Tuesday, January 28, 2014

27 Jan 2014 AMC- DOW down 5 days in a row, first DFDM in 2014

Market Summary

The major averages followed last week's sharp losses with another shaky performance. The Dow Jones Industrial Average and S&P 500 posted respective declines of 0.3% and 0.5% while the Nasdaq (-1.1%) and Russell 2000 (-1.5%) underperformed. 

Stocks displayed gains at the open but the early strength faded during the initial hour as the Nasdaq headed into the red. The other indices followed suit and the broad retreat continued until about 12:20 ET when stocks reversed and spent the afternoon in a steady climb. Moderate selling pressure returned during the final hour, knocking the indices off their afternoon highs. 

Although there was no news responsible for the turn, the morning selling coincided with a strengthening yen while the session low in equities matched the high point for the Japanese currency. Once the yen began weakening again, a rally in equities ensued. Similarly, the selling observed during the last 30 minutes of action coincided with the yen gaining strength once again. 

The Dow and S&P 500 held up relatively well compared to the tech-heavy Nasdaq. The index suffered after being hit with a one-two punch of selling interest as large cap tech names and biotechnology retreated. The tech sector (-1.0%) finished at the bottom of the leaderboard while the iShares Nasdaq Biotechnology ETF (IBB 238.60, -5.42) lost 2.2% and also pressured the health care sector (-0.8%). 

Even though technology underperformed, its largest component, Apple (AAPL 550.50, +4.43) added 0.8% ahead of its after-hours earnings report. 

Elsewhere among cyclical groups, the industrial sector (+0.2%) drew strength from Caterpillar (CAT 91.29, +5.12) after the Dow component reported above-consensus results and announced a $10 billion buyback program. Transports, however, did not take part in the rally. The bellwether complex lost 0.8% after plunging 4.1% on Friday. 

On the countercyclical side, health care (-0.8%) lagged while consumer staples (-0.3%), telecom services (+0.1%), and utilities (+0.2%) outperformed. 

The early selling fueled a scramble for downside protection, which sent the CBOE Volatility Index (VIX 17.51, -0.63) as high as 18.99%. However, the subsequent rebound invited many to lift their hedges. As a result, the near-term volatility measure ended lower by 3.5%. 

Treasuries finished on their lows with the benchmark 10-yr yield up five basis points at 2.77%. 

Participation was a bit above average as 764 million shares changed hands at the NYSE. 

Today's economic data was limited to the December New Home Sales, which fell 7.0% to 414,000 from a downwardly revised 445,000 (from 464,000) while the Briefing.com consensus pegged the reading at 457,000. Total sales in 2013 increased 16.3% to 428,000 from 368,000 in 2012. That was the most new homes sold since 485,000 sales registered in 2008. Although that may seem like a lot, more than a million new homes were sold each year from 2003 to 2006. 

We hypothesized that the strong sales performance in October and November was due to buyers rushing into the market to take advantage of relatively low interest rates in a rising interest rate environment. The large December decline adds evidence to this theory as the push forward in demand dried up and sales levels returned to where they were during the lackluster summer period. Another drop in January would deliver more credence to the contention that gains in October and November were not from sustainable demand growth. 

Tomorrow, December Durable Orders will be released at 8:30 ET while the November Case-Shiller 20-city Index and January Consumer Confidence will cross the wires at 9:00 ET and 10:00 ET, respectively. 
  • Nasdaq Composite -2.2% YTD 
  • Russell 2000 -3.1% YTD 
  • S&P 500 -3.6% YTD 
  • Dow Jones Industrial Average -4.5% YTD

Market Internals

Leaders & Laggards

Technical Updates

Next Day In View

Alvin's Commentaries

There you have it, DOW is down 5 days in a row & the first DFDM in 2014. 4 more sessions to the end of Jan and the January Barometer is likely to show Jan to be a loss. Market started with a bearish bias but reversed at 12pm just to sell down at the last hour. Technology & Healthcare are the biggest losers last night. GOOG, MSFT & ORCL lost more than 1.67%. Only Industrial and Utilities stays in the positive side slightly. 776m shares traded last night on the NYSE. AAPL releases their earnings AMC which brought their share price down $44. This will weight in heavily on the Nasdaq. With the FOMC statement coming out tomorrow, I am expecting some profit taking tonight given the 5 days sell down.

Market Call: FLAT to upside
Date: 28 Jan 2014

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