
  • Last week’s short-covering rally in crude oil gave way to profit-taking this morning. However the EIA just released a report reducing its US production estimates by 130k/bbls per day in the first five months of the year based on survey results. As a result crude goes green: WTI crude oil higher by 1.04% at $45.69/bbl and Brent crude is higher 0.52% at $50.31/bbl lows. The Energy sector underperformed at the open, but now it’s the top performing sector with a 0.8% gain.
  • The latest effort by China to support stock prices was adding an additional ~15.7billion US (`100 billion yuan) to the country’s market rescue fund and encouraging stock buybacks. The USD/Yuan spot rate jumped by 2.7% in August, the largest move since early 1994. Chinese policy makers are attempting to offset the most significant economic slowdown since early 1990s.
  • From Barrons over the weekend, “Even on Wall Street, it seems, the last shall be first. Last week, the stocks that were beaten down the most during the market’s Aug 18-25 correction turned out to be the biggest winners in the snapback rally that began Wednesday. The 100 stocks in the Russell 1000 index that fell the most jumped 11.5%, far more than any other group, according to the Bespoke Investment Group. The stocks that were the most heavily shorted also bounced significantly more than the least-shorted names. In the rebound, stocks with the lowest price/earnings ratios and those with the highest international revenue exposure also outperformed, Bespoke said.”

Technical Take
As of 11:00 AM EDT domestic equity indices are falling again albeit on light, holiday week volume -30% below what would be typical to this point normally. That said, markets are not in panic mode as they were last week at this time and the absence of news reflects the weak volume and lack of conviction from investors and traders to take the marketapart that we saw last week. While we do not believe this correction is over, we do think there are signs that an oversold bounce may continue in the near term before another test.

  • For the S&P 500 Index (SPX) closing levels to watch today are 1970 then 1943 on the support side and 1992 for resistance. On the Nasdaq Composite Index (CCMP) near support will be 4788 then 4700 and 4837 as resistance.
  • As mentioned, there may be reason to believe last week’s action, where bears failed to hold the losses, could be a harbinger for a continuation of the oversold bounce or more. In this a “Hammer”, which is a bullish reversal pattern that forms after a sharp decline, may prove an additional reason. The low of the week demonstrates that sellers drove prices down, but the strong finish indicates that buyers regained control, ending the week near its highs. It’s important to understand that further confirmation, ideally on growing volume is needed. Such corroboration could come from a gap-up (which we did not see today) or a build to close at or near the highs this week. Note that weekly hammer patterns were displayed on closes for: 10/7/11, 6/28/13, 2/7/14, 10/17/14, marking bottoms for the SPX in each case. In today’s chart we highlight the most recent examples, where heavy volume can serve to reinforce the validity of the reversal, with last week representing the highest volume in four years. While every pull back and trading environment is different, we find this occurrence noteworthy in the historical context of its effectiveness for identifying tradeable near term bottoms.

MID Chart 31 August 2015


Friday, August 28, 2015, 12:32 PM, EST

Fresh off yesterday’s big gains in Crude Oil and Equities, US stocks have traded in the red for most of the morning on light volume. The S&P is attempting to squeak out weekly gains (@12pm, +0.85% WoW), after falling the most in 4 years this past week. Dow -0.3%, S&P 500 -0.3%, Nasdaq -0.09%, R2000 +0.1%

  • Market Intelligence Desk Note: Heading into the 2nd quarter, the S&P 500 had 9 consecutive periods of gains, the longest streak since 1997. We’re 2/3 of the way through the 3rd quarter, and the SPX needs to gain more than 3.4% in September or stocks will post its 2nd consecutive quarter of decline.
  • The rally in crude oil continues as WTI crude oil now +4.4% at $44.44/barrel; Brent +3.6% $49.28. The two-day gain is attributed to rampant short covering. For the 2nd connective day, Energy stocks are leading the way, with big gains coming from Chesapeake Energy (+6.2%) and Transocean (+6.7%). We’ve seen big gains from Semiconductor stocks this week, helping the Technology sector outperform all other sectors. The Philly Semi Index is higher by ~6% this week, suggesting deep-value buying and short covering.
  • Bloomberg reports that both equity and bond funds saw net redemptions since July, the first time both saw concurrent outflows since the financial crisis back in ’08. Credit Suisse estimates equity funds lost $6.5 billion and bond funds about $8.4 billion. In the first three weeks of August investors withdrew another $1.6 billion from stocks and $8.1 billion from bonds.
  • According to Convergex, The average annual number of plus 1% moves in the S&P 500 from 1958 to 2014 totals 53.6. This includes an average of 27.5 days up 1% or more, and 26.1 days down 1% or more. 2013 and 2014 were lower than average at just under 40. So far this year, we have already had 40 such moves (22 up and 18 down). Given that October is generally the most volatile month of the year and the Fed might hike rates during the quietist (December), we might see more of the same in the coming months.

Technical Take
After another strong positive day with confirming volume and broad breadth yesterday, equity markets are waffling but trying to regroup on light volume as of 11:25 AM EDT. Given the week that investors have endured it might feel pretty good to hover around here and live to fight another week. That said as we’ve learned there’s a lot of time left in the day and a close in line with/ above yesterday’s close could set us up for a powerful advance next week. If the weekly pattern we’re alluding to is confirmed today we will include a complete explanation in Monday’s edition. Even without this, equities are still generally oversold and could continue to recover, ideally at a slower rate than we’ve seen before the next phase in the bottoming process.

  • Yesterday the S&P 500 Index (SPX) managed a bullish close above the first resistance we cited at 1970, near its highs made earlier in the day to settle at 1988. As such, either of these numbers could trigger some action if breached but otherwise this August Friday seems like a perfect digestion day for markets which absorb the rapid drop and rebound of the four days prior.
  • The Nasdaq Composite Index (CCMP) like the SPX mounted an impressive late day rally, closing marginally above our first cited resistance circa 4800, at 4812. Today so far the price action has been contained by a tight range, indicative of indecision/ lack of conviction which may be warranted give the week’s events. Yesterday’s highs around 4820 are worth a look if traders can sustain the push above. It’s been a wild week of wide swings, so we wouldn’t recommend getting too hung up on exact numbers, just to say that important resistance for both the SPX and CCMP remain at much higher levels and anything apart from a major sell off today would leave the short term picture unchanged. Small and Midcaps are leading so far this Friday; see the Russell 2000 Index collapse and fledgling rebound in today’s chart.

MID Chart 28 August 2015


Thursday, August 27, 2015, 12:31 PM, EST

US stocks are on pace for its best 2 day performance since March 2009, spurred by a bounce in Chinese stocks, positive economic data and the largest advance in oil since early February. All sectors are higher today, with Energy (+4.1%) and Materials (+3.8%) leading the way. DOW +1.9%, S&P 500 +2.1%, Nasdaq +2.3%, R2000 +2.0%.

  • Market Intelligence Desk Note: What a difference a year makes… August 2014 was the thinnest equity trading month all year, while volume in August 2015 has been the busiest so far (6% higher than January 2015).
  • The Shanghai Composite finished higher by 5.3% as the markets were hit with another round of government intervention to boost stock prices. Ever since China devalued its Yuan, it hasn’t spent an entire session trading higher. In the US, 92% of Chinese ADRs are making advances today on heavy volume (avg. 102% higher than normal).
  • On the economic front, GDP for the 2nd quarter jumped to 3.7% (annual), beating expectations, but growing inventories might be tough for manufactures to sustain continued growth in the US. Declines in emerging markets and the elevated US Dollar are clearly hurdles in the near-term. Separately, the weekly Initial Jobless Claims fell by 6k this past week, to 271k and remains around the lowest level in 40 years.
  • Energy stocks are leading the markets higher today, up ~4% after oil prices moved back above $40/ barrels after GDP report showed that the economy in US continues to grow. One of the major concerns for Oil is the growing stockpiles (90 million barrels above the 5 year avg), with production on a steady climb (+8% YoY). According to Citigroup commodity analyst Ed Morse, oil prices need to fall below $30 for output to slow, “I wouldn’t be surprised if WTI drops below $30 later this year before rebounding.”

