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Market Intelligence

Market Intelligence Desk - Equity Market Insight September 2015

Wednesday, September 30, 2015, 11:58 AM, EST

U.S. equity markets are trading broadly higher as Q3 comes to a close tonight with the Nasdaq Composite currently up +1.88%, the Dow up +1.35%, the S&P 500 up +1.58% and the Russell 2000 up +1.19. Even though the market is rallying today, a close at current levels would leave this as the most volatile quarter since 2011 with reported losses of $11 trillion in global equities in the past three months. The upcoming Q4 will be very interesting with the forthcoming earnings season, Fed meetings, new data points on U.S. and global growth and not to mention the often interesting month of October in our windshield.

  • Chicago PMI missed, coming in at 48.7 vs consensus of 53.This is thefirst contraction since June but the 5th sub-50 reading of the year. New orders are below 50 as are backlog orders, the latter for an 8th straight month. This report is in line with the bulk of regional and private business data that’s pointing to a disappointing September.
  • Milwaukee ISM for September fell to 39.4 vs the 48.5 estimate. Though not as widely followed as Chicago PMI, it shows another sign of contraction.
  • ADP private payrolls posted an increase of 200K in September following downwardly revised 186K increase (was 190K) in August. July revised down to 169K from 177K. The report credits large companies driving over half the gains. U.S. initial jobless claims are released tomorrow morning at 8:30am EST.
  • Crude oil prices briefly went negative after EIA inventory data showed a surprising increase. Analysts were expecting a slight contraction of 0.3 mln barrels but instead inventories rose ~ 4.0 mln barrels. This follows yesterday’s API data that also reflects a large build. WTI crude +0.5% at $45.46; Brent crude +0.7% at $48.56.
  • Copper (+4.1%) traded higher following news of curtailed production at the Collahuasi mine (Anglo American and Glencore). Precious metals are lower in reaction to a strengthening dollar; gold -1.3% to $1112.60/oz, silver is -0.7% to $14.48/oz.

Technical Take

As of 11:00 AM EDT

Nasdaq Composite:

Advancers: 1721

Decliners: 507

Advance Volume: 110MM shares

Decline Volume: 19MM shares

New 52 week Highs (prior close): 18

New 52 week Lows (prior close): 367

As we highlighted yesterday, evidenced by bearish sentiment extremes in the Put/Call ratio, a short term bounce could be in the works. Today we are seeing such a rebound, where on this last day of the trading month and quarter major indices are up better than 1.5% on reasonably elevated volume. Many of the strongest sectors are the most beaten down from the quarter, which could indicate a level of short covering, calling into question the staying power of this move. However, we continue to watch resistance (supply) levels and evaluate the action in the new context of a bear market. Holding and building on the rally through the end of the day would point toward additional strength short term.

  • In early trading the S&P 500 Index (SPX) has established trading above first resistance of 1903 and is contemplating 1915 as the next level. Beyond that we see more meaningful resistance at 1950 which would likely repel a move lacking appropriately strong breadth and volume in the near term. A close above 1915 could lead to addition advances near term. Support is the 1903 level followed by yesterday’s lows at 1872. In today’s chart we recall the affirmatively negatively sloped 200 day moving average of the SPX as another hallmark of the longer term bearish trend change coupled with the lower panel illustrating the ability of fewer and fewer stocks to trade above their 200 dma over the course of the last year+ (breadth concerns).
  • On the Nasdaq Composite Index (CCMP) stocks are benefiting more than their SPX peers in proportion to the more excessive beatings the key sectors in the index had received this quarter; with Biotech leading followed by Healthcare and Tech. We’ll continue to watch oil and these key sectors as a proxy for risk appetite and rally staying power. 4500 remains support, where the index bounced from yesterday while somewhat pivotal resistance resides at around 4660.
MID Chart 30 September 2015

Tuesday, September 29, 2015, 11:23 AM, EST

Today, after Asia fell overnight and Europe traded virtually unchanged across all its major indices, US stocks opened flat, up 1 Dow point just after the regular session open after futures seemed to indicate a 60-point higher start. That is not a good sign. The buy the dips mentality has been replaced with, sit on the sidelines, watch commodity prices and China headlines, sell former high flyers and sell into declines, repeat. On the oil watch, crude prices have moved higher to just below $45, which might help firm up equity pricing. Biotech stocks are slightly negative on the day -a close lower would be the eighth straight - but hopefully the baby/bathwater situation will end as stronger hands find value in the space.

  • From our friends at Convergex, ETF Assets Under Management are down 0.4% in the year to just under 2 trillion. Net inflows into stock, bond and other funds are $149 billion so the decline is due to lower asset prices. Most new money is going into bond funds – and much of the money placed into equities was in non-US developed markets.
  • Speaking of billions, the Qatar Investment Authority reportedly lost as much as $12 billion on paper from stakes that included Volkswagen and Glencore. This is on top of the multiple tens of billions that Saudi Arabia has reportedly withdrawn from global asset managers and highlights how redemptions at sovereign wealth funds could add to selling pressure in liquid names.
  • The WSJ stated that for M&A deals valued at over $1 billion since July 1, acquirers' share prices fell 0.6% on average on the first day of trading following the announcement of the deal. According to the article, this would be the first quarterly decline in 3 years. This could be a warning sign, though we are still in the midst of a cheap money-fueled M&A boom.
  • Bloomberg reported that Wall Street Strategists are lowering S&P 500 targets, with eight surveyed by Bloomberg cutting forecasts since August 10th and predicting a level of 2,176 on average. We note this is still about a 16% pop from today’s levels. A close below 2058.90 would put the S&P 500 in the red this year on a price basis and we’d need a 9.4% lift from yesterday’s close to achieve this.

Technical Take

As of 11:05 AM EDT

Nasdaq Composite:

Advancers: 1238

Decliners: 975

Advance Volume: 93MM shares

Decline Volume: 48MM shares

New 52 week Highs (prior close): 15

New 52 week Lows (prior close): 380

Yesterday’s close took the major indices to within striking distance of the August lows. After fading the pre-market rally and testing slightly lower early in the session, stocks are attempting to mount some kind of an oversold rally. We’ll see if it sticks; but even if it does we still see a break of August lows as the most likely scenario from an intermediate term technical perspective. We can see that on the brief attempts to rally, there is no vigor compared to the sell-offs where the bearishness and selling is seemingly unbridled when we closely examine the volume and breadth statistics. In terms of sentiment, the Put/Call ratio (0.94) is approaching 1 as of yesterday’s close which would be nearing levels consistent with a short term bounce (see today’s chart). Given the environment and prevailing downtrend, any bounce will likely be just that, to be sold into any number of overhead supply levels. That said, toward the middle of October has a seasonal tendency to mark significant tradeable lows.

  • The S&P 500 Index (SPX) saw a close on the lows after breaching 1903, and represented the lowest closing level on the index since 8/25. From a technical perspective, this is the manifestation of supply or selling that has yet to be exhausted and further downside in the intermediate term. Despite the lift we’re seeing today, the index remains buried below initial resistance at 1903 and even further from pivotal resistance at 1950. We continue to suggest that the index will break beneath the August lows before another tradeable rally.
  • As traders toy with the idea of an oversold rally in biotech and healthcare, the Nasdaq Composite Index (CCMP) receives periodic bursts of outperformance so far this session. However, positive breadth overall is nowhere near levels we’d be convinced by and the index on the whole is not oversold enough to suggest a sustainable rally. We continue to observe today’s action from a cautious perspective with the expectation of a more obvious capitulation low sometime soon. Support before getting into the flash crash lows remains around 4500 while first resistance of importance would be 4660.
MID Chart 29 September 2015

Monday, September 28, 2015, 11:36 AM, EST

Today, global markets are weaker as attention has turned back to global growth and commodity price concerns. Europe and Asia weakened, in part due to the eye-popping Investec note that if commodity prices remain at current levels, the equity value of Glencore and Anglo American could “evaporate”. Glencore shares are down by 30% in London. Today, in U.S. equity markets stocks are bounding off the lows near 1900 on the S&P: As of 11:20AM the Dow is down 1.0%, S&P 500 down 0.1.4%, NASDAQ Composite down 1.7% and the Russell 2000 down 1.6%. We also had some new U.S. Economic data and the press was working overtime this weekend to provide us with valuable data points, below.

