The week started with a bang on Monday but ended with a whimper on Friday. Friday’s volatility was expected as it was a quadruple witching day – i.e. a day on which stock index futures, stock index options, stock options and stock futures expired. The March expiration day has generally been volatile producing mixed results since 2000. Before yesterday, S&P500 was down eight times during this period, whereas Dow Jones Industrial Averages, NASDAQ Composite and Russell 2000 were down nine out of 14 years. The average volume gain for Dow was 60% over the 10-day average volume. Yesterday was another down day for all major indices and the volume gain for Dow was 221% over the 10-day average volume.
The market went to the weekend of March 15 anxious with Sunday’s Crimean referendum looming on the horizon. That week was a down week as S&P 500 lost over 37 points, most of the losses coming on Thursday when it became clear that nothing will stop the Crimean referendum and subsequent annexation by Russia and the resultant sanctions by EU and US.
Surprisingly, the impact of referendum and escalation of tension between squabbling powers did not last long. In the aftermath of Crimea’s break-away vote, the Asian market opened up the week mixed. On Monday, Japan’s Nikkei 225, Hang Seng, and Australia’s S&P ASX 200 declined modestly. Shanghai Composite was flat and South Korean Kospi was up by a bit. Yen, the safe currency trade, initially gained against the dollar only to lose it later. Gold rose by 0.7% and Euro was largely unchanged. The S&P 500 futures reached the lowest point since February 17th on Sunday evening – i.e. the Asian session.
However, it soon become apparent that the major market players think that the Ukrainian crisis will mostly have a localized impact – restricted to Russian and Ukrainian markets – at least for the time being. So the major indices turned around and staged a good weekly rally with S&P500 reaching intra-day high on Friday. During the week, it only faltered, other than on the quad-witching day, after Chairwoman’ press conference on Wednesday, when she said that the rate hikes could happen about six-months after the Fed wraps up bond purchases.
Week In A nutshell:
- Most global indices rose for the week. 3-month picture is a bit mixed. Developed economies rose during the last three months but most of the emerging markets fell.
|North America||Global Dow||0.9%||2.7%|
|S&P 500||1.4%||4.8%||Latin America|
|Europe||Asia & Pacific|
|UK FTSE 100||0.4%||0.6%||Shanghai||2.2%||(26.1)%|
|German DAX||3.2%||2.8%||Nikkei 225||(0.7)%||(26.1)%|
|French CAC40||2.8%||6.6%||Hang Seng||(0.5)%||(26.1)%|
- Treasury yields rose marginally but are substantially lower than 3 months ago
|30 Years Yields||0.6%||(6.8)%||13 Week Yields||12.5%||(28.6)%|
|10 Years Yields||4.0%||(3.3)%||30 Years Bond||(0.6)%||3.3%|
- Commodities show a mixed picture for the week, but most are up for last 3-month.
- Dollar generally gained for the week and yen lost. For the three-month period, dollar lost against most majors except Japanese yen and Canadian dollar.
The Economic Report Card
The general economic news for the week was mixed, which supported the current inertia, i.e. market’s move forward.
- Monday 17th
- Empire State Manufacturing came at 5.6 versus 6.6 estimates but was higher than previous month’s reading of 4.5.
- The Industrial production m/m increased by 0.6%, better than forecast
- NAHB Housing Market Index, came at 47 – below estimates but above last month
- Tuesday 18th
- Core CPI m/m was at 0.1% so was CPI m/m. Both came in line.
- Building permits came at 1.02M, more than the estimates and for the last month
- The Housing Starts were at 0.91M, as expected
- TIC Long-Term purchases were 7.3B – less than estimates of 23.4B. This shows the balance of domestic and foreign investment.
- Wednesday 19th
- The current account deficit increased by less than estimated.
- FOMC Statement was as expected but Chairwoman Yellen said that the rate hikes could happen about six-months after the Fed wraps up bond purchases
- Thursday 20th
- Unemployment claims were better than expected and the 4-week and 8-week averages trends are showing reducing claims.
- Existing Home Sales were worse than expected at 4.60M versus 4.65M expected.