Technical Take

As we said during our intraday comment yesterday, the close is king. Yesterday’s close imparted confidence in traders that the free fall phase of the sell-off is likely past and signaled a move onto the next phase of the basing process; the oversold bounce. As the VIX continues to fall where it’s 26 now vs 53 Monday (see today’s chart for trading bounces of last year), risk assets reflate, shorts cover and logic begins to be restored as fear abates. The keys in this phase of bottoming are to see volume above average and breadth as broad as possible. As of 11:25 AM EDT breadth in the form of advance decline is 15:1 in favor of advancers and volume is +27% above average to this point in the day on the S&P 500 Index (SPX).

  • Presently, despite plummeting to levels 100 points lower early in the week, the SPX is now at the same levels of last Friday’s close and Monday’s open of 1970. Note that the recent large gaps down have created air pockets, meaning that significant overhead resistance levels are further away, providing more potential room to run. Today, once again, given the strong gains to this point in the session we’re watching intently to see where stocks are able to close today in reference to first resistance at 1970.
  • Yesterday the Nasdaq Composite Index (CCMP) managed to close in line with resistance at the highs for the prior two sessions and the close for last week, 4700 we noted. Another important signal given yesterday was a close with the RSI having crossed above 30 (oversold) which is a classic indicator we had discussed waiting for earlier in the week. This same signal occurred in the SPX and Russell 2000 Index yesterday too. This, in combination with many other indicators led us to believe that the oversold rally has begun with the CCMP fast approaching first resistance at around 4800. Though it’s important to remember that most corrections do not occur without a process of churning as sellers ‘escape’ into strength, for now signs are encouraging.

MID Chart 27 August 2015


Special Mid-day Report: Wednesday August 26, 2015, 4:20 PM, EST

It’s clearly been a very volatile trading week so far in equity, commodity, currency and bond markets.

Including Friday 8/21, the 1,477 point drop in the Dow was the largest three-day drop ever and the decline on Monday was the largest in points, though not percentage (1987 Crash). Today we closed higher by over 500 Dow points.

  • The CBOE Volatility Index (VIX), sometimes called the “fear index” spiked to above 53 and closed at 40.74 on Monday, more than double the level of last Thursday. Oil fell below $40 for the first time since 2009.
  • Adding to the sense of unease was Tuesday’s late-day selloff in the Dow to -204 points, erasing gains of over 400 points.
  • The most recent three trading days were the highest volume days so far this year with over 10 billion shares traded in the US on Friday and Tuesday, with 14 billion traded during Monday’s sharp decline. The only other day above 10 billion traded was “Russell Friday” in June.

However, the US Economy seems to be performing, using today’s (admittedly backward looking) Durable Goods Orders and June Factor Orders.

The below chart shows a sharp rebound in the ATA trucking Index in July and is almost back to record highs in January this year. Intermodal Railcar Loadings rose to a record high in mid-August. This comes coincident to today’s durable goods positive surprise and yesterday’s Consumer Confidence Index (101 vs last of 91) led by its ‘present situation’ component to the highest reading sinceNovember 2007.

MID Chart A 26 August 2015

Source: American Trucking Association and Atlantic Systems.

For those of us who might need reassurance; the Chinese economy is not = US economy. Maybe the stock markets will resume their historically relatively low correlation as well sometime soon? The chart below chart shows S&P 500 Index correlation with the Shanghai Index over the last 5 years.

MID Chart B 26 August 2015

Source: Bloomberg, L.P.

Making the correlation more precise, the below displays the near non-existent historical relationships between China’s Shanghai Composite and both the S&P 500 Index (SPX) and the Nasdaq Composite Index (CCMP) over the last 15 years. Note that by statistical measures, coefficients from -0.1 to 0.1 are generally considered as having no or very weak relationships (see middle column), while the closer the coefficients are to +1.0 and -1.0, the greater the strength of the relationship between the variables.

MID Chart C 26 August 2015 

And while there is risk in looking at correlations within a short timeframe, note the jump to 0.94 vs. the S&P 500 and 0.99 vs. the NASDAQ Composite since last Friday. IMAGE

MID Chart D 26 August 2015

Source: Bloomberg, L.P.

Still, broad index moves of 2% or greater are not generally normal. After a long run of sub-2% changes - 193 Days without a 2% move in the S&P 500 December 14, 2014 (“Fed Patience”) through June 29, 2015 (Greece) – we are looking to get back to less volatile times after five straight days of such moves.


Wednesday, August 26, 2015, 12:30 PM, EST

Today is the second consecutive day US stocks have surged out the gate gaining roughly 2% during first hour of the session, but those gains have been cut by more than half at midday. Yesterday, all major indices spent the majority of the day trading in the green, but a precipitous decline during the final hour forced stocks to close lower by more than 1% for the 4th consecutive day. DOW +1.35%, S&P 500 +0.93%, Nasdaq +1.3%, Nasdaq +0.3%

  • Market Intelligence Desk Stat: The last three trading days saw the highest volumes so far this year with over 10 billion shares traded in the US on Friday and Tuesday, and 14 billion traded during Monday’s sharp decline. The only other day above 10 billion traded was “Russell Friday” in June.
  • The recent decline in US equity prices has also lowered valuations, and created a “Screamingly Attractive” opportunity for stocks according to Citigroup analyst Tobias Levkovich. On Bloomberg radio, he believes that there’s a 96% chance stocks will be higher in 12 months, highlighting Financials and Technology as his favorite sectors. Separately, HSBC also suggests that this is a favorable time to buy stocks and history suggests that global equity markets are “close to a bottom in magnitude and duration.”
  • Crude oil briefly moved higher following EIA inventory data, but gains failed to hold. WTI is off 0.10% at $39.27/bbl, reversing an earlier 1.2% gain. Brent crude remains 0.69% higher at $43.51. Industrial metals are lower with nickel off 1% and zinc lower by 1.8% percent.
    • Transocean eliminated its dividend, shares off 2.5%
    • Cameron International (+41.2%) agreed to be acquired by Schlumberger (-5%) in a cash and stock deal valued at ~$12.7B
    • Bloomberg reports that half of the energy companies in the S&P 500 Index are at least 40% below analyst price targets, about double the number of a month ago
    • The EIA inventory data for the week ending Aug 21:
    • Gasoline (+1.6 mln) and Distillates (+1.4 mln) both saw increases.
    • Crude oil declined by 5.5 mln barrels v expectations of a 1.0 mln increase. Inventories now stand at 450.8 million barrels, the highest in 80-years.
  • The latest Fed comments came from NY Fed president, stating that a September rate hike is less compelling because of the recent turmoil in global markets. He said, “Normalization could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing, and more information on international and financial market developments.”
  • All 30 Dow components are trading higher today, as the blue-chip index attempts to bounce off its lowest level since February 2014. Commodity prices haven’t been able to provide any support for stocks, with the Bloomberg Commodity Index falling to its lowest level since 1999. Strong gains from large cap tech (+1.75%) appear to be supporting the broader markets this morning, as Apple (+2.1%), MSFT (+2%- strong Windows 10 data) and Google (+3.7% - Goldman upgrade) lead the way.

Technical Take
After yesterday’s late day sell-off and noted failure to hold rebound gains, stocks again started strong this morning and as of 11:20 AM EDT are again drifting lower. Stocks are oversold technically and are due for a rebound, which traders have shown a keen eagerness to sell into. The VIX is falling, but still quite high by historical standards at 34; the direction (trend) is more significant though and should be monitored closely. Previous outperformers are where traders are holding gains as relative strength remains paramount, running the risk for continued breadth divergences on a rebound and longer term weakness. For now though, markets are just trying to tread water as they continue the frustrating bottoming process.

  • The S&P 500 Index (SPX) closed on its lows and also the lows of Monday, making it 1867 our level to watch in coming days to the downside. Should that break 1820 in the October 2014 lows would be the next hope for support. As it stands despite the fade in the magnitude of today’s rally, breadth is strong at 13:1 favoring advancers, which is the type of broad recovery that traders need to continue to see. The close is king.
  • The Nasdaq Composite Index (CCMP) didn’t close as badly as the SPX but still gave all of its gains up and then some, closing at 4506 (its lows for the day) and within 20 points of the prior day’s close. Therefore it’ll be important to see closes above this level today and in coming sessions. As further support the 4350 and 4292 levels may be looked to, congruent with Monday’s open and lows respectively.