  • US personal spending rose at a 0.4% rate, ahead of the 0.3% survey expectation. Incomes rose 0.3% against a 0.4% expectation. Consumer spending is closely watched because consumption remains about 70% of GDP. Personal Consumption Expenditures deflator - an inflation indicator that is reportedly closely watched by the Fed, had no increase in August, as expected. Core PCE rose 0.1%, also in-line. Pending Home Sales fell 1.4% in August a sharp deviation from the expected 0.4% increase.
  • William Dudley, a voting FOMC member, commented in a WSJ interview this morning that the U.S. Federal Reserve would likely raise rates this year and did not rule out the Fed’s October meeting. Dudley will be speaking again on Wednesday at a SIFMA conference.
  • International Monetary Fund chief Christine Lagarde confirmed in an interview over the weekend that the IMF had cut its 2015 and 2016 forecast for global GDP growth to just over 3%. The prior forecasts were for +3.3% growth in 2015 and +3.8% for 2016. The IMF will release updated economic forecasts in October.
  • The WSJ had a front page C1 article on the widening spread between Treasuries and corporate bonds. If the YTD trend stays intact, this will be the first back-to-back increase in spreads since 2008. The spread between investment grade bonds and treasuries was 1.62% as of last week, up from 1.31% at end of 2014 and 1.14% in 2013.
  • Bloomberg had two stories analyzing S&P 500. One stating that the technical pattern in place on the S&P 500 came before the last two bear markets. The S&P has fallen for two straight months only twice: before the dot-com crash and the 2007-2009 bear market. A second Bloomberg story noted that the options market is expecting a large S&P 500 move this week, though the direction is unclear. Goldman Sachs looked at the implied price for the S&P 500 “straddle” (purchase of both puts and calls). The market would have to move up or down by 2.4% for the trade to be profitable.
  • Lastly, analysts have been cutting forecasts for Q3 earnings, which are expected to decline 3.9% year over year, with sales expected to fall 3.2%. If you exclude energy companies, earnings would rise 3.7% based on aggregate forecasts of S&P 500 earnings. Still, directionally S&P earnings are not expected to see profits until the 4Q and some are looking at whether the market deserves the current 16 PE which is still a premium over the historic mean of 15.

Technical Take

As of 11:10 AM EDT

Nasdaq Composite:

Advancers: 469

Decliners: 1823

Advance Volume: 20MM shares

Decline Volume: 121MM shares

New 52 week Highs (prior close): 44

New 52 week Lows (prior close): 186

Friday’s close did nothing but hurt the bull case as markets continue their journey toward new lows today. As has been the case, volume is higher than average on the collapses (+10 to +20% higher today). Following the classic corrective patterns, we see the FED’s non action as the beginning of the 3rd and final major leg in the corrective process. This wave has a tendency to match the length of the first wave, which means there will be new lows made across all major indices. Human psychology as manifested in the markets is hard at work where investors are subject to the actions taken during a crisis of confidence; whether it be in the economy, FOMC policy or political; it’s all here now. Uncertainty adds to the lack of confidence which is a recipe for further declines until uncertainties are mitigated and confidence is restored… the correction process takes time.

  • While the S&P 500 Index (SPX) failed at 1950 on Friday, it has reversed and appears to want to find lows on the other side of 1867. In addition to the triangle break down we confirmed last week, today confirms a bearish MACD cross which further indicates a termination of the oversold rally bounce, ending with FED non decision day on 9/17. Should we be correct in citing this as the third major leg lower that would mean, since the first and third waves are commonly matched in length, the index could fall in the lower 1700’s over time. Some people will tell you 1900 is support, but it has no technical relevance, beyond minor 9/1 lows at 1903, 1867 is the next real chance of support. In today’s chart we look at the resurgence in the VIX as a supportive harbinger of rising uncertainty, expressed as fear and lower stock prices.
  • On the Nasdaq Composite Index (CCMP) we continue to see relative weakness on further biotech, tech and healthcare underperformance. Down volume, which represents 85% of total volume at the moment, reinforces the eagerness to hit the exits. Around 4500 represents the next support level before we move into flash crash pricing. Like the SPX, the CCMP is also registering a bearish MACD cross which points to further likely declines in an uncertain market, hemmed in by huge overhead supply.
MID Chart 28 September 2015

Friday, September 25, 2015, 11:39 AM, EST

Global markets are encouraged by Dr. Yellen’s perceived hawkishness last night with a 180 degree turn from last week’s dovish policy statement and subsequent press conference. However, traders still think U.S. equities are range-bound and are not blinking as yesterday’s rally off of the lows suggests. One trader commented that “the SPX is still 1900 – 2000. I will buy the low end and fade the rally…” Today, U.S. equity markets are higher on the day but trading off this morning’s highs with the Dow up +1.01%, the S&P 500 up +0.62%, NASDAQ Composite up +0.39% and the Russell 2000 up +0.31%.

  • Markets cheering a rate hike? It seems the interpretation of the markets action since the last FOMC meeting is that the Fed made a mistake in not raising rates in that they transmitted fears of (seen and unseen) global weakness. That’s a bit of back fitting we realize as stocks could have easily rallied on the dovish call. Still, the fact equities moved lower and treasuries rallied seems to validate that view. And market futures’ reaction to her comments that a rate hike could come before year end seem to be additional confirmation.
  • U.S. 2nd quarter GDP (the broadest measure of goods and services produced across the economy) came in at +3.9% lead by consumer spending and construction. The Commerce Department had previously estimated a 3.7% expansion. This was the 2nd revision and is a seasonally adjusted.
  • University of Michigan Consumer Sentiment came in slightly higher than consensus at 87.2 (86.5 was the median Bloomberg economist projection).
  • U.S. House Speaker John Boehner announced today he will resign from Congress effective October 30th. This comes as a potential federal government shutdown looms for next week.

Technical Take

As of 11:15 AM EDT

Nasdaq Composite:

  • Advancers: 1223
  • Decliners: 1042

    Advance Volume: 89MM shares

  • Decline Volume: 43MM shares
  • New 52 week Highs (prior close): 26
  • New 52 week Lows (prior close): 207

Yesterday’s sell-off turned into a short covering rally ahead of Dr. Yellen’s commentary which we would argue continues today. Early buying in the most recently, oversold sectors and former leaders like healthcare, biotech and technology has already given way to selling pressure. It would seem that unless traders are able to build upon this rally though the day and in coming sessions (with improved volume), we see a strong possibility of another fade. We continue to urge investors not to chase the market, more confident in our view that stocks will see lower prices and better opportunities ultimately.

  • While the S&P 500 Index (SPX) managed to close in the top end of price action and not violate the key 1915 level on a closing basis, we see a struggle quite clearly at 1950 today to contend with today. Above that we’ve seen the 1975 and 1995 having both been formidable supply zones to the upside which have reversed rallies in the past. So, despite the appearance of a daily bullish hammer with yesterday’s close, nothing has changed on our charts.
  • The Nasdaq Composite Index (CCMP) is an unfamiliar laggard to the SPX again as a result of the toll biotech, healthcare and tech underperformance are taking in addition to small cap weakness on a the more definitive tone from Dr. Yellen with reference to rate lift off before year end. First resistance still lies around 4800 with support at 4670 in concert with yesterday’s lows. As we see in today’s chart, it may be important to note the downtrend line connecting the highs since July as an additional, more formidable resistance between 4800 and 4900 presently.
MID Chart 25 September 2015

Thursday, September 24, 2015, 12:43 PM EST

Market futures fell before the release of economic data in the U.S. today as traders contend with weaker commodities and emerging market currencies. The Fed’s lack of action at last week’s FOMC meeting is being blamed for the recent bout of weakness with the Dow down about 700 points (including today’s initial move) since the day before the Fed’s announcement. Despite a strong new home sales number, stocks barely budged off of lows. As of 11am: Dow -1.6%, S&P 500 -1.5%, Nasdaq -1.7%, R2000 -1.3%.

  • Initial jobless claims were 267,000, largely in line with the 272,000 survey expectation. Continuing claims were almost spot on with expectations as 2242K (2240K) and the prior claims number was revised upward slightly. Jobless Claims (and layoffs) have stayed at low levels during 2015. Durable goods orders fell 2.0%, a smaller decline than the 2.3% expected. Ex-transportation, Durable Goods Orders were flat, vs, the 0.1% gain expected. New home sales were a bright spot this morning, with 552,000 new starts – well above the 515,000 expected – and a 7-year high.
  • Importing Deflation? In the immediate future, we are still likely to see lower prices. A Reuters piece notes that Walmart, Home Depot and Toys R Us are trying to participate in the Yuan devaluation by asking suppliers in China to pass along lower costs.
  • Future Rate Increases? On the other side of the rate coin, an article in the Telegraph, argues that the cheap labor that has been available globally over the past four decades was a result of falling birth rates and longer lifespans beginning in the 1970’s, aided by the collapse of the Soviet Union and China’s entry into the global trading system. As these factors recede, the 25-year period of wage stagnation will reverse, and interest rates will climb, according to the article by Ambrose Evans Pritchard.
  • Fed Chair Janet Yellen is expected to give a speech in Massachusetts at 5pmET, after the stock market’s close of course. Traders will react to this and the third estimates for 2Q GDP, Personal Consumption and the Core PCE index tomorrow as well as University of Michigan Consumer Sentiment.

Technical Take

As of 11:00 AM EDT

Nasdaq Composite:

Advancers: 478

Decliners: 1734

Advance Volume:18MM shares

Decline Volume: 94MM shares

New 52 week Highs (prior close): 24

New 52 week Lows (prior close): 150

Yesterday’s indecision has given way to free fall today as traders succumb to the prevailing downtrend. Volume is elevated compared to the 10 day average as the sell-off accelerates with further conviction displayed in the heavy skew favoring decliners vs advancers and associated volume. As Dr. Yellen is set to speak this evening, it seems the verdict is already in, US markets may have already lost confidence in the FOMC. What multiple can be applied to earnings when market participants have lost faith in political leadership and now in the FOMC’s ability to conduct monetary policy?

