Monday, December 14, 2015, 1:45 PM, EST
Traders are braving a number of headwinds in what could be the last busy week of the year -- continued weakness in Energy (-1.0%) and Materials (-2.1%), the potential for a rate hike on Wednesday afternoon, and concerns that a sell-off in junk bond funds could spread. Equity market volumes are running about 15% higher than last Friday.
- Stock Market futures were higher very early this morning, but that was before oil prices fell sharply pre-open. The 2-day chart below from Bloomberg which plots WTI crude Oil futures (yellow line) against the S&P 500 futures makes clear what is driving the market. The sharp selloff in oil prices, along with other commodities and high-yield debt is spooking the market ahead of the Fed meeting this week and hurting the “risk-on” trade. Today, we are seeing more of the same with no bounce from last week’s 582 point Dow decline.
- Two high-yield junk bond funds suspended redemptions last week, and this morning a third announced it liquidated its entire portfolio. The SPDR Barclays High Yield Bond ETF (JNK) slid 2% on Friday to close at is lowest since the 2009 financial crisis, and it is down another 1.3% this morning. The looming rate hike combined with default worries, especially from struggling energy firms, only ups the selling pressure.
- Barron’s reported this weekend that Black Friday sales fell more than 10% YOY and that total retail sales are expected to rise only 2.2% this year compared to 3.8% gain in 2014. Brick-and-mortar retailers, including Department Stores are seeing pressure from declining apparel sales, discounters and tire inventories. Yet not all retailers are suffering with e-commerce and consumer electronics being a bright spot. With last week’s Retail Sales release coming in higher than expected the consumer is showing life…
- Today crude oil broke below $35 for the first time in 6-years and nat gas fell to a 13-year low. Perhaps a sign of where we are headed, Bloomberg News reports that blended Mexican crude, Western Canada Select and some other varieties are already trading below $30.
As of 11:30 AM EDT, Nasdaq Composite:
- Advancers: 749
- Decliners: 1533
- Advance Volume: 31MM shares
- Decline Volume: 130MM shares
- New 52 week Highs (prior close): 20
- New 52 week Lows (prior close): 235
Last week closed with the dull thud of stocks falling through support and we would expect to see further softness, at least to begin this week. So far today an early rally has given way to fresh (nearly) 2 month lows and it has been on exceptionally high volume and overwhelmingly negative breadth. At the moment Oil is attempting to stabilize, which traders may be watching closely for cues on equities. For now, we reset and look for the next support levels on the major equity indices to confirm or deny further deterioration.
- Friday proved a brutal reminiscence of the August collapse, with a 2% decline in the S&P 500 Index (SPX) on the day and decisive break below the November lows and noted support at 2020. The break down has sharpened the focus on the next level of support as seen in today’s chart at 1995. This week has the potential to be dangerous especially on an authoritative closing move below 1995, which might get some discussions referencing the August and September lows started again.
- On the NASDAQ Composite Index (CCMP), the index is on the verge of breaking beneath its respective November lows at 4905 after taking the day on Friday to violate both its 200 and 100 day moving averages as support. For a better understanding of conviction in selling it’s important to note that on Friday we saw decliners outnumbering advancers 7:1 and nearly 90% of volume to the downside. A set of closes below this next support level could open the door to 4800 and lower.
The Nasdaq's Market Intelligence Desk (MID) 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.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.