MID Chart 26 August 2015


Tuesday, August 25, 2015, 12:04 PM, EST

US stocks are attempting to close in the green for the first time in 6 sessions, advancing by more than 2.0% this morning. Info Tech (+3.4%) and Consumer Discretionary (+3.1%) are the best performing sectors, suggesting the risk-on trade is in play today. DOW +2.5%, S&P 500 +2.6%, Nasdaq +3.4%, R2000 +1.4%

  • Chinese officials stepped in last night and cut interest rates, boosting US equities this morning. PBoC lowered rates by 0.25% and reduced bank-reserves by 0.5%, giving lenders more leverage when doing business. The news last night was a more traditional form of intervention when compared to the other ways they’ve attempted to spur growth (trading halts, yuan devaluation).
  • New Home Sales in the US climbed by 5.4% in July, to 507k, up from 481k in June. Low lending rates and robust employment has supported a recovery in housing, while inventories remain low. Also on the economic front, Consumer Confidence climbed to 101.5 in August, the second highest reading in 2015. Today’s number doesn’t reflect the recent pull back in the US equities, and will likely weigh on next month’s reading.
  • Large Cap technology stock are leading markets higher today, as Apple (+5.7%), Microsoft (+3.4%), Facebook (+5.7) and Amazon (+4.7%) are all surging this morning. The technology sector’s exposure to China has caused steep declines for the group, with the S&P 500 Tech Index dropping by ~8% last week.
  • Crude move higher this morning with WTI gaining 2.8% and trading above $39/bbl after sinking 5.5% yday; Brent Crude +2.4% to $43.73/bbl.

Technical Take
As of 11:10 AM EDT, despite the fact that stock are up quite strongly, it doesn’t feel as satisfying as it should given the fact that futures were indicative of a much stronger open and of course the massive losses of the last four sessions. It should be noted that technical damage like we’ve seen takes time to repair and that markets go down multiples faster than they go up/ recover. Today traders will be watching oil for cues and where in the day’s range stocks close.

  • The S&P 500 Index (SPX) is beginning its struggle with resistances starting with today’s highs (1940) as the first hurdle followed by progressively taller ones moving ahead; 1970 next. As suggested in yesterday’s note, we are oversold and due for a bounce, but as is always the case, the follow through will be key.
  • The Nasdaq Composite Index (CCMP) gapped up to open at its highs at 4687 and is now attempting to hold intraday support at around the lows of day of 4632. In this, 4700 will be the first important test as it marks Friday’s close, yesterday’s highs and today’s open. Traders must build on gains in a measured and rational way, so as not to encourage short term profit takers to come in so fast to take the index back down. Today’s chart provides some context of the depth of current oversold levels. It illustrates the percentage of stocks in the broad CCMP trading above their 10 and 50 day moving averages; only 6.5% and 12% respectively. These are levels not seen since the August 2011 correction and major market lows.

MID Chart 25 August 2015


Monday, August 24, 2015, 1:12 PM EST

US stocks are well off the intraday lows, but still looking at a more than 1% decline on the DOW. Sharp pullbacks out of China and Oil dropping below $40 for the first time since 2009 are fueling the panic selling. DOW -1.2%, S&P 500 -1.3%, Nasdaq -0.5%, R2000 -1.3%

  • We’re seeing huge price swings for US equities during today’s session, with the DOW dropping by more than 1098 points during the first 5 minutes of trading. Today marks the largest intraday point swing on the DOW ever. The CBOE VIX Index is now trading at its highest level since October, and climbing by more 175% over the past week. Here’s a look at the largest point swings over the past 20 years.

Rank

Date

Intraday HIGH

Intraday LOW

Point Swing

1

8/24/2015

16459.75

15370.33

1089.42

2

10/10/2008

8901.28

7882.51

1018.77

3

5/6/2010

10879.76

9869.62

1010.14

4

10/13/2008

9427.99

8462.18

965.81

5

11/13/2008

8876.59

7965.42

911.17

  • From Bloomberg, “The S&P 500’s rout sent valuations tumbling. The price-to-earnings ratio for the gauge sank to 16.76, the lowest level since the October pullback. Then, the measure bottomed just above 16.50, the cheapest since January 2014.”
  • AGL Resources is the best performing stock on the S&P 500, gaining by more than 27% after Southern Co announced they’ll be acquiring AGL for $8 billion ($66/share). Separately, Skyworks (+3.4%), Micron (+1.5%), NRG (+1.3%) and National Oilwell (+0.8%) are also trading higher this morning, with investors stepping in to buy some of the leading YTD underperformers.

Technical Take
As of 11:30 AM EDT the fear which caused the VIX to hit 53 today (highest since 2009 market crash) and pushed the Dow Jones Industrial Average down as much as 1100 points has subsided at least for now with the US equity indices down “only” 3%. As we’ve been saying the last few updates, when fear takes over and buyers are absent technical supports can just keep on breaking. This is the case for all major US indices which are well below their key supports so we’re in search of next levels where long term value investors might step up. With Europe about to close we’ll see if this sets off a new wave of selling as investors sell what they can. Today’s close will be important either way in the US.

  • On the S&P 500 Index (SPX) supports we cited at 2040 and the target from the channel break down of 1960 are long gone and today’s intraday lows at 1867 will be looked to next along with the 1820 October 2014 lows. We are fully oversold by most common technical measures in the short term, so the question will become: when will stocks bounce and how long until they are met with renewed selling pressure?
  • The Nasdaq Composite Index (CCMP) like all other indices has had an exceptionally rough morning, down nearly 9% at one point on the day, reaching 4292 at its nadir. As such this level will be in focus for coming sessions if selling is stirred up again, likewise we see 4565 as important resistance (former support) dating back to September 2014 highs, December and January 2015 lows (twice). A weekly close above this level could lend itself to the idea that the market could claw its way back into at least a range between there and 4800. As we see in the chart below daily RSI is at 20 (30 is classic oversold), a level not seen since August 2011, and could be primed for at least an oversold bounce in coming sessions.

MID Chart 24 August 2015


Friday, August 21, 2015, 1:26 PM EST

US stocks are continuing to drop this morning, with the Dow staring at its 3rd straight day of triple digit losses. Bets are increasing that the Fed is less likely to raise rates in September, pushing the USD to its lowest level since late June. DOW -1.56%, S&P 500 -1.48%, Nasdaq -1.72%, R2000 -0.7%.

  • All major indices are deep in the red this morning, with the rout in emerging markets and commodities continuing to weigh on equities. Unless the bulls want to return to the trading floor, the S&P is going to post the worst trading week since 2011. All major indices are going to post sizable declines this week, with the Technology sector off by more than 6% this week, the worst weekly performer.
  • A story in Reuters pointed out that WTI Crude is heading for its eighth consecutive week of falls, the longest losing streak since 1986 – that’s 29 years, like when Magnum P.I. was popular. WTI his seeing support near $40.50 despite some predictions for sub-$40 oil after the summer driving season. Brent is on track for its seventh weekly decline in eight.
  • Gold is on pace for the 2ND best trading week over the past year, adding more than 3.75% on 5 consecutive days of advances. The global equity sell-off has triggered investors to pile into precious metals, as a safe haven play.
  • Searching for bright spots: After initially trading lower, we seen a big reversals from Hewlett Packard (+4.3%) and Micron (+2.3%).

Technical Take
As of 11:30 AM EDT the fear of the last several sessions has continued to grow as US indices remain in complete free fall and the VIX has risen to match its 12/16/14 highs. Fear and lack of buyers are the only themes on the day as all important technical support has been shattered. Volume is extraordinary thanks to options expiry and the fear factor. If markets close nearer to the lows of the day, plan for additional weakness Monday, if we close in the midpoint or higher there’s a chance the sellers have been exhausted (for now).