  • We would assert that yesterday’s close and today’s action confirms the break down from our triangle pattern and therefore the S&P 500 Index up for a probable break of its late August lows based on the technical target of the resulting move. This session, a close below the 1916/15 level coincident with the chart’s display of the arguably most important 61.8% (Fibonacci) retracement from the 1867 lows to the 1995 closing highs during the oversold rally, further validates the bearish view.
  • The Nasdaq Composite Index (CCMP) is again taking more than its fair share of the beating as a result of biotech, healthcare and tech weakness with investors preferring the relative safety of utilities, telco and consumer staples today. As such, 4700 has broken and we appear to be headed for a test of at least the closing lows from 8/25 at 4506. A close on or near the lows of the day indicates further downside near term as sellers have yet to be shaken loose and denial continues to be heavy in the air.
MID Chart 24 September 2015

Wednesday, September 23, 2015, 11:38 AM, EST

Despite weakness overnight, US stocks have fought back this morning on the heels of stimulus talk from ECB president Mario Draghi. Declines in Commodities sent stocks lower this yesterday, but we appear to see stabilization thus far. DOW -0.5%, S&P 500 -0.05%, Nasdaq -0.06%, R2000 +0.2%

  • Negative PMI data out of China overnight, pushed US futures sharply lower, as investors continue to interpret a wave of frail economic data oversees. The country’s PMI fell to a 6 ½ year low (47.0), further putting global growth in focus, which has been consistently falling short of expectations.
  • Mario Draghi has been carefully watching growth momentum in emerging markets. He believes that it’s too early to determine if more ECB bond buying is needed, but if the inflation outlook weakens, the ECB “would not hesitate to act”.
  • Equities in the US are seeing another day of anemic volume, with marginal declines. 9 out 10 sectors are lower this morning, and Healthcare/Biotech is the lone gainer. Hilary Clinton sent shockwave through the Biotech space earlier this week, highlighting price gouging, and sent the sector precipitously lower. Last night, she unveiled a plan to take on big pharma, limiting the pricing on prescription drugs.
  • Crude oil trades at session highs after EIA data released mid-morning reflect a decline in crude inventories of 1.9mln barrels, far more than the expected decline of 0.4 mln. WTI crude +1.5%; Brent crude +2.1%.
  • Could the 2015 holiday shopping season be the worst since the recession? In two separate articles today, both Bloomberg and Reuters reported that the 2015 holiday shopping season could be stagnant. AlixPartners suggests November-December 2015 sales period to grow 2.8-3.4% compared to 4.4% in 2014 while Deloitte states that retail sales (ex autos and gas) may increase this season to 4% vs a rise of 5.2% in 2014 for the November-January period. With lower unemployment numbers and cheap gas, consumers are still not opening their wallets and the reason is scant wage growth. The more closely watched National Retail Federation (NRF) forecast for the holiday sales will be released in early October and we shall see if expectations change.

Technical Take

In spite of the weakness during yesterday’s session and the break of some support levels, markets didn’t close on the lows and as of 11:25 AM EDT stocks are basically waffling around unchanged. The tight range around the zero line signifies uncertainty and lack of conviction visually displayed in price action. With a holiday for some and such uncertainty for all headed into earnings emanating from around the world, the action or lack thereof makes sense. In this vein, oil has taken a leading role today given the absence of news/ conviction, so that’ll be something to pay attention to for now.

  • While we would contend that yesterday’s close below a trend line we’ve been discussing around 1948 is a bearish omen, the violation was quite modest with 1943 as the final print. Therefore, we attempt to remain objective for now, where initial resistance lies at 1950 and more important supply to be overcome is around 1975. Meanwhile, a close beneath yesterday’s lows of 1929 tilts the odds once again in favor of supply and further downside.
  • The Nasdaq Composite Index (CCMP) is so far displaying relative strength against SPX as biotech, healthcare and tech are outperforming. Yesterday clearly told a different story with about 80% of the total volume attributable to down volume, signaling a high conviction to sell, likely indicative of further downside in coming sessions. Again, we remain mindful of near support in the lows of last session around 4717 and potential resistance at 4800. Removing ourselves from the very short term, we examine the rolling off of the percentage of stocks in CCMP trading above the 10 and 50 day moving averages. In this term context, it may serve as a reminder to exercise caution since these measures turned in concert with the FED non-action and have yet to reach oversold levels. Another worthy point to be made in the chart is the decisively negative slope of the 50 day moving average in the price chart which already flexed its muscle as supply beginning in early.
MID Chart 23 September 2015

Tuesday, September 22, 2015, 12:57 PM EST

Commodity prices are suffering their steepest decline since 9/1, weighing on the broader markets. The major indices are off by more than 1%, and currently trading around session lows, as all sectors are trading in the red. DOW -1.5%, S&P 500 -1.5%, Nasdaq -2%, R2000 -1.6%

  • Commodities trade lower after the Asian Development Bank lowered its emerging market growth forecasts for 2015 and 2016, mostly due to weakness in China and India. Copper -4%, gold -0.7%, and silver 2.5%. Following yesterday’s rally crude trades lower on the strength of the dollar: WTI crude -2.9%, Brent crude -1.9%. European stocks closed lower by more than 3%, the largest pull back since 8/24. Decline from Glencore (-10.6%) and Volkswagen (-19.8%) grab the headlines, during today’s session. Renewed growth concerns in China and a feared slowdown in emerging markets had the entire mining sector suffering steep declines, and Copper falling by over 3.7%. Credit Suisse anticipates further declines for the miners and “Until China demand and emerging market currencies find a floor, it will remain challenging to put an absolute floor on commodity prices."
  • Biotechs are seeing the third consecutive day of sizable declines, as the NBI Index has dropped by ~9% since last Thursday’s close. The index fell by 4.4% in response to a tweet by Hilary Clinton about price gouging the in the specialty drug market. The presidential candidate will be unveiling her plan to correct the “outrageous” price increases. She’ll be outlining her ideas at a Town Hall meeting in Iowa, likely after the close of the market.
  • FED speak continues to gyrate markets as multiple FED officials hit the speaking circuit. Michael Block, Chief Equity Strategist at Rhino Partners sums up the situation nicely “The dithering and mixed messages are not bullish or helpful at all. We should remain under pressure here. Why do we have rallies? Everyone is leaning short. Yesterday one of the big bulge bracket guys put out a report saying that hedge funds are the most short the S&P 500 since November 2011. That sort of short bias means we are in this whippy wide range here, and that’s what we’re trading. Closer to 1900, we start buying. Closer to 2000, we start selling.”

Technical Take:

Whatever the excuse de jour might be (…that sounds good; I’ll have that), as of 11:25 AM EDT stocks are off sharply after fading the rally yesterday into resistance, an increasingly familiar pattern. We continue to see psychology at work in this way on the charts; sell the rallies appears to be the reigning paradigm. Volume on the sell-off is +10-20% above the 10 day average depending on what major domestic index you’re watching and breadth is dismal at 5:1 decline/ advance on the Nasdaq Composite Index. With nobody particularly bullish on earnings season, which begins in two weeks, it’s difficult to see a scenario where we rally sustainably before then. Watch the closes, violations of support and of course, be aware of the resistance (supply) zones.

  • After failing above resistance at 1970/75 yesterday, the sell-off from the FED announcement has continued to rolling into today on the S&P 500 Index (SPX). If today’s collapse holds through the close, the pennant/ triangle pattern we’ve been waiting for resolution of during the last two weeks will have broken to the downside (under 1948) as first suggested on 9/11. The implications of such a break would minimally be an overshot of the August lows as an initial downside target of around 1850. However, if we interpret as a true pennant formation that target would be around 1600 over the longer term and a true bear market… time will tell. For now we’re watching the close for confirmation. If we do break, the ensuing decline doesn’t typically happen at once; we could rally back to the bottom trend line or higher shortly before resuming the downtrend.
  • The Nasdaq Composite Index (CCMP) continues to suffer marginally more based on the biotech/ healthcare rout brought on by proposed plans by a potential candidate 14 months ahead of said election. While the index was able to hold above first support at 4800 yesterday, odds don’t seem great of holding that level through today’s close. The next minor support lies at 4746 then 4700.
MID Chart 22 September 2015

Monday, September 21, 2015, 12:40 PM, EST

US stocks start the week on a mixed note on light trading volumes. With last week’s Fed announcement behind us, investors are searching for new catalyst, as earnings season is still a couple weeks away. DOW +0.4%, S&P 500 +0.4%, Nasdaq -0.3%, R2000 +0.02%

  • Despite the decision last week to leave rates unchanged, three Fed members believe that the improving US economic data points should overshadow the global growth turmoil. This seems to be helping sentiment today. Recall that the market closed lower on Friday in contrast to past accommodative announcements. Hike supporters believe that an increase shows confidence in the United States. The committee has two more meetings in 2015 to weigh employment, inflation targets, dollar stabilization and “recent global economic and financial developments”.
  • Cautious gains this morning on light volume, with the Information Technology leading the way. Positive analyst commentary for Paypal (+4.4%) and Micron (+3%) are supporting the outperformance. With roughly 3 months left in 2015, Goldman Sachs believe the S&P 500 will climb more than 6% for the rest of year after last week’s Fed’s no-hike decision. The current economic condition didn’t support a Sept change in interest rate, but the firm remains confident we’ll see a hike in December.
  • Biotech is underperforming after Hillary Clinton tweeted that “price gouging like this in the specialty drug market is outrageous. Tomorrow I'll lay out a plan to take it on”. The Nasdaq Biotechnology Index sold off right as the tweet hit at 10:56am and is lower by about 2% despite the broader market gains.
  • Some are watching Washington D.C. as the U.S. federal government’s fiscal year ends September 30th and without a passed budget could see a closure on October 1st similar to the 2013 shutdown.