- The Philly Fed Manufacturing Index was better than 9.0. The estimates were at 4.2
- Friday 21
- Forex futures market speculative positioning data from the CFTC Commitments of Traders report as of the close on Tuesday, March 18, 2014:
- EUR net long 53K vs. long 36K prior week
- JPY net short 62K vs. short 99K prior
- GBP net long 26K vs. long 22K prior
- AUD net short 24K vs. short 40K prior
- CAD net short 70K vs. short 52K prior
- CHF net long 15K vs. long 9K prior
- NZD net long 16K vs. long 14K prior
- Forex futures market speculative positioning data from the CFTC Commitments of Traders report as of the close on Tuesday, March 18, 2014:
Technical perspective – 30K Ft view:
The major US indices are trending up in nice channels. After making low in November 2012, S&P 500 has maintained an upward trend line. The line was tested in January correction when the index traded at or below the line for three days. Since 2012, it has been consistently making higher high and higher lows except during the Jan-correction.
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On Friday, the index made an intraday high but closed down for the day. It has not yet broken the lows of Thursday. Unless it does that, the reversal candle would not have been confirmed. If it drops below last week’s low of 1839.57 then it will complete a minor double top with a downside measured target in 1790s, putting it in the vicinity of 61.8% Fibonacci retracement of the rally from Jan-Feb lows. If it breaks above week’s high of 1883.97 then chances of reaching 1930s increase, which will correspond to 193s for SPY. However, the RSI is showing bearish divergence, which calls for caution and maintaining overall risk low.
Dow Jones Industrial, on the other hand, has not made an intraday high and is forming a triangle. Its partner in Dow Theory, Dow Transportation, has made a new high and is trading near the top. RSI for both are showing divergences. So caution is the word with upward bias.
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Since early January 2014, commodities are outperforming other asset classes. However, last week saw stocks gain the upper hand followed by the US Dollar.
Not every commodity group is doing well. Agricultural, livestock and precious metal groups are carrying the load whereas industrial metals and energy are dragging.
S&P Agricultural Index, $GKX, has been on a tear after bottoming in January. Since then it has gained 16.63%.It comprises of Wheat, Corn, Soybeans, Cotton, Sugar, Coffee and Cocoa. The ETFs that follow this index in some shape for form include DBA, DJP, GCC, GSG, USCI, and MOO.
S&P GSCI Energy Index, $GJX, had a good run from mid-January to early March, when it rose by over 10%. Since then it has fallen -6%. Now it seems to be consolidating at 61.8% Fibonacci retracement of the last leg up. ETFs that follow this sector include USO, OIL, UCO, and DBO.
S&P GSCI Precious Metal index, $GPX, and Gold & Silver PHLX Index, $XAU, are still showing an uptrend after a deep decline. They felt a head wind in the last week but the small rally that started in early 2014 does not seem to be over at the moment. The ETFs that could be used a proxy for these indexes include GLD, SLV, GDX, SIL, DBP, and GLTR.
S&P GSCI Industrial Metals index, $GYX, is not participating in this commodity rally. This is indicative of the slow growth of global economy, and especially China. Since early 2011, this index is making lower highs and lower lows. After making a double top in early 2014, it has steadily fallen -10% in two legs. At the moment it seems to be consolidating for another leg down. If it breaks below last week’s low then it will present a good short opportunity that can be utilized by either using options in related equities or by buying bear ETFs in the sector.
Last week, three sectors – Cyclical, Technology and Financials – outperformed the S&P 500. Over the last 3-month period Materials, Health Care and Utilities have also outperformed but Cyclicals did not. Their chart patterns are generally mirroring that of S&P 500’s.
Looking Ahead To Week Of March 24th, 2014
Not many major companies will come out with earnings report next week. The notables are:
- Restaurant operator Sonic Corp. (SONC) is scheduled for Monday after close
- Carnival (CCL) and Walgreen (WAG) announce before open on Tuesday
- Lindsay Corp. (LNN) before open and Paychex (PAYX) after close on Wednesday
- Many will announce on Thursday – Accenture (ACN), Gamestop (GME), Lululemon (LULU), UTI Worldwide (UTIW), Winnebego (WGO), and Worthington (WOR) are scheduled for before open. Whereas, RE/MAX (RMAX), Red Hat (RHT) and Restoration Hardware (RH) will do it after close
- BlackBerry (BBRY) will announce before open on Friday 28th
- Mueller Industries (MLI) in Basic Materials will do a 2:1 split on Friday March 28th, and
- Insys Therapeutics (INSY), a biotech company, is splitting 3:2, also on Friday
Much of the market focus next week will be on economic data as the earnings calendar is weak.