  • Major support has been broken on the S&P 500 Index (SPX) at 2040 on yesterday’s close and of course today as we flirt with2000 presently. As we made mention of yesterday, the measured move from a break out of our trading box would bring us to around 1960, which could happen very quickly. Next technical support would be around 1980 though. The structure of the market may be in the process of transitioning from a buy the dip bull market to a sell the rally bear market. The good news near term is that SPX is hitting truly oversold levels according to the RSI indicator in the bottom panel of our chart, its lowest levels since the October 2014 lows. Here a move back above 30 on the RSI from below would be the traders buy signal. The bad news with reference to RSI is the series of RSI divergences since late last year (where price makes a new high but RSI doesn’t), is one of the harbingers of a bear market transition.
  • The Nasdaq Composite Index (CCMP) continues its annihilation of YTD returns, coming up on flat on the year now and below key support at4800 now. Like the SPX however, the CCMP is getting oversold and due for at least a trading bounce some time relatively soon. The question will become, who still has enough confidence in the market to buy and if they do, how long with they hold after?

MID Chart 21 August 2015


Thursday, August 20, 2015, 12:20 PM EST

US stocks are trading off their session lows, but still down by more than 1%, as concerns in emerging markets have investors pressing the sell button. Today’s trading has erased the YTD gains for the S&P 500, with the index posting its worst 3-day performance since late June.

  • Crude oil trades at six-year lows as the global supply glut only gets worse, and some analysts are now calling for prices in the low $30/bbl range. US inventories are about 100,000,000 barrels above the 5-year average despite lower rig counts and curtailed drilling. Production remains strong both in the US and in the OPEC member countries; Bloomberg news reports that global production exceeds demand by about 1 million barrels a day. WTI Crude -0.4% at $40.65/bbl; Brent -1.1% at $46.63/bbl.
  • NetApp is the best performer on the S&P 500 advancing by more than 5% after issuing guidance that exceeded expectations by more than 28%. Conversely, Netflix is trading (-6.5%) around its session lows after falling below some technical support triggered by some profit-taking.
  • We’ve seen the flight to safety trade play out over the past 2 days, as Gold and Silver have gained more than 3% and 4%, respectfully. The move higher appears to be triggered by traders reducing their bets on a September rate hike, despite the improving US economic data.

Technical Take
As of 10:50 AM EDT US stocks are in free fall toward July lows with investors continuing to price serious doubts about global growth into equities. Wait, we thought tepid growth and inflation was a good thing? Well, maybe not anymore, maybe the market doesn’t care for ZIRP now and like us, stocks are displaying signs of anxiety at the moment. The bears have the ball and the pressure is on the buyers to come in and stand their ground, deploying the parachute to avoid the crash. The problem however is that the buyers don’t appear to have high incentives to be aggressive until we get closer to the ground and more oversold levels. As we write, markets are in the process of timidly bouncing, let’s see if it sticks.

  • Without regard for the 200 day moving average at 2078, the S&P 500 Index (SPX) is closing in on its intraday 8/12 lows and early July lows circa 2050 – 2040. A string of convincing closes below which changes the entire technical picture, breaking down from a 6 month, clearly defined 2120 – 2040 trading range. The target from such a break down would be around 1960. While the set-up of the last several months and current sentiment would not be indicative of a major market top by historical standards, fear is taking hold and when that happens, what results can be exaggerated. Today’s chart of the VIX vs SPX is a depiction of moments of extreme fear in markets and how they’ve interacted over the last 6 months in our trading range. Despite the feel of the current sell-off, the VIX is not yet at levels of fear comparable to the July lows though they are in line with the March SPX lows.
  • The Nasdaq Composite Index is also in a tailspin, on a collision course with its 200 day moving average (4912) for the first time since the fear of Ebola contaminated markets in October of 2014. More important are the July lows which lie just below 4900. Consecutive closes below there could push the index to its key support of 4800.

MID Chart 20 August 2015


Wednesday, August 19, 2015, 1:26 PM EST

Volatility in China and Oil’s price decline are pressuring US stocks about 30 mins before the Fed releases the minutes from their July meeting. All 10 sectors are down today, with Energy and Materials suffering the steepest pullback. Dow -1.0%, S&P 500 -1.0%, Nasdaq -0.9%, R2000 -1.0%

  • The Shanghai Composite fell by more than 4% at its session lows before rallying into the close, but still posting a 1.2% drop. Investors appear to be nervous about the growth in emerging markets after several economic signals out of China have given worldwide equities a bearish sentiment.
  • WTI Crude Oil experienced a sharp dip (-4%) at 10:30am est after an unexpected rise in supply last week, according to the Energy Information Administration. US crude stockpiles rose by 2.62 million barrels to 456.2 million, drastic different from the forecasted 820k barrel decrease.
  • Analog Devices is one of the few bright spots on the S&P 500, higher by 2% on heavy volume on the heels of some strong earnings and raisng their guidance. Information Technology dropped by nearly 2% yesterday, and falling another 1% today as the sector with the biggest exposure to China has been suffering the largest downtick.
  • Gold is advancing by more than 1% after a report by the Labor Department showed that Consumer Prices in the US rose at a slower rate than expected. The move higher suggests that there’s doubt on how quickly inflation will be a concern for the Fed and whether or not it will delay a rate hike in the near-term.
  • Google is celebrating 11 year listing anniversary today, going public on 8/19/2004. Since its IPO, the stock has traded higher by more than 1500%!

Technical Take

Today with skeleton crews manning many desks, there continues to be lackluster volume given the corresponding lightness of decision making. In this the algos remain obedient to technical levels on the day as evidenced by the bounces so far in the session. Otherwise many will wait until after the FED minutes are released at 2 PM EDT to take action if any is warranted. Not too much else to point to besides CPI as far as rationale for a -1% move though the tanking of oil, which is down another 3%, likely portends global economic fears.

  • As of 11:00 AM EDT the SPX 500 Index has broken below yesterday’s lows at around the standing 2080 support level and is once again testing the 200 day moving average at 2078. As an update to our last week’s discussion of a break from a triangle pattern, it has been nullified as a result of time moving price too close to the apex to provide for a valid signal before any confirmed break out could occur. As such we default to the standard moving averages and broader dominant trading range of 2120 to 2040.
  • The Nasdaq Composite Index has once again zagged below its 100 day moving average at 5044 and has now taken out the lows from the prior four sessions (not good). We’re nearing next area of interest for traders to the downside of 5000. After that 8/12 lows of 4945 then the 4900 area (also near the 200 day at 4910). Today’s chart is up close on the range for most of the year and specifically the last 2 weeks. Note the relative weakness in the index vs SPX since 8/5 highs in the negatively sloped line on the bottom panel.
MID Chart August 2015

Tuesday, August 18, 2015, 12:13 PM EST

US stocks are trading marginally lower today as commodity price weakness and China concerns are causing skittishness. Potential Fed actions, flat earnings and no clear catalyst are keeping buyers on the sidelines. DOW -0.12%, S&P 500 -0.06%, Nasdaq -0.4%, R2000 -0.4%

  • China remains in focus today, with attention turned for now away from the recent yuan devaluation back to the stock markets there, as the Shanghai Composite index fell over 6%, the largest decline in three weeks and a reminder that policy makers in the country cannot fully control volatility in the equity markets.
  • Commodity prices are once again in the red, with oil below $42, metals including gold lower and agricultural commodities a mixed bag. Crude oil inventories continue to climb with soaring oil production and limited demand the leading catalyst for the price dropping to its lowest level since 2009. “$30/ barrel is completely possible this fall” according to Energy Aspects, as demand will likely drop to its yearly low when refineries cut their production due to seasonal maintenance.
  • Wal-Mart Stores cut its forecast this morning due in part to recent pay raises and currency effects. Shares are lower in reaction, down 3% to $69.75 this morning. Home Depot on the other hand raised its profit forecast as strength in the housing market is helping results. Shares jumped by 3% to $123.50 as investors digested the news. TJX Cos is the best performing S&P 500 company, adding more than 5.75% to its stock price after announcing robust earnings and that they’ll be opening 2000 more stores worldwide (1500 in N America, 500 in Europe).
  • Housing Starts were reported at 1.2 million, beating the 1.18 million survey by economists, although building permits declined. The monthly Housing Starts number climbed to an 8 year high, and set the stage for strong 2nd half of 2015.