Technical Take

As of 11:20 AM EDT stocks are rebounding following a disappointing performance on Friday, up in excess of 1% with encouragingly positive breadth on the advance/ decline. Volume is the other ingredient we continue to be missing on the up days to get more confident in sustainability. On that note, we’ll be watching closely to see how the rally is held through the day and where indices close in the day’s range as indication of conviction or lack thereof.

  • So far in the session the S&P 500 Index (SPX) has been able to retake the 1970 level but likely needs to be clear of 1995 – 2000+ before much can be made of this. An update on the pennant we’ve been discussing as we are beginning to grow weary of it given the rise in volume in the prior two sessions, which as we know makes it less reliable and may actually reverse. Still, we’re watching the tightening top and bottom boundaries around 1980 and 1950 now for signs of what’s next. On the more decisive bright side, MACD remains supportive of longs for now, having first supplied a buy indication on 9/8, with the signal lines still far apart as we see in today’s chart.
  • For the Nasdaq Composite Index (CCMP), traders were able to hold in above initial support at 4800 last week. To the upside the index will have to contend with the same resistance that turned it down last week shortly, 4920 in the 200 day moving average to start with. It’s interesting to note the underperformance of the market leaders like healthcare and biotech (only down industry) during a risk-on session. Perhaps it’s an indication of lack of conviction in the rally or just short term money flowing into the most recent laggards on a relative value basis?
MID Chart 21 September 2015

Friday, September 18, 2015, 1:30 PM, EST

US stocks are continued to be pressured this morning, with the S&P 500 giving up more than 2.6% from yesterday’s highs. Energy and Financials are the weakest sectors, as the Utility sector is lone group trading higher. DOW -1.1%, S&P 500 -0.7%, Nasdaq -0.7%, R2000 -0.7%

  • The decision by the Fed to keep interest rates near zero has focused some attention on global growth concerns. The Fed statement was notable for the following sentence: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term Chair Yellen believes the committee needs more evidence of market stabilization, as developments last month in China seemed to call into question the Fed’s inflation targets”. It’s notable that committee members are watching the markets. Chair Yellen reminded investors that a 2015 rate hike could come at the October meeting, not necessarily just in December. Fed fund futures indicate that traders aren’t convinced. The implied probability of an October rate hike is 14% based on CME FedWatch data. December fell from a 64% probability on Wednesday to 41% today.December fell from a 64% probability on Wednesday to 41% today.
  • The Fed punchbowl is still out for now and 2015 M&A is in record territory. The FT highlights that with this week’s $17.7B deal between Altice (ATC.NA) and Cablevision (CVC), the total value of attempted $10B-plus deals have reached $1.19T, surpassing the previous high reached in 1999, before the dotcom bust. The article notes that the total number of giant deals has climbed to 47, one short of the record in 2006, just before the financial crisis. It highlights the M&A boom comes amid cheap debt financing, shareholder pressure on firms to put cash to work and the Fed holding onto rates. The article adds however that on a historical basis, M&A activity might well be at a peak, citing data from Dealogic which show that sustained dealmaking cycles from 1997 to 2000 and from 2005 to 2008 were followed by sharp stock market falls and a corresponding decline in M&A activity.

Technical Take

As we suggested yesterday immediately following the no call from the FED, it would be an opportune time for a trader to fade and take profits into resistance and thereby selling the widely anticipated no news, news. Overnight we saw no relief in emerging markets and, in fact, more rethinking and questioning of confidence in the global economy, the US and in effect the earnings cycle. As such, the rest of the world sold off and the US gapped down on the open, trying to work its way higher ever since. Presently, 11:15 AM EDT, stocks have to deal with resistance overhead, no catalysts and an already impending earnings season with little confidence imparted by the FED… perhaps not the best recipe for upside.

  • With the S&P 500 Index (SPX) trading as high as 2020 yesterday during Dr. Yellen’s early commentary, we are now staring down at support, wondering how sturdy it may be (1970 – 1960). The reversal and close from yesterday forming a bearish short term shooting start candle learn more , combined with the lack of confirmation of an upside break above support gives us cause for concern and opens the possibility of a downside break of our triangle pattern sometime next week. In this, 1950 – 1935 will be an important closing support zone, which we believe if broken could trigger downside to take out the August lows.
  • For the Nasdaq Composite Index (CCMP) stocks were unable to hold above resistance of the 200 day moving average at 4920 and ran into the confluence of a down trend line connecting highs and a now broken minor up trend line off of YTD lows at 4960 (see today’s chart). Quite a different story this session where support around 4800 should be considered as notable support while 4870 – 4860 has so far in the session been where supply has arrived. Breadth is 2:1 to the downside with exceptionally high volume due to quadruple witching.
MID Chart 18 September 2015

SPECIAL UPDATE: Thursday, September 17, 2015, 3:35 PM, EST

The Fed keeps rates unchanged, as apparently market turmoil and overseas concerns outweigh positive US economic data. A 160 pts swing on Dow was the initial response to the release at 2pm, then things stabilized, but stocks have once again fluctuated during Yellen’s press conference. DOW -0.11%, S&P flat, Nasdaq +0.35%, RTY +0.54%

  • Janet Yellen is currently on the stage, addressing reporters in Washington DC. Inflation continues to fall short of expectations, likely contributing to 9 to 1 “no hike” vote from the committee members. US Dollar Index has dropped by ~1% with less than 30 mins left in today’s session, and on pace for its steepest decline since 8/24. One of the strongest statements from Yellen thus far has been, "The outlook abroad appears to have become more uncertain of late."
  • Sector performance hasn’t changed much since 2pm, with Utilities and Consumer Discretionary leading the way, while Telecoms are lagging.

After having closed marginally above minor resistances yesterday, stocks continued their light volume levitation style move into the FED decision, and as of 2:30 PM EDT stocks are almost flat from where they were ahead after the initial see saw reaction, with volume on the rise. The question now becomes how investors will interpret today’s news, by thinking and re-thinking it into the close and coming days. Will investors consider the FED’s lack of action as fear and feel that fear themselves, will they sell the news that has been largely expected and getting priced in for the last several sessions? There is lots of time to mull this over before the closing bell, as Dr. Yellen now speaks, we’re waiting for the dust to settle.

  • While S&P 500 Index (SPX) was able to clear resistance are 1990 yesterday and we saw an intraday flirtation above 2000, we’re not seeing any real convicted push too far above. Next resistance, also the breakdown level of the trading channel for most of the year is 2040-2050. Given the multiple small bottoms these levels marked YTD, where supply is no doubt ready and waiting (to get even); it’s likely we see selling into those numbers. As for our triangle pattern, so far seems to have uncharacteristically broken higher but we’ll reserve final judgement until the weekly close.
  • On the Nasdaq Composite Index (CCMP), stocks are just now challenging resistance in the form of the 200 day moving average at 4916. Breadth is running about 2:1 in favor of the advancers, so encouraging but nothing to call overwhelming. To a technician or trader we might be approaching levels appropriate to fade the rally, be we’ll see if the CCMP can build on gains while ramping up volume.
MID Chart September 17 2015

Thursday, September 17, 2015, 1:32 PM EST

Markets are in wait and see mode, with soft volume and marginal gains for US equites. A September rate increase seemed much more likely in early August, as robust employment figured continued to roll in. Insert China’s currency devaluation and volatility worldwide during the 2nd half of August, and the calculus seemed to change.

  • Market Intelligence Desk Fact: Ahead of the pivotal announcement at 2pm, stocks have rallied this week (+2%). The best performers on the S&P 500 (not including Cablevison-to be acquired) today are trading around their 52 week highs, including United Continental, Eli Lilly and Expedia. On the flip side, the top 10 S&P 500 underperformers today are trading off by an average of 41% from their 52 week highs. This suggests that investors are putting money in the top tier performers, while taking money off the table in the lagging stocks.
  • The CME Group FedWatch data suggests a 23% probability of a rate hike, with a 77% chance of a quarter-point hike if so and a 23% chance of a half-point hike. There is also a 77% probability based in implied Fed futures that there will be no change in rates this afternoon. Attention will then turn to October (39% chance) and December (65% chance). Economists are more closely split 50/50 based on recent surveys. Market participants seem to be mostly on the sidelines judging from the volume this week. Of note, the Dow has risen 368 points over the past two days.
  • Large cap Telecoms are averaging a 1.9% decline this morning after Verizon’s CEO made some cautious remarks about the company’s 2016 earnings.

