Market Intelligence

MID - Equity Market Insight December 18, 2015

Friday, December 18, 2015, 1:52 PM, EST

US stocks are on pace for its second consecutive period of weekly declines, as the rate hike is now behind us and traders start to position themselves for 2016. Crude oil has jumped around this morning, hovering around $35/barrel and its lowest level since 2009. Nine out of the 10 sectors are trading lower, with utilities, consumer staples and financials all lower by more than 1%.

  • With the Christmas Holiday next week and the Fed in the rear-view mirror, the expectation is that volumes will slow over the next two weeks. However, this past August was also supposed to be quiet and saw significant volatility. If investors stay on the sidelines, commodity driven price moves could have an outsized impact on equities through year end. Global growth data and currency trading will also be sentiment drivers for the markets during a period of light corporate news.
  • Where is the money going? While stocks are down, The Financial Times reported record outflows from bond funds too. While the focus has been on junk bonds over the past week, the article notes investors pulled $5.1B in the latest week - the most since 1992. When you add in the over $3B in withdrawals from junk bond funds, Lipper estimated withdrawals from taxable bond funds totaled $15.4B in the week through Wednesday.
  • Today is the quarterly “quad witch” options expirations and also the date that S&P does a quarterly rebalance of share counts in its various indices like the S&P 500, S&P 400 and S&P 600. NASDAQ also rebalances a number of its widely-followed indexes including the NASDAQ 100 (NDX) and NASDAQ Biotechnology Index (NBI), among others on this date. This is generally one of the busiest trading days of the year as index funds and other investors are expected to do significant trading at the close to re-weight portfolios.
  • In a nod to the expected light trading next week, we will be doing an abbreviated version of these notes on Monday through Wednesday, with no technical commentary. There will be no note on Thursday 12/24 or Friday 12/25.

Technical Take

As of 11:45 AM EST, Nasdaq Composite:

  • Advancers: 1028
  • Decliners: 1223
  • Advance Volume: 112MM shares
  • Decline Volume: 225MM shares
  • New 52 week Highs (prior close): 48
  • New 52 week Lows (prior close): 120

While major US equity markets closed on their low ticks for the day yesterday, despite some weakness out of the gate, we’re beginning to see possible stabilization simultaneous to a rebound in WTI crude. The strongest sectors to this point are biotech, basic materials and energy stocks while utilities are the weakest (having been the strongest yesterday). Today is also quad witch and several major equity indices rebalances’ which is contributing naturally to volume but also potentially to volatility. With the FED decision behind and many empty desks looking into the next two weeks, the tone that we set today has greater potential to carry into year-end though likely on light volume.

  • With the S&P 500 Index (SPX) closing the day yesterday on its lows near 2040, it has remained weak all morning before bouncing off of near support in the 2020 level. Looking ahead at more compelling levels, we continue to consider in 1995 as potentially key support thereafter. And once again to the upside we need to see closes back above 2110 in order to break the index out toward record highs, re-affirming the bull market.
  • The Nasdaq Composite Index (CCMP) also closed on its lows but not on any technically significant level. However, today so far the index is testing its 200 day moving average at 4977. Beneath that some may view the 100 day moving average as the next level at 4932 while we consider the 4905 – 4870 to be a more important area of interest. Note that internals, based in the case of today’s chart, on the percentage of stocks trading above their 200 day moving averages (only 39%) and trend following indicators like MACD in the bottom panel, continue to suggest further downside. That said it will be important to see what happens at that critical support zone between 4905 and 4870 and we would never rule out a seasonally normal year-end rally at some point in the next week or so. Resistance remains the November and early December highs around 5160.
MID Chart 18 December 2015

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.

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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