In merger news, BB&T (BBT) announced the pending acquisition of National Penn Bancshares for $1.8 billion in cash in stock, it’s third deal since June. Deals in the US in 2015 have more than $1.5 trillion, representing a 76% from the increase from the same period last year.

Technical Take
Yesterday, after initially falling then finding support at the 200 day moving average, the market end up rallying on poor economic data in the form of Empire Manufacturing, (remember, bad is still good in the land of endless ZIRP). As of 10:50 AM EDT stocks in the US are holding up OK, albeit on very light volume, in the face of big losses overnight in China. The range trading continues as on the S&P 500 Index resistance of importance lies at 2120 with support at 2080. For the Nasdaq Composite Index, traders are watching the 5100 to 5000 range as respective resistance and support for convincing break out/downs. Our sense is that ahead the FED meeting in couple of weeks and with many on vacation, volumes will stay light and investors refrain from digging in their heels either way to commit to a powerful move.

  • As the market sits in the middle of its multi-month trading range we believe it’s important to examine what we technicians refer to as ‘internals’, that is, how the market health looks beneath the surface of closing index prices. This is another way of discussing breadth which we’ve been discussing at length mostly via daily advance/decline mentions particularly on divergences with price. Most will agree that this aspect is important to the longevity of any rally. Today’s chart highlights the advance / decline accumulation line for the Nasdaq Composite during the course of the last year. What we see in the bottom panel is that the line has had a negative slope for some time and has recently accelerated to the downside. This means that despite the new highs, fewer and fewer individual stocks are actually achieving them. Further we would point out that as of last close 53% of the member components of the Nasdaq Composite Index are already in bear markets (down more than 20% from 52 week highs) and 38% are down more than 30%.
  • Shifting to the SPX we see however that only 22% of components are trading more than 20% off their highs, with only 12% down more than 30%. In this we likely have an understanding that smaller caps as expressed in their heavier presence in the Nasdaq Composite Index, are lagging (a classic feature of late stage bull markets) and that breadth divergence may begin threatening the ability for the index to make new highs. This of course can change, but for now it still seems that sticking to larger cap momentum positive stocks is where money managers will continue to concentrate their bets.
MID Chart 18 August 2015

Monday, August, 17 2015, 12:32 PM EST

US stocks are trading marginally higher at midday following a volatile week in response to China’s devaluation of the yuan. Volume is light so far today (-25%) as the Dow has erased more than 100 points off the opening decline. DOW +0.15%, S&P 500 +0.2%, Nasdaq +0.3%, R2000 +0.4%

  • Last Tuesday China hoped to spur growth by devaluing the yuan, which sent a shockwave through equities worldwide. Growth concerns in China have been a debate for a while, but the adjustment last week by the PBoC only gave investors additional suspicions. The economy in the US has been improving over the past year, and the Fed appears to be on pace to raise rates in 2015, but are the worries overseas only going delay the hike?
  • Shares of Williams Company are higher by more than 4.5% after speculations that Spectra Energy is making a bid for the company. Traders are not fully convinced this deal will happen, because Spectra’s market cap is roughly half of Williams Cos. Merger Monday is once again grabbing the headlines today, with Liberty Interactive (QVC) acquiring Zulily for $2.1 billion ($18.75/ shares).
  • As referenced above, M&A has been supporting the market.  A Financial Times article states the value of global M&A in 2015 hit the $3T mark last week. FT adds this is the quickest pace at which the $3T mark has been reached since 2007.
  • Crude oil falls to near six-year lows on concerns that the glut will persist. On the demand side, manufacturing in the New York region unexpectedly shrank and Japan’s economy contracted last quarter.  On supply, OPEC is expected to boost output by as much as 33 million barrels a day once Iran is up to speed. WTI crude is off 0.9% at $42.12; Brent +0.3% at $49.20; natgas down 2.4% to @2.733/MMBtu.
  • The Empire State Manufacturing Index fell to a -14.9 reading in August, down from +3.9 in July and now hovering around the lowest level since April 2009. Experts believe warehouse inventories will approach historic highs as the US dollar climbs higher, making it more expensive to ship goods overseas.
  • Emerging Market ETFs have seen outflows for the past 7 weeks, totaling ~$6 billion, with India and China leading the way. Slacking economic data and declining exports in China appear to be leading catalyst for the redemptions.

Last week we witnessed money rotating into income-paying and defensive stocks. The utility sector started out the week significantly underperforming the broader markets, but gained momentum midweek and finished the trading week posting the best sector performance (chart below).

MID Chart 17 August 2015



Friday, August, 14 2015, 12:51 PM EST

Stocks opened slightly higher, but in typical late-summer fashion there is little momentum and the major indices are drifting between positive and negative.  NASDAQ -0.3%, Dow +0.2%, S&P500 +0.1%, R2000 -0.3%.  Seven of the ten major sectors are in the green with energy (0.0%); Healthcare (-0.2%), and consumer staples (-0.1%) the exceptions.  There is still some debate regarding China and the Yuan, but it is not impacting today’s trade.

 

  • In corporate earnings Nordstrom is +5.3% after co beats by $0.03, reports revs in-line; raises FY16 guidance; King Digital (-9%), Applied Materials (-3.8%) and El Pollo Loco (-14%) on earnings that disappointed. 
  • Tesla Motors trades higher by about +1.2% after pricing an upsized 2.7M share secondary.
  • July PPI 0.2% vs expectations of 0.1%; June was 0.4%.  July Core PPI increased 0.3% for a second consecutive month vs consensus of 0.1%.  July Industrial Production 0.6% vs consensus of 0.3%; June was revised to 0.1% from 0.2%.  That was the largest increase in industrial production since November 2014.  University of Michigan Consumer Sentiment Index declined to 92.9 from 93.1. 
  • The dollar index was initially lower, but has turnedCrude hit a new multi-year low in early trading but is now higher by 0.5% at $42.43/bbl.  Precious metals are trading higher, but off early-morning highs. Gold +0.2% at $1117.20/oz; Silver is +0.6% at $15.49/oz.

 

Technical Take


The fact that yesterday’s session failed to provide any follow through to the upside likely increases the odds of a retest of Wednesday’s lows.  Today, as of 11:30 AM EDT it’s clear that many have hit the beach already with volume -30% to -20% lower than typical to this point in the day.  That said it’s doubtful this session will be particularly eventful, but in the case that it is we would not read too much into it.  Like yesterday, price action so far remains in a tight range, again indicative of market indecision more than anything.

  • The S&P 500 Index (SPX) remains in roughly the exact mid-point of the prevailing 2120 to 2040 trading range at around 2080.  As discussed through the course of this week we are watching for the resolution of a symmetrical triangle pattern which could tell us the direction and magnitude of the next move for stocks.  See today’s chart for more detail as 2080 and 2100 are the trigger numbers on at least consecutive daily closes (below 2080 or above 2100 respectively). Where a break out could precipitate a move to 2180 and a break down could equally move stocks in the opposite direction to target around 2010.
  • The Nasdaq Composite Index (CCMP) is still in the midst of a struggle of its own, with the 5000 level after its inability both yesterday and today so far to close back above its 100 day moving average at 5038.  Given its heavier skew toward smaller caps vs. SPX and the notable underperformance of biotech/ healthcare and tech, the recent relative weakness seems warranted in CCMP.