Wednesday, September 16, 2015, 12:03 PM, EST

US stocks are seeing slight gains on stagnant volume this morning. All eyes are focused on tomorrow’s Federal Reserve decision. Traders are sitting on the sidelines, as economic data has not given a strong clue as to which way the Fed is leaning.

  • There are mixed opinions on whether the committee will take action, and Goldman Sachs believes the lack of direction has made the markets vulnerable to volatility and precipitous declines. Fed leaders are committed to raising rates in 2015, but they seem more concerned with proceeding “in a prudent and gradual manner.” If a rate hike occurs, traders expected wider than normal swings in the markets, but historically stocks have performed well over the next year when tightening has been implemented. From the WSJ, “Since 1982, there have been seven tightening cycles, and in each case, the S&P 500 was higher a year after the initial rate increases, according to BMO Capital Markets.”
  • The Shanghai Composite was higher by ~5% overnight, and experienced the best trading day in September. During the final portion of the session, the index spiked higher after chatter that financial firms might not need to close out accounts that are trust funds. It’s also notable that that index fell by 3.5% yesterday but the Dow rose 1.4% or 228 points. This is in contrast to late Augusts, where fears of a China slowdown made the U.S. market more closely track China’s stocks.
  • M&A continues to dominate headlines with XRAY and SIRO announce a $13.3 billion all-stock merger of equals and Anheuser-Busch InBev approached rival SABMiller about a takeover that would form one of the largest listed companies in the world by market cap. Our rough math puts the combined market cap of the two companies at about $276 billion. Only AAPL, GOOG, MSFT, BRK and XOM are larger.

Technical Take

After a surprising but light volume, low conviction rally yesterday, US equities are generally asleep today, up modestly on light volume as of 11:15 AM EDT. To underscore the divided and confused nature of markets ahead of this FED decision, it’s interesting to note that most of the leading sectors from yesterday are the biggest losers today (biotech, healthcare, financials). It has become quite clear that the markets are just craving a resolution either way.

  • On the S&P 500 Index (SPX) we continue to watch the pattern coil tighter and tighter without a definitive break in either direction ahead of the FED’s decision. As we’ve suggested in prior notes the pattern (today’s chart) in this context is most typically a bearish set up but of course with a binary news event pending the leaning sentiment may be of little predictive value. Suffice to say stocks are at about as pivotal a point as we can imagine, where about 1990 represents the top of the trading pattern and around 1940 the bottom. Importantly, we should look for volume to rise dramatically on the break out/ down from this pattern to confirm in coming days.
  • For the Nasdaq Composite Index (CCMP) yesterday we saw the light volume advance rally into resistance and then stall, where it stands now, around 4860. The next resistance would be the 200 day moving average overhead which lies around 4916. On the support side, 4800 is still a number that holds some near term significance.
MID Chart 16 September 2015

Tuesday, September 15, 2015, 12:48 PM, EST

US stocks are higher this morning, but its setting up to be a thinly traded session. Volume is off by more the 17% (vs 30 day avg.) at midday. Energy stocks are the outperformers, with gains in Crude Oil supply the support. DOW +1.1%, S&P 500 +0.9%, Nasdaq +0.8%, R2000 +0.6%

  • The Fed received its last piece of economic data before their 2-day meeting and rate hike decision, as Retail Sales in August rose 0.2% (vs. 0.3% expected). The marginal gain was slightly lower than expected, but the light number showed that the recent market turmoil has affected consumer spending. The robust U.S. dollar appears to finally be affecting manufacturing in the US, with automakers pumping the breaks on production. The August Industrial Production MoM figure declined 1.3% - the most since January 2014.
  • Rate hike supporters believe the United States Fed needs to focus its dual mandate of full employment and a steady currency, focusing less on recent stock market turmoil and potential emerging market effects. On the flip-side of the argument, the recent global equity market volatility, lack of inflation, potentially stronger dollar and skittish global markets are reasons to stand pat. The WSJ today noted that global trade is sluggish and averaging only 3% a year vs. 6% on the 1983 to 2008 period.
  • Owens Illinois is the best performer on the S&P 500, gaining more than 6.5% after an upgrade BofA/Merrill, citing momentum building in Europe in their glass container business. All sectors are trading higher with advancer/decliner ratio is more than 4 to 1 on the S&P 500.

Technical Take

Markets remain in wait-and-see mode this morning as traders reflect on today’s economic data. In turn, as of 11:10 AM EDT the major US indices are actually up nicely though on light volume, careful so far not to break above or below meaningful resistance or support. What’s also refreshing today is the continued decoupling of US markets from emerging markets, specifically China for two sessions running now. Still, everyone is waiting on the FED’s decision and what might be even more interesting is the market’s interpretation of whatever that action or inaction might be. No doubt the 1980’s rock band Loverboy’s lyrics from their hit “Working For The Weekend” ring in Dr. Yellen’s ears: “Everyone’s watching to see what you will do… everyone’s looking at you…”

  • For the S&P 500 Index (SPX), resistance immediately remains 1970 with important initial support of consequence around 1937 which as we’ll remind represents the bottom of pennant or triangle pattern we’ve highlighted. This while more significant supply remains in the 1995 – 2000 range. On the Nasdaq Composite Index (CCMP) yesterday we saw the close above 4800 support despite an intraday move beneath it as a slight positive. Around 4850/60 is the next resistance area traders will be eyeing. In the positive slope of the line in the lower panel of today’s chart we focus on the continued outperformance of the CCMP vs SPX, perhaps lending itself to the idea that the market’s appetite for risk and growth has not been erased with the market correction.
  • While it has become tougher and tougher to find positive returns in stocks year to date, we thought it appropriate to highlight the work on relative strength investing from our colleagues at Dorsey Wright through their monthly update HERE. In it they tackle the topic of relative strength/ momentum investing during market corrections. By way of the continued outperformance from the Dorsey run ETFs YTD, they demonstrate the value of this style of investing when it’s methodically executed despite difficult market conditions.
MID Chart 15 September 2015

Monday, September 14, 2015, 11:35 A.M., EST

US markets open modestly lower with all ten sectors trading lower except utilities (+.3%). Initial volumes are running 10% less than on last Friday in part due to the Jewish holidays and as investors await the FOMC’s rate decision due Thursday afternoon. Trading volumes are moving back in line to 2014 levels from the elevated numbers we have seen since late August. As one trader said to us today “we’re choppy and uncertain ahead of the Fed on a Holiday Monday” however “consensus is saying that we will trade lower no matter what the Fed does.”

  • The “Heard on the Street column” of the Wall Street Journal notes that retailers are expecting a strong holiday shopping season. Strong volumes at U.S. ports and tailwinds from the Star Wars movie toy sales and the psychological impact of lower gasoline prices were all cited as factors.
  • Apple trades 1.6% higher following reports that iPhone pre-orders are on pace to top last year's weekend sales record. Alibaba is lower by 4.4% following a cautious Barron's article, questioning growth prospects and valuation, and suggesting the stock could fall further. Shake Shack is off 7% as Cowen analysts says shares should be sold aggressively.
  • China and Japan posted economic data that missed expectations: China's August Industrial Production comes in at +6.1% year-over-year but below the expected +6.4%; Japan reported July Industrial Production at -0.8% month-over-month, which was a below the expected -0.6%. However Eurozone data was better than expected Industrial Production at +0.6% vs expectations of just +0.3%.
  • WTI Crude off -0.7% at $44.34/bbl; Brent -1.8% at $47.33/bbl; NatGas +1.0%; Copper -1.4%.

Technical Take

After an inconclusive close on Friday, trading continues to lack conviction in either direction as of 11:15 AM EDT, perhaps rightly so as the FED is not on until Thursday afternoon. As such volume is exceptionally light once again, but at least for the day, US markets don’t appear as hypersensitive to Asian market weakness. Expect more back and forth through the day and most of the week.

  • For the S&P 500 Index (SPX), resistance immediately remains 1970 with important initial support around 1937. We would still assert that caution remains the most prudent option on the long side until the index convincingly clears 1995. On the Nasdaq Composite Index (CCMP) we would cite 4800 as initial support with 4746 as second while resistance may lie around 4850. Investors shouldn’t anticipate a break one way or another in front of FED Thursday.
  • Per today’s chart, we’re watching the battle ebb and flow on the sector level as it relates to possible indications of where traders are leaning into the FOMC’s coming rate decision. By way of example, today so far utilities have been the strongest with financials and industrials also outperforming modestly, illustrating the confused nature of markets into the meeting.
MID Chart 14 September 2015

September 11 2015 Tower

Friday, September 11, 2015, 12:30 PM, EST

US stocks are subdued this morning on anemic volume, as investors apparently have punched out for the week and likely not showing up until next week’s Fed decision. Bearish commentary on oil prices by Goldman Sachs has the energy sector underperforming. DOW +0.3%, S&P 500 +0.1%, Nasdaq 0.03%, R2000 +0.03%

  • The stabilization that the Fed may be looking for in equities, currencies and commodities didn’t happen this week. The decisions will likely come down to the wire at next week’s Fed meeting, and we’re currently seeing a 28% likelihood of a rate hike.
  • In today’s trading WTI Crude is lower by 3.7% at $44.83; Brent -3.5% at $47.77. Commenting that “oil market is even more oversupplied than we had expected,” Goldman Sachs cut its forecast for WTI and Brent crude through 2016 and went so far as saying $20/bbl is a possibility. Brent forecast was cut to $49.50/bbl from $62/bbl, WTI cut to $45/bbl from $57/bbl. Also today the EIA reports that it expects non-OPEC production will decline by the most in several decades, and specifically US shale production with decline by ~9% next year. Bear in mind that way back in May of this year the IEA predicted an increase in shale production next year.
  • According to Bloomberg, $10B was withdrawn from the S&P 500 ETF trust in the three days following September 8th – the biggest outflow since August 2014. This follows three days of inflows totaling $7.5B. The recent market uncertainty is clearly reflected in the fund flows data.
  • The U of Michigan Consumer Sentiment number released at 10am showed that the recent swings in the markets have the US consumer on high alert. The monthly figure fell to its lowest level in a year (85.7) and well below its expectations (91.1). Over the past year, low gasoline price and solid employment data has supported optimism in household finances and confident spending.