- S&P/Case-Shiller House Price Index will be out at 9:00 PM. It is a leading indicator with medium impact on the market. The estimates are for 13.3%. Since March 2012, it has been below expectations only once.
- Conference Board Consumer Confidence, a survey based on 5,000 households, is a leading indicator of consumer spending with high impact on the market. It is estimated to be 78.1. It missed estimates three out of last five months.
- New Homes number will also come out at 10:00 AM. Its impact on market is high and the estimates call for 447K, which is lower than last month’ number.
- Core Durable Goods Orders will come out at 8:30AM. This is the total value of new order placed with manufactures excluding transportation orders. Forecast is 0.3%, lower than last month’s 1.1% increase.
- Weekly unemployment claims are to be 326K, higher than last week’s 320K
- Pending Home Sales m/m will be out at 10:00 AM. The estimates are at 0.2% increase versus 0.1% increase last month.
- Personal Spending m/m are forecasted to rise by 0.3% compared to 0,4% increase last month. It is the change in inflation-adjusted value of all expenditures by consumers.
- Revised University of Michigan Consumer Sentiment will be out at 9:55 AM. The estimates are for 80.6
Non-US Economic Data:
- Chinese HSBC Flash Manufacturing PMI, a high market impact data, is scheduled for 9:45PM on Sunday.
- Monday EU area Flash PMI numbers will be out. The high impact items will be PMI from Germany and France.
- Tuesday’s high impact data is German Ifo Business Climate and UK’s CPI and PPI data.
- Wednesday will see Gfk German Consumer Climate
- On Thursday, UK will release Retail Sales number in early morning and in the evening Japan will release Household Spending Y/Y and Core CPI data.
- Friday will see the release of UK’s Current Account and Final GDP data. Germany will release Import Prices and Prelim CPI m/m.
Fed’s buy operations are planned for every single day next week. Wednesday and Thursday have large buy operations.
Many Fed members will speak next week explaining their take on Fed action. Some have already come out with justification for their stance in the last meeting.
- Fed Governor Jeremy Stein said monetary policy should be less accommodative when bond markets are overheated even if it raises the risk of higher unemployment
- Minneapolis Fed President, Kocherlakota, dissented at FOMC meeting because he believes the guidance issued weakens Fed’s credibility to target 2% inflation.
Others central bankers scheduled to speak next week include:
- Bank Of Canada’s Deputy Governor Timothy Lane on Monday
- Reserve Bank of Australia’s Deputy Governor Philip Lowe on Tuesday
- FOMC member Charles Plosser on Tuesday
- RBA Governor Glen Stevens on Wednesday
- FOMC member Sandra Pianalto on Thursday
Potential Trading Opportunities
- Strong Weekly Volume Gainers on Rising Price: http://finviz.com/screener.ashx?v=351&o=-change&t=BIS,BPO,BSYBY,BWP,HZNP,MOBI,PDH,WLB,WPX
- Bullish 50/200-day MA cross-over: http://finviz.com/screener.ashx?v=351&o=-change&t=AUY,DX,ECYT,HME,LTC,MPW
- Oversold with improving RSI: http://finviz.com/screener.ashx?v=351&o=-change&t=DSUM,REN
- Strong Volume Gainers On Falling Price: http://finviz.com/screener.ashx?v=351&o=-change&t=CMGE,DHT,EOX,HRG,HRTX,LJPC,NEWL,PPP,SDLP,UIHC,YANG
- Bearish 50/200-day MA cross-over: http://finviz.com/screener.ashx?v=351&o=-change&t=CATO,DEO,FIX,JBHT,MCY,MUR,NAV,OMI,STT
- Overbought With Declining RSI: http://finviz.com/screener.ashx?v=351&o=-change&t=AMRI,BYD,CMRX,GB,IBN,JVA,KATE,MDRX,OZRK,PLOW,PNFP,PRXL,RFMD,RMBS,SAVE,SIG,USMO
- Gilead Science (GILD) – double top – target of 67.
- Biogen Idec Inc. (BIIB) – double top – target of 294.
- Corelogic Inc. (CLGX) – double bottom and morning star. Resistance at 33.79
- CoreSite Realty Corp (COR) – double bottom and morning star. Resistance at 32.20
- Ramco Gershenson Ppty (RPT) – Morning star pattern
- Arch Coal, Inc. (ACI) – Rising Three Methods – resistance at 4.70 (3.3%)