MID Chart 14 August




Thursday, August, 13 2015, 4:27 PM EST

US stocks haven’t been able to hold the early upside momentum and currently trading mixed. The major US indices experienced more than 1.5% reversal during yesterday’s session, spurred by short covering and deep-value buying. Dow +0.13%, S&P 500 -0.05%, Nasdaq+0.25%, R2000 -0.09%

  • Panic selling has softened today, with emerging markets attempting to bounce off the lowest levels since late 2011. China’s central bank made a statement today about its recent devaluation of the yuan, suggesting the currency will stabilize and will continue to make strides higher.
  • Retail sales in July came in line with expectations (+0.6%), as encouraging economic conditions has consumers increasing their spending and boosting the economy. Also on the economic front, weekly jobless claims rose slightly to 274k (270k expected), but remained at historic lows.
  • Crude oil for September delivery dropped to roughly $42.00 per barrel with US supply remaining about 90 million barrels above the 5 year average, according to the Energy Information Administration.
  • Cisco is the best performing large cap today, advancing by more than 3.2% after their quarterly revenue topped analyst expectations, with the company citing strong sales in the US (+7% YoY). Consumer Discretionary are the best performing sector (+0.5%) today, helped by advances from Advance Auto Parts (+8%-surge in quarterly profits), News Corp (+2%-plan to sell Amplify Unit) and Yum! Brands (+3.2%-plans to open 400 KFC stores in Turkey).

Technical Take
After the miraculous (possible) key reversal day on the major US indices yesterday, disaster and meltdown appear to have been averted for the moment.  However, the first point every technician was already making yesterday afternoon is that we need to see follow-through to confirm.  We’ve seen a muted trading session, basically flat across the indices as of 11:30 AM EDT despite more bullish trading around the globe.  The good news is that markets are not falling apart, just undecided as the bulls and bears battle for control. How the indices end the week could provide important clues about the health of our market and near term direction; the next couple of closes will be watched intently.

  • After all was said and done yesterday, despite giving some a scare by plunging toward the key 2040 support line, the S&P 500 Index (SPX) did not break down from the triangle pattern that we highlighted Monday.  Rather, since SPX ended by closing within its converging trend lines, the pattern remains in place and the break out or down has yet to be resolved.  As such we’re watching 2080 more closely than normal to the downside and 2100 to the upside.  We would like to see at least two consecutive closes below/ above either of those respective trend lines to confirm the next leg.

Nasdaq Composite Index (CCMP), it turns out held the 5000 level after a brief stint below and even its 100 day moving average at 5038.  Today we’re in a tight range so far (see today’s chart), as referenced earlier, a representation of indecision as the market determines who calls the next play.  Therefore, 5038 will be important as near support and the 50 day at 5077 will be near resistance.  


MID Chart 13 August 2015    




Wednesday, August, 12 2015, 12:50 PM EST

Is the declining Yuan going to force the Fed to delay the rate hike? Fed funds futures are now pricing in a 40% chance of a September rate hike, down from 56% just last week. Over the past several years the markets typically moved higher whenever rate hike expectation was pushed further out, but this time around a delayed hike is viewed as a sign of weakening demand and slowing growth. US stocks are on pace for the worst 2-day decline since January 28th with the Dow -1.3%, S&P 500 -1.2%, Nasdaq -1.2%, R2000 -1.3%. Nine of the ten major sectors are trading in the red with utilities (+0.8%) the only exception. Financials (-1.9%) are significantly underperforming as a reflection of the change in rate hike expectations.

  • Dropping by its largest percentage since early June the US Dollar is weaker today following overnight headlines indicating further Chinese devaluation of the Yuan. Precious metals are currently extending their earlier currency-movement gains, with gold (+1.2%) rising for a fifth day to $1120.50/oz and silver (+1.4%) to $15.51/oz. The euro jumped 1% to $1.1153, rising for a sixth day and reaching its highest level since July 13. Treasuries have rallied, but they trade a bit below their highs with the 10-yr yield down three basis points at 2.11%.
  • Crude rebounded from six-year lows despite an IEA report saying the global crude oil glut in Q2 was the largest in 17 years and will last through the end of 2016. WTI crude +0.5% at $43.30/bbl and Brent +0.75% to $49.55/bbl.
  • In corporate news Alibaba Group (BABA) trades down -5% in reaction to a one-cent beat on below-consensus revenue. The company also announced a $4 billion share buyback. Fossil (FOSL) is off -8.6% after missing revenue estimates and guiding fiscal-year 2015 earnings below analyst expectations. Macy’s (M) dropped 4% on worse than expected second quarter results and lowering F15 comp guidance to flat from +2%. In M&A news Fidelity National Information (FIS) announced acquisition of SunGard in transaction with unaffected EV of $9.1B plus debt; combined company will have over $9.2B in annual revenues.

Technical Take

As of 11:30 AM EDT, we’re seeing broad based selling (6:1 decline to advance) with stocks down in excess of 1% across the board again today, and again the reason is China’s currency liberalization (devaluation). Unfortunately with US equity markets having few leaders as outlined by our continued breadth concerns, stocks are vulnerable to every seemingly fundamentally unimportant, external news event. Though another short term reversal is possible, stocks may not be done to the downside until we reach truly oversold levels from which to rally.

  • On the S&P 500 Index (SPX) we have broken down from a triangle pattern that we highlighted earlier in the week and are well beneath the 200 day moving average at 2075. Next support is probably the most critical we’ll see for a while at around 2040. This level coincides with both the July and March lows. If broken on multiple consecutive closes it would be difficult for anyone to argue that the market has not just made a lower low; one of the text book indicators of trend change to bearish. As we see in today’s chart in accordance with the RSI indicator, the SPX is still not quite at traditional oversold levels near/ below 30.
  • As for the Nasdaq Composite Index (CCMP), it has now fallen below the 100 day as well as 5000 and is fast approaching more critical support around 4900. This level is significant as it corresponds to: the 200 day moving average, July lows and May lows. The next few days could be very interesting and pivotal, arguably, to the entire 6 year bull market rally.


MID Aug 12 2015



Tuesday, August, 11 2015, 2:30 PM EST

Equities worldwide are lower after China’s devaluation of the yuan inserting additional growth concerns for the country. The Dow has given back all of its gains from yesterday, as commodity prices once again suffer declines. Dow -1.3%, S&P 500 -1.2%, Nasdaq -1.2%, R2000 -0.9%.

  • The yuan has been devalued by the most in 2 decades, attempting to encourage growth in China. The country has been under pressure since late May, as government intervention appears to casting a bearish cloud over the economy.
  • Yesterday’s rally in crude oil reversed itself today. OPEC said in a statement that production increased by 100k barrels a day last month, its highest level in more than three years. About a third of the increase output is coming from Iran after it restored output to its highest levels since 2012. Not helping matters is the devaluation of the yuan, which is viewed as a sign of weakening demand. WTI is off over 4% at $43.04/bbl, Brent is off 3.2% to $48.81, and Natgas is -1.3% to $2.80/MMBtu.
  • Shares of Google are the bright spot today, adding more the 3.5% to its price. The company announced a new holding company called Alphabet, to oversee some of their other "ventures", and separate them from their core search engine business.
  • On the economic front, June wholesale inventories climbed to 586.2 billion vs 580.7 billion in May. Sales appeared to soften, with warehouses approaching their limits, and the stockpile ratio climbing to its highest level since 2009. Also, US productivity increased (+1.3%) for the first time in 2 quarter according to the Labor Department. The positive number supports the optimistic employment data we’ve seen in 2015.

Technical Take

Another day, another failed rally attempt with the major US equity indices giving back almost all of yesterday’s gains as of 11:20 AM EDT. Pushing the move is China’s surprise currency devaluation and fresh fears on the back of what this ‘drastic’ action might mean about the underlying health of the Chinese / global economy. As a result oil and other commodities are reaching their lowest levels in years, taking the basic materials and energy stocks along for the sled ride. Yield sensitive areas like utilities, telco and REITs provide sparse bright spots as many are talking sub 2% US 10YR.

  • Yesterday the S&P 500 Index (SPX) closed just modestly above first resistance around 2100, but again traders are showing no desire to follow-through today. Rather we’re in danger of break down yet again below 2080. The rising 200 day moving average follows shortly thereafter at 2074. In today’s chart we see the wide performance distribution of the sectors today, where the laggards are pulling everything lower with them.
  • The Nasdaq Composite Index (CCMP) failed again at 5100 resistance and is plunging back in the other direction, looking to break below next support at the 100 day of 5038. Around 5000 would be the next level traders will be watching.