Technical Take

While yesterday can best be classified as reluctant risk-on, today we see evidence in today’s equity market action of a lazy risk-off session. As of 11:30 AM EDT, US indices are down modestly on light volume with defensive sectors of utilities, telecom and staples outperforming. We’re beginning to become more concerned in the formation of a potentially bearish continuation pattern on the S&P 500 Index (SPX) which we outline below and in today’s chart. As such, we remain in the cautious camp, with very little reason for traders to act assertively ahead of next week’s FED meeting to commit capital.

  • For the SPX on the day, traders will be watching the lows of the last several days as support and the first sign of real trouble at 1937, while to the upside the 1995 level would be the resistance and signal the bulls may have the ball. On the Nasdaq Composite Index (CCMP) we would cite 4746 as initial support and still 4800 as resistance. Underperformance of higher beta sectors, heavy in the CCMP as well as a small cap lag are contributing to the relative weakness of the index today.
  • In today’s chart of the S&P 500 Index we highlight a pattern known as a bearish pennant in technical analysis parlance where a small triangle (pennant) follows a steep price fall, consisting of trend lines that form a narrow, tapering flag shape. During its formation volume should diminish noticeably, which as we’ve highlighted may hold true so far. If the volume remains constant, or starts increasing, over the duration of the pattern, then it is to be considered less reliable and may actually reverse. Should conditions hold the result of a break beneath the lower trend line (roughly our support cited above) could be a measured move equating to a target as low as 1610. Since these patterns typically form about halfway through a larger move, we take the 260 point fall from 2130 à 1870 and subtract from the initial major low. Correspondingly, around 1600 marks the structural, multi-year break out level above 2007 highs. Note that in some rare cases, the price will break against the original price movement, and create a reversal trend. However, we believe this possible development is something to be aware of, perhaps hedging accordingly.
MID Chart 11 September 2015

Thursday, September 10, 2015, 12:39 PM, EST

A very skittish opening for US stocks, as Dow futures experienced more than a 300 pt swing in premarket activity to ultimately start the trading session flat. Investor sentiment is clearly focused on next week’s Fed meeting and whether or not a rate hike is going to slow global growth. Dow +0.4%, S&P 500 +0.6%, Nasdaq +0.8%, R2000 +7%

  • The deep declines we’ve seen from Chinese stocks apparently have ceased for the time being, as a much needed period of stabilization has occurred over the past few days. Chinese officials boosted investor confidence after announcing they plan on supporting the economy through stimulus. Also in emerging market news, Brazil’s credit rating was lower to junk status by S&P, sending the country’s currency (Brazilian Real) to lowest level verse the USD since late 2002.
  • Large cap biotech are leading the market this morning, with Gilead, Biogen, and Amgen the morning advancers. The group was the worst performer yesterday, and investors may be buying on the dip out of the gate.
  • US Jobless claims fell to 275k last week, in line w/ expectations and have remained below 300k for the majority of 2015. The ADP Regional Employment Report, was released this morning and it showed growth in 4 major regions. "The West continues to enjoy the strongest growth rate among the four major regions since the collapse of energy prices knocked the South from the top spot," said Ahu Yildirmaz, VP and head of the ADP Research Institute(R). "The Midwest's export-oriented manufacturers have been hurt by the high value of the dollar. The Northeast labor market is underperforming in part due to sluggish financial services employment gains."
  • Despite higher than expected inventory builds, the EIA cut its U.S. crude output forecast for 2015 by 1.5% and that’s pushing prices higher: WTI +3.4% at $45.86; Brent +2.1% at $48.86; NatG +2.6% at $2.719/bcf. Also, the House Energy and Commerce subcommittee approved a bill to repeal the 40-year-old ban on crude exports. The bill now moves to full committee, which may hold hearings as soon as next week.

Technical Take

With the suspect rally we cited yesterday succumbing to an all-out slide to close near lows on major US indices, we’re looking at a so far meager attempt to bounce or minimally hold immediate support. As of 11:15 AM EDT volume is remarkably light to this point versus what would be typical and stocks are mildly higher. Risk-on sectors like biotech, healthcare, info tech and consumer discretionary are leading; where continuing strength would be a positive for the equity market as a whole. With Asian markets having been clobbered overnight, today might be an interesting test to see if the US can untangle itself from the perceived issues across the globe and decouple as would be the historical norm.

  • Our noted resistance circa 1990 proved lethal for yesterday’s fading rally in the S&P 500 Index (SPX), where traders were repelled immediately and could never muster enough buyers to get close for the rest of the session. Today the lows in the futures were 1930 which holds other technical significance as support will be watched closely. Below that we would argue that 1914 would be critical to hold to the downside in order to avert a retest and likely break of the 1867 lows. To the upside the first obstacle of any import lies around 1970/5. Nasdaq Composite Index (CCMP) watchers will be critical of 4746 as initial support and the broken support from yesterday, now overhead acting as resistance at 4800. For the day or at least the moment, risk is back on, compelling the CCMP to outperform.
  • Today’s chart gets back to sentiment, which is not providing the type of extreme values that provide reason to act. The figures show that the bulls and the bears are exactly even and that bulls are actually at the highest levels in 11 weeks. Note that the American Association of Individual Investors (AAII) survey results are mostly used as a contra indicator where extremes in bullishness or bearishness may encourage ‘smart money’ that it’s time to take the opposite side of the trade. Our interpretation of this week’s readings is that we likely haven not formed a bottom in equity market prices, not until that spread between bears and bulls widens much further with bears at a high extreme and bulls at a low one.
MID Chart 10 September 2015

Wednesday, September 9, 2015, 12:02 PM, EST

We witnessed strong gains out of the gate for US stocks, but they were unable to hold the early advances. Trading in emerging markets was higher overnight and likely gave stock futures a boost, while a record job openings report released at 10am brought the bears back into play.

  • A report released by the Labor Department showed a record number of US job openings in July (5.75 million), corresponded with the decline in equities this morning. The trading reaction suggests that this release will factor in next week’s Fed decision to raise rates.
  • Stocks in Japan gained the most in 7 years, as the Nikkei Average added 7.7% after the country’s PM announced that they plan on reducing the corporate tax rate. Also in Asia, the Shanghai Index added another 2% overnight after China’s head of Finance stated the country will be supported economic growth through stimulus.
  • Attention is turning to Apple this afternoon and its special event in San Francisco, likely providing color on new/improved products and possibly some Apple Watch numbers. Trading in Apple’s supply/customer chain could be active today in response to the commentary.
  • NFLX is higher by more than 7%, after Oppenheimer recommended buying the stock ahead of the Apple event later today and to take advantage of the recent dip in price. There has been discussion that Apple will be initiating a competitive product, but Oppenheimer doesn’t believe they’ll get involved in the content business. is the 2nd best performer on the Nasdaq 100, up more than 4.5% today (+5% yesterday), after announcing a $1 billion an ADS buyback program.

Technical Take

Despite what may have felt to some like a tangible turn, yesterday’s price action in US indices didn’t change the technical or sentiment picture in the least. As of 11:15 AM EDT, we’re seeing just about the worst trading activity an advance in stocks can display as indices began their fade in the futures at specific resistance on other failed rallies, and continue weakening as we write. It’s important to remember that this type of behavior is a manifestation of basic human psychology as traders use strength to sell what they didn’t have the opportunity or fortitude to during the fast and violent ride down. Expect this to persist for some time as markets bumble through the backing, filling and retesting that is the bottoming process.