MID Aug 11 2015



Monday, August, 10 2015, 2:30 PM EST

The Dow is seeing a nice rebound this morning after the longest losing streaks in 4 years. The declines in Oil, an increasing likelihood we’ll see a rate hike in 2015 and lackluster quarterly corporate results had the Dow trading lower for 7 consecutive days before today’s advance. Dow +1.26%, S&P +1.13%, Nasdaq +1.07% and R2000 +0.98% (12:15pm)

  • The energy sector should get a hard look this week, as investor will evaluate an oversold condition or if the declines will continue. Hoping a bottom in crude oil is near, bullish positions increased for the first time in seven weeks. Net-long position jumped 13% percent in the week ended Aug. 4, CFTC data show. But at the same time production remains strong and is perhaps going higher: the number of US oil rigs oil rose to 670 for a third weekly gain according to Baker Hughes data; US crude inventories are nearly 100 million barrels above the five-year average; and OPEC members sustain record output. Crude prices are fluctuating in today’s trading with WTI up 1.5% at $44.54 and Brent up 2% at $49.67.
  • Warren Buffet announced one of its largest acquisitions this morning, buying Precision Castparts for $235/share (or $37.2 billion). Today’s deal brings the M&A YTD total in the US to $1.6 trillion (pending, completed, proposed), as the Consumer Non-cyclical and Technology sectors lead the way.
  • Earnings season is winding down and we expected lighter than normal trading volume this week, with only a few potential market movers on tap. Initial Jobless Claims (expected 207k); U of Michigan (expected 93.5) and Retail Sales MoM (expected +0.6%) are due out later this week.

Technical Take:

Flying in the face of a light volume advance today seems there’s a growing sense of bearishness and an eagerness to call the top of the equity bull. We find this interesting from both a contrarian perspective but also concerning given the lack of follow through we’ve seen now on so many of these strong start rallies. After building in the pre-market equities opened up strong, ran into resistances and as of 11:15 AM EDT, appear to be undecided on whether or not to push through. Though breadth is robust at 8:1 advancers/ decliners on SPX, volume is quite unconvincing at -12% vs normal.

  • After displaying something of a short term reversal candle on Friday’s close just above the 200 day moving average, we’re rallying into first resistance around 2100 on the S&P 500 Index (SPX). Though the weekly hold of the 200 day and short term candle set up is encouraging, we’ve seen this film before and are doubtful the ending will be any different this time until further evidence is provided. Per today’s chart we’re also tracking a symmetrical triangle which is nearing resolution where a break down could trigger a serious leg down, likely below the 2040 which we believe to be important.
  • On the Nasdaq Composite Index (CCMP), we saw a similar hold of an important moving average, this time the 100 day moving average at 5035 on Friday and the same candle set up, typically precursor to a short term rally. However, it remains to be seen if we’ll be able to sustain this rally and make new highs to negate the more ominous intermediate term range. If we can build on these gains of this morning and make new highs, ideally not just in the CCMP, but in other major equity markets, the picture could change dramatically for the better. First resistance remains 5100.


MID Aug 10 2015



Friday, August 7, 2015, 2:40 PM EST

The S&P 500 is going to finish this week lower for the 5th time out of the last 7 weeks, as investors continue to watch declining commodity prices and try to peg the timing of the first rate hike since 2005. Utilities (+1.2%) are the lone sector trading in the green, while Healthcare (-1.1%) stocks are suffering the biggest declines.

  • The US economy continues to show signs things are improving, after another round of positive employment data. 215k jobs were added in July and the unemployment rate stayed (5.3%) at its lowest level since 2008. The underlining theme behind the report is a September rate hike is still on the table.
  • Nivdia is the best performer on the S&P 500, advancing more than 9.5% after reporting robust results fueled by growth in new technologies like 4K and VR. The Dow is on pace for its 7th consecutive day of declines, and the longest streak since 2011.

Technical Take:

As of 11:40 AM EDT equity markets are all in the red with the jobs report seen as being 'good enough' to warrant an enormous 25bps rate increase from the FED in September. Or was it too weak as indicated by the drop in US 10YR yields? Either way, we once again find ourselves on the verge of breaking below key supports. The breadth is overwhelmingly negative compared to yesterday where today's reading is 4:1 in favor of declining issues vs advancing on the S&P 500 Index. Utilities are the only sector in the green on the drop in yields.

  • The S&P 500 Index (SPX) is on its lows for the session, having just been able to hold 2080 last close, it is breaking beneath the 200 day at 2073 as we write. Next supports of interest will be 2060 followed by 2040. If we close the week below the 200 day, it would be the first weekly close beneath since 10/17/14. The bigger picture is still range bound between 2040 - 2120 as we've seen since February (today's chart).
  • On the Nasdaq Composite Index (CCMP), its 100 day moving average 5035 has been broken, plunging toward the 5000 level as next support followed by 4900. The hold of the 100 day yesterday, since it was tested several times during the session, seemed promising but that's not good enough right now. It seems that traders want to flush out the sellers and visit further supports.


MID Aug 07 2015



Thursday, August 6, 2015, 2:00 PM EST

Emerging markets and Commodities are weighing on US stocks today, as the Nasdaq Composite is on pace for its worst trading day in over a month. Consumer Discretionary and Healthcare stocks are leading the sector declines. DOW -0.83%, S&P 500 -0.98%, Nasdaq -1.85%, R2000 -1.62%

  • The Fed has been showing signs that they will be raising rates in 2015, likely pressuring the money flowing into emerging markets. Since late April, the MSCI Emerging Market Index is lower by 17% and we probably will see additional declines if positive US economic data continues to flow in, as the Fed becomes more confident consumers can handle a rate hike. Traders are looking to tomorrow’s employment data for an indication of when the FOMC is going to raise fed funds rate (i.e. September or later). Yesterday’s ADP’s employment data was below expectations, so that might be an earlier indicator of what to expect.
  • Large-cap Media stocks (-5%) are trading deep in the red today, after several market-movers missed expectations. The group has been one best performing sector since the start of the bull run, 6 ½ years ago.
  • 87% of the S&P 500 has reported their quarterly results, as 74% have beaten EPS expectations, while only 49% have beaten revenue estimates. Healthcare, Information Technology and Financials have been the best reporting sectors.

Technical Take
As of 11:45 AM EDT we’re seeing a total reversal of yesterday’s up move and then some. Contributing factors are the media stocks which are being instantly de-rated in panic level selling between the current and last session, weighing heavy on consumer discretionary. Volume is exceptional, on the order of +20% above the typical run rate among S&P 500 Index stocks and breadth is bearish, nearly 3:1 in favor of decliners. Clearly the market has not yet made up its mind (break-out or break down), but one thing is certain, earnings are even more of a binary, minefield than they’ve ever been.

  • The S&P 500 Index (SPX) is presently on its lows for the session, fast nearing next support at 2080 then 2072. However, the index is outperforming the Nasdaq Composite Index by a factor of 2 despite only one sector in the green: Energy though oil is tanking yet again – short covering anyone? ...
  • On the Nasdaq Composite Index (CCMP) with risk off in vogue for the moment, we’re seeing dramatic underperformance with the biotech, healthcare and semiconductors being the biggest losers. After easily slicing down through support at 5100 and then the 50 day (5080), today’s nosedive seems intent on the 100 day moving average next, at 5035.
MID Chart 6 August 2015

Wednesday, August 5, 2015, 1:11 PM EST 

A lackluster jobs report doesn’t appear to be weighing on investor sentiment today, as US stocks are trading higher on heavy volume (+15%). The major indices are trading off their early session highs, but still holding onto gains (@12:45pm). DOW +0.05%, S&P +0.5%, Nasdaq +0.8%, R2000 +0.5%

  • First Solar is the best performer (+16.4%) in the S&P 500, after reporting a surge in revenue growth and guidance. Cowen & Co upgraded the stock this morning citing the “solid cost reduction execution and growing pipeline diversification ahead of the post-2016 ITC shift.” Apple is higher for the first time in 6 sessions, add 1.8% to its price and helping Info Tech rebound (+1.5%). The stock is currently trading at its lowest level since early January after falling below several key technical levels.
  • During July, according to payrolls processing firm ADP, the private sector only added ~185k jobs, falling short of expectations (215k). Also on the economic front, the strength in the US dollar pushed the June trade gap to wider than expected. Lastly, the ISM Non-Manufacturing Index was higher by 4.3pts to 60.3 in July, and the best reading since 2005, suggesting better than expected growth for the US economy is anticipated.
  • Barrel prices for Crude Oil turned below $45 at 10:30am ET on expectations that US refineries will reduce its operating rates. Investors believe the rate decrease will increase production and stockpiles. Oil fell has fallen to a 4 month low during today’s trading.