  • As we alluded to the advance already began fading at 1992 in the futures on the S&P 500 Index (SPX), roughly where we saw the initial oversold bounce in cash fail on 8/27, 8/28 and today should the highs hold at 1989. As we see in our chart, clearing this level would have only brought the index to an even more significant source of resistance in the 50% retracement of the 2130 –> 1867 decline at around 1998, also in line with the psychological resistance that 2000 presents. This is of course not to mention the bevy of hurdles beyond that. A close below minor support at 1970 increases the odds that this is just another stalled rally as traders search for a firm bottom. There is still a lot of trading left in the day, but given the underlying behavioral and technical factors, caution may be the best policy as bulls try to mount a comeback beginning precisely at 11 AM and from support of 1970.
  • The story is similar for the Nasdaq Composite Index (CCMP) though it’s displaying relative weakness today vs SPX as traders sell their ‘bounciest’ names and sectors first. Here initial support lies at 4800, where the bulls would at least like to see a close above today. Continue to watch the ‘risk sectors’ in biotech, healthcare and info tech for intraday turns and evidence of rally health/ weakness.
MID Chart 9 September 2015

Tuesday, September 8, 2015, 11:52 AM, EST

Traders have returned to their desks with US stocks higher by roughly 1.5% this morning, supported by a nearly 3% gain on the Shanghai Composite overnight. There’s a risk-on trade sentiment in equities, with Information Technology stocks leading the way. Dow +1.7%, S&P 500 +1.5%, Nasdaq +1.9%, R2000 +1.4%

  • Exports in China fell (-8.3%) in August according to the General Administration of Customs, but the negative number raised the likelihood the county would see another round of stimulus to support the world’s 2nd largest economy.
  • All tech components (69 stocks) of the S&P 500 are trading higher today, with Microchip Tech (raises guidance), Avago (sector move) and SanDisk (JPMorgan upgrade) leading the way. Since the 8/24 lows, the S&P Info Tech Index is higher by ~10%. Sepertately, General Electrics has gained more than 2.75% after European and US regulators approved the company’s deal to buy Alstom, but will need to sell parts of its gas turbine business to Ansaldo Energia.
  • A late Labor Day means a later back to school for most kiddies in the U.S. and because of this shift retailers won’t see back-to-school numbers till later in the quarter. U.S. retail spending has outpaced consumer purchases for the past 9 months based on SpendTrend point-of-sale data. “Total U.S. retail same-store sales rose 2.4% from July 31 to Aug. 26, a 70 basis point (bp) gain from mid-month and a 130-bp contraction from July. The retail same-store sales gain was driven by a 3.4% increase in traffic. This was well ahead of the 1% gain in overall spending, which is being affected by lower gas prices.” We shall see if we can get a 10th consecutive monthly increase in retail spending with this Labor Day shift. Children’s apparel sales will be the key.
  • Next week’s Fed rate decision will be a discussion all week, while concerns in China might take a backseat. Roughly 30% of traders are betting that we’ll see a higher fed fund rate out the Sept 16th-17th meeting.
  • On the economic front, the NFIB Small Business Optimism Index rose slightly in August (95.9 from 95.5), but fell short of expectations (96.0). This number doesn’t reflected market reacting to the global growth concerns and the Chinese yuan devaluation, because this survey was taken ahead of mid-August worldwide precipitous equity decline.

Technical Take

Stocks are treading water at higher levels after carry through buying interest from the pre-market sessions which was recycled from China market strength. Somewhat worrisome is again the lack of volume and inability to push above even minor resistance levels. As of 11:20 AM EDT this ‘rally’ seems to have fade written all over it with a festering lack of conviction, traders may be looking for the exit on today’s better prices. We view this as an unfortunate, lingering psychological consequence of such abrupt declines last month. That will change of course, but it may take some time.

  • While Friday the S&P 500 Index (SPX) slumped after spectacularly failing at 1970 the prior day, today it is just trying to bump over resistance in the futures and the session so far at 1960. A close above 1960 today and traders might have reason to believe this will be more than a one-day stock advance, but anything less could increase odds of a roll over to 8/24 lows on stagnating momentum.
  • On the Nasdaq Composite Index (CCMP) though breadth is as good as it’s been on up days of late at nearly 4:1 to the advancers, volume is light and resistance scares traders off easily, making the advance feel unsteady. 4800 is the only important nearby resistance that most will be paying attention to for its historical relevance. Around 4660 will be the mark on the support side. Strong starts have generally been lost in the afternoon in the current sentiment environment (what will China do while we’re asleep?); traders must wait to see if today will be any different. The normalized chart below demonstrates the, now tight, relationship between the Chinese equity indices and CCMP during the last month. We believe it’s important to note that the historical correlation over the last 15 years is about zero.
MID Chart 8 September 2015

Friday, September 4, 2015, 12:16 PM, EST

Well, today was supposed to be a quiet Friday, but the Payrolls number did not cooperate. So instead of an-inline number of 217,000 jobs added, the 173,000 print was weaker than expected. With the headline unemployment rate at 5.1%, this further muddies the waters for the September/December rate increase decision.

  • As a result, the Dow fell over 280 points at the low and remains weak. US stocks are off more than 1%, with all sectors in the red. Of note, 11 of the last 13 trading sessions have seen 3-digit Dow changes from close to close. Each day during that period has seen volume that is greater than the year-to-date average of 6.7 billion. So much for a quiet end of summer.
  • Payrolls in August increased by 173k, but fell short of the 217k expected. The jobless rate fell to 5.1%, while the participation rate fell marginally to 62.6% (from 62.7%), the lowest level since 1977. Market Intelligence Desk Stat: Recently, the monthly jobs report has been a great indicator of market sentiment. For the past 5 months that experienced a MoM payroll decline, the market corresponded with a MoM decline on the S&P 500.

Date Monthly Payroll (unrevised) MoM Payroll Change S&P Last MoM S&P Change
8/31/2015 173 -72 1972.18 -6.26%
7/31/2015 245 0 2103.84 1.97%
6/30/2015 245 -15 2063.11 -2.10%
5/31/2015 260 73 2107.39 1.05%
4/30/2015 187 68 2085.51 0.85%
3/31/2015 119 -147 2067.89 -1.74%
2/28/2015 266 65 2104.5 5.49%
1/31/2015 201 -128 1994.99 -3.10%
12/31/2014 329 -94 2058.9 -0.42%

  • Volatility has been a major theme in the market since Chinese officials have devalued its currency on August 12th. More than 77% of trading days we’ve seen the session ranges exceed 1% (high/low). This represents the most “volatile” trading period since October 2014.
  • The markets have been betting against a September rate hike, while the US economic data is suggesting a “go.” Global growth concerns and shaky markets worldwide have most investors (64%) expecting a delay, while pro-hike supports believe the US needs to separate themselves from the rest of the world and showcase their progressive economy.

Technical Take

With the fear of slowing economic growth now greater than the fear of the end of ZIRP, equity markets are plunging albeit on light holiday volume as of 11:30 AM EDT. It appears that bad economic data is finally being perceived by the market as bad with reference to today’s non-farm payroll miss. We can see this not only in the equity market reaction where stocks are lower, but in the rate sensitive small and mid-caps’ outperformance in addition to bonds and commodities, where the US 10 YR yield and oil are off modestly too. This comes of course on the back of yesterday’s failed attempt to continue to bounce. As a result of this action we’re more inclined to believe nearby support is vulnerable which may lead to a retest or break of 8/24 lows.

  • Yesterday the S&P 500 Index (SPX) failed above key initial resistance of 1972 and reversed lower while today the weakness that started then has been emboldened today. Initial support is 1914, on a break we could see selling quickly pile on and carry the index to new lows. To get back to our comments from Monday, it would appear that the bullish reversal signal we were waiting for confirmation on has not been confirmed with this full week’s price action… more downside and new lows likely.
  • On the Nasdaq Composite Index (CCMP) stocks are mostly lower with the prior day’s laggards in biotech and healthcare are the strongest today. For today the 4660 could be watched which represents Wednesday’s pivot low. Like the SPX however, we continue to be concerned by the lack of vigor to extend the prior week’s rebound off of extreme oversold levels, which again leads us to conclude stocks are still headed lower. The degree of comfort stocks are displaying so far below their 200 day moving averages is just another red flag where in the bottom panel of today’s chart we see the CCMP is -4.5% below its 200 day, having averaged +6.5% premium over the last 5 years before the break below in August.
MID Chart 4 September 2015

Thursday, September 3, 2015, 12:25 PM EST

Following yesterday’s advance, the 1% gain for US stocks today has nearly shaken off Tuesday’s entire precipitous decline. All sectors are trading in the green this morning, with Energy (+2.3%) and Materials (+1.6%) leading the way. The markets in China remain closed today, as a recovery and relief sentiment appears to be supporting today’s rally.

  • QE forever? Quoting directly from the IMF report prepared for this weekend’s meeting of G-20 finance ministers: “Advanced economies should maintain supportive policies. In most advanced economies substantial output gaps and below-target inflation suggest that the monetary stance must stay accommodative. Fiscal policy should remain growth friendly and be anchored in credible medium-term plans. Managing high public debt in a low-growth and low-inflation environment remains a key challenge”.
  • And on cue, Draghi to the rescue. ECB President Mario Draghi said the central bank might expand stimulus if activity in the financial markets hurts growth and inflation expectation. The ECB also cut its forecasts for economic growth.
  • Tomorrow’s jobs report will get significant attention as investors try to divine the September/December rate hike decision. The report is the last read on jobs and is reportedly among the more important indicators for the FED, which is “data driven”. A positive report will likely be interpreted as supportive of a September rate increase, while a negative read would support discussions about December (or later). Consensus is for nonfarm payrolls to increase by 218,000.
  • One question is whether the August jobs report a good benchmark to use. Not according to Economist Harm Bandholz, “He found that August has had the lowest average monthly gain since 2011 (avg. 102k)” while revisions, “typically gets a whopping 90,000 boost, more than double what the other 11 months receive on average.” He uncovered a disconnect that might give tomorrow’s figure unauthentic picture of the jobs market in August.
  • Santa Clause rally? A Bloomberg story notes that it takes about four months for stocks to fully recover from corrections. Per the article: “The S&P 500’s rally that began in March 2009 has been marked by two previous corrections: a 16 percent selloff from April to July in 2010, and a 19 percent slump over seven months a year later. The benchmark group recovered within about four months of each, so if history is any guide, the market may not be back at its May peak until late December”.