Technical Take

As of 11:20 AM EDT we’re seeing assertive across the board strength in equities so far with elevated volume by +15% and advancers 7:1 against decliners (on the S&P 500 Index), perhaps meaning the correction from the 7/20 highs is indeed over. This comes after the two prior sessions of the bears testing first supports, which have managed hold tight, providing fuel for bulls. Also encouraging is the strong performance out of the broader small cap focused Russell 2000 index; follow through on yesterday’s outperformance.

  • The S&P 500 Index (SPX) is just off the best levels of the session after piercing above first resistance of 2110. Closes above this level would embolden traders to press higher through 2120 as the next target. We will be more concerned with breadth for the time being, happy to see as many sectors in the green, pulling in the same direction as possible. Presently only consumer discretionary is down on the day (thanks to media stocks and led by DIS).
  • On the Nasdaq Composite Index (CCMP), we’re again outperforming in terms of relative strength, near session highs, up over 1.3% at present on volume +17% higher than we’d typically see to this point in the day. We’ve pushed above first resistance already at 5150 and are fast approaching all-time highs at 5230. This comes after a text book hold of key first support of 5100 with a prior close of 5105. Internals are healthy and the bulls seem to have won another round just as bearish sentiment seemed to be weighing so heavily on the market/media in the last couple of weeks. Our next technical target is 5300 to the upside.
MID Chart 5 August 2015

Tuesday, August 4, 2015, 1:07 PM EST

A pause in the Commodity decline has US stocks flat today, after a weak day of trading yesterday. Fears of growth in the US drove stocks lower yesterday, as traders will be now pointing to July’s Non-farm payroll figure due out on Friday for further direction. DOW -0.07%, S&P 500 +0.03%, Nasdaq -0.06%, R2000 +0.2%.

  • Materials stocks are higher by more than 1% this morning; helped by Vulcan Materials (+7%) beating their quarterly revenue by 2% and the company believes they’ll see a higher rate of growth during the second half of the year. LendingTree is the best performer in the Russell 3000 today, advancing more than 40% on heavy volume after reporting a sizable EPS/Sales beat and a 11% jump in full-year guidance. Info Tech is being pulled lower by Apple (-2%), extending yesterday’s drop and falling below 2 bearish technical levels (more below).
  • Oil rebounded from near six-month lows this morning with WTI crude up 1.6% to $45.87 a barrel and Brent futures advanced 1.6% to $50.30. Other commodities followed with Natgas up nearly 2%, Copper rose 0.3% and Gold gained 0.6% to $1,093.61 an ounce.
  • The Federal Reserve's latest survey of senior loan officers showed a continued rise in the share of banks more willing to lend to consumers. The lending gauge increased to 10.4% in the Q2, up from 8.3% in Q1 and 4.4% from Q4 2014. Analysts note that the gauge is a leading indicator of consumer spending; as willingness to lend goes higher, consumer spending tends to follow.

Technical Take
After a fairly wide ranging session yesterday, the S&P 500 Index (SPX) and Nasdaq Composite Index (CCMP), despite intra-day violations, managed to close just above first supports. Today there’s not too much excitement, and a tighter range, with large cap indices down modestly and noticeable outperformance of small and mid caps. Today’s chart demonstrates the AAPL effect as the small cap Russell 2000 Index and S&P Mid Cap Index both outperform. As of 11:20 AM EDT, we’re bouncing off session lows and again danger of breaching key support.

  • The S&P 500 Index (SPX) is again testing its first support around 2100 - 2097. A closing break below would indicate a more likely move to retest the 200 day, now at 2070. 2110 remains an important first resistance to the upside where we’ve not been able to close above since 7/22.
  • On the Nasdaq Composite Index (CCMP), we’re just now testing first support at 5100, where a close beneath would open the door to 5079 then 5030 as further possible support levels. Meanwhile, AAPL’s technical breakdown below its 200 day first the first time since 2013 is a rare drag given it is the largest market cap company in the world, as a major component to market cap weighted indices. AAPL is presently subtracting 19 points from the CCMP and 30 points from the Dow Jones Industrial Average. As such, an underlying rally is being muted as advancers outnumber decliners 1.5 : 1 on the CCMP and 1.8 : 1 on the SPX.

MID Chart 4 August 2015


Monday, August 3, 2015, 11:32 AM EST

With the first trading session of August underway equities in the red but off the earlier lows: Dow off 68 pts, Nasdaq up 4 pts, S&P-500 -1 pt, and the Russell 2000 -4 pts. Weak Chinese manufacturing data and falling commodity prices are the catalysts. Utilities (+0.3%) and Consumer Staples (+0.1%) are the only major sector in the green, while Energy (-0.6%), Materials (-0.3%) and Industrials (-0.3%) are showing the largest declines.

  • Commodities are in the red again today as gold is lower by another $4 to $1091/oz., oil is at a near six-month low with WTI Crude down over 2% at $46.12, while metals and agricultural commodities are sharply lower too. Weakness in China is taking part of the blame, with the Shanghai Composite down 1.1% to the lowest levels since July 8th after disappointing manufacturing data.
  • U.S. Personal Income and Personal spending came in at 0.3% and 0.2%% respectively, with Personal Income a bit light of the 0.4% expected increase and Personal Spending in-line. This follows last week’s surprisingly low Employment Cost index reading and is another jobs data point that will be in sharp focus by traders and the Fed as all weigh a September/December rate increase decision. A key indicator for the Fed according to some is the PCE Deflator (an inflation measure) which was reported at an in-line 0.2%. The Payrolls numbers later this week might take on added significance.
    • July ISM Manufacturing Index 52.7 vs 53.7 consensus; June’s read of 53.7 was a five-month high.
  • The stock market in Greece reopened today for the first time in 5 weeks and, not surprisingly, fell sharply with some banks down 30% and the broader Athens Stock Exchange down by over 16% currently as stocks try to find their new levels.
  • We have another busy earnings week on tap as over 700 NASDAQ companies and 70 S&P firms will report results this week, most for the second fiscal quarter of 2015. So far today we have seen positive results from Frontier Communications, CDW Corp and Array BioPharma. After the bell today we will look for reports from AIG, Tenet Healthcare, Bloomin’ Brands, Charter Communications, Office Depot and Allstate.
    • As of this morning 70% of the S&P-500 members have reported; 72% beat on earnings while only 51% beat on revenues.

Technical Take

Friday’s session, despite a decent start, gave way to selling pressure in the afternoon as major equity indices closes toward their lows. As of 11:00 AM EDT, we’re seeing largely uninspired trading, off modestly on light volume as the bulk of earnings are expected later this week. Weak commodities are also becoming worrisome to investors from that perspective of what they may be signaling about that health of the global economy. Meanwhile, traders will look to see if markets can hold near term support before making any positioning changes or new commitments of capital.

  • The S&P 500 Index (SPX) is currently in the process of wrestling with near term support around 2100 where we have the convergence of the 50 day and 100 day moving averages at 2099 and 2097 respectively. A closing break below would indicate a more likely move to retest the 200 day, now at 2069. 2110 remains an important first hurdle to the upside, where on Friday we failed to close above.
  • On the Nasdaq Composite Index, we’re approaching first support at 5100 after failing to hold toward top of the range during Friday’s session. Beyond that a close below would favor increased odds of another move lower with 5079 then 5030 on deck. The index is neither overbought nor oversold, just waiting for momentum to push one way or the other.
MID Chart August 3 2015



Nasdaq's Market Intelligence Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information. 

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading. 

Vincent Randazzo, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 13 years of experience in equity markets having served in equity research sales and desk analyst roles at major banks. Vincent’s specific expertise is in technical analysis and has been a Chartered Market Technician (CMT) since 2007.

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