Technical Take

In spite of the magnitude of the advance yesterday, volume ended -10% light and breadth was anything but overwhelmingly positive at 2:1 on the Nasdaq Composite Index (CCMP). Today as of 11:30 AM EDT we’re seeing a similar advance on even lighter volume of -15% with breadth about the same. This has been the pattern of late, huge volume down days with big negatively skewed breadth followed by light volume, mixed breadth advances= a slower staircase decline (vs. the all out collapse of 2 weeks ago). Today’s chart highlights the extent of the cumulative breadth issues we’ve been noting for some time which remains a view of the internal health of the CCMP longer term. For now, as we mentioned yesterday, Chinese markets are closed for holiday for the rest of the week, so traders will enjoy the likely short-lived, volatility vacation and adjust their risk positions accordingly.

  • Today for the S&P 500 Index (SPX) a close today above resistance at 1972 would get the index back to where it ended the day Monday and opens the door to a challenge of the initial bounce highs of 1993 . Stocks sold off already shortly after arriving over that 1972 level, so we’ll see if the skeleton crews decide to take another stab. Apart from watching that level to the upside, to the downside we’ll stick with 1950 as support (yesterday’s close).
  • On the Nasdaq Composite Index (CCMP) the traders who are around are beginning to hone in on 4800 to the upside followed by about 4840 which would be congruent with initial bounce highs. As support 4750 will be temporarily important on a reversal . We continue to be mindful of improvement in breadth and volume on these bounce days for signs of a possible further rebound or move back down. Biotech and healthcare are the notable stragglers, a contributing factor to CCMP’s unusual lag to SPX today.
MID Chart 3 September 2015

Wednesday, September 2, 2015, 12:43 PM, EST

Trading in China will be on break for the next couple days (holiday) hopefully giving stocks in the US an opportunity to regain some of yesterday’s decline (roughly -3%). Technology stocks are leading the advancers this morning, adding ~1%, while another drop in Crude Oil has the Energy sector underperforming (-1%).

  • Reuters reported again on comments from the IMF’s Christine Lagarde, who stated yesterday that “What has been demonstrated in the last few weeks is how much Asia is at the core of the global economy, and how much disruption in one market in Asia can actually spill over to the rest of the world”. Her point was not to state the obvious but to note how quickly volatility can be transmitted quickly from country to country.
  • The recent volatility has limited the Fed from making changes in the near-term and the committee “missed their window of opportunity in early 2015” according to Bill Gross. The precipitous decline US stocks in August may have pushed a rate hike back a few months, if the Fed believes the US consumer has been shaken too much by the turmoil. Bets against a September rate increase continues to decline, while all tidbits from the Fed that a hike is still clearly on the table.
  • Despite a quiet start crude oil futures moved lower following larger than expected inventory build. The EIA reports inventories rose 4.67m barrels versus expectations for just a 0.1m build. WTI is off 3.5% at $43.82; Brent down 2.4% at $48.36.
  • According to ADP, US firms added 190k jobs in August, as smaller firms (1-49 employees) continue to be the driver behind the monthly number hoovering around 200k in 2015. Large companies (+500 employees) have been lagging other firm sizes since August 2012, slowing the pace of hiring.

Technical Take

After another ugly sell off into the close yesterday, as of 10:40 AM EDT, stocks today are ‘bouncing’ quite timidly on light volume, getting back less than 1/5 of what was lost yesterday on heavy volume (5 steps back, 1 step forward). Traders are on edge and less inclined to push to the upside when the newly established trend is clearly down. There is however a positive in that the Chinese markets will be closed for the remainder of the week for holiday, perhaps sparing the rest of the world their turmoil momentarily. Is there a small chance that traders will fill that void with reaction to domestic economic trends? We’ll first see if traders can even hold this tepid bounce to the day’s end.

  • Today for the S&P 500 Index (SPX) 1938 was the resistance in the futures and so far the session highs could be a pivot for the day while the close of yesterday circa the 1914 which we cited will be looked to as immediate support. Fear is in the air and until it finds reason to dissipate, sustained upside will be hard to come by. To this point, the VIX Index as depicted in today’s chart against the SPX is still elevated by historical standards at 30 vs. the pre-crash norm of 12 or so.
  • On the Nasdaq Composite Index (CCMP) traders are watching the close from yesterday/ open for today at 4636 as immediate support while the 4705 level has shown to be resistance in the session to this point. More time, perhaps best measured in months, in addition to backing and filling, testing and retesting is likely needed to mend the technical situation. For now at least there aren’t enough convicted buyers to change that picture anytime soon.
MID Chart 2 September 2015

Tuesday, September 1, 2015, 1:05 PM, EST

US stocks have been sharply lower throughout the session on the first day of the September, as last month’s volatility doesn’t appear to want to go away. Big declines in Oil (largest since 7/6), and Chinese growth suspicions has the worldwide markets trading in the red. All sectors are off by more than 1%, with Energy and Financials down 3.3% and 2.7%, respectively.

  • Market Intelligence Desk Fact:Since 1996, the S&P 500 has posted gains in 11 out of 19 Septembers. However, the 8 negative months saw steeper declines resulting in a slight negative average overall (-0.21%).
  • Traders we spoke with are shaking their heads because the macro data out of China and Germany “were in-line”. However “you can’t fight the tape” with China PMI below the magic 50 level which indicates contraction and might be another indicator of slowing global growth. U.S. equites are following Europe and Asia lower.
  • Cited often this morning as a reason for the weakness is the Chinese PMI reading of 49.7, which presumably has re-ignited global slowdown fears and resulted in the 2-3% selloffs in most European and Asian markets. However, the reading was barely a miss vs. the 50 consensus, where the index has bumped along all year. And, according to Dow Jones, referencing a Barclay’s note, weakness in China could be linked to the recent Tianjin port explosion and large-scale factory closures in Beijing ahead of the WWII victory day parade on 3 September.
  • Oil trades lower after the biggest three-day rally in 25 years. Some credited yesterday’s rally to downwardly revised U.S. production data and an OPEC report calling for discussion among member and non-member producers on getting reasonable prices (ie: curtailed production). Analysts note that some OPEC member countries cannot maintain their domestic spending levels with sub-$40 prices, so the report was viewed as perhaps a sign that OPEC may step back from its strict focus on maintaining market share. For now however, production is status quo. This morning profit-taking and overall risk-off sentiment are taking prices lower with WTD Crude oil off 5.2% at $46.63/bbl and Brent down 5.4% at $51.23/bbl.
  • The ‘weak global growth’ thesis is aided by a Reuters story, citing International Monetary Fund Managing Director Christine Lagarde, stating that global economic growth will be weaker than expected due to “a slower recovery in advanced economies and a further slowdown in emerging nations. Regarding China, Lagarde stated “the transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy,".
  • Volumes traditionally would be expected to be lighter heading into the Labor Day weekend, but have been above average since August 19th, reversing the typical slow end-of-August trend. Lighter volumes could mean higher volatility heading into the weekend, but we suspect that traders are watching from the beach or back at their desks given the recent market moves.
  • Today Interactive Brokers (IBKR) reported August brokerage metrics and trade

Technical Take

As of 10:40 AM EDT domestic equity indices are once again following suit of emerging markets, falling sharply on decent volume and poor breadth. However, for right now markets are not broken but bent until we dive lower, violating key supports. Although at this point it seems difficult to imagine investors suddenly changing their opinions that the US market / economy are not one in the same with China’s, we’re hopeful. The action of the entire week will be most important.

  • For the S&P 500 Index (SPX) 1914 seemed to be the number in futures so we would be watching that level closely along with 1926 as defined in regular market hours so far. Not that I’m a big proponent, but both numbers happen to be very near Fibonacci numbers per our chart today learn more, retracing the snap rally off last week’s lows. A decisive break of 1914 likely leads to a new low, somewhere below 1867. Whatever the reasons, this is what price action is dictating.
  • On the Nasdaq Composite Index (CCMP) traders are again looking to supports, and what proverbial roots they might grab onto as they try not to slide back into the abyss. Thus far 4668 has been the reversal point for the day, so that will be important for the remainder of the session or as long as it holds. Interesting that despite the risk off feel, biotech for example which was the huge laggard yesterday, is the best performing sector in the CCMP today. We think it’s important to watch the behavior of the former leaders as money in a poor breadth market like this will gravitate there first on turns.
MID Chart 1 September 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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