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Volatility Returns to Stock Index Futures – Levels & reports for August 5th

Hello Traders,

For 2014 I would like to wish all of you discipline and patience in your trading!

As I do from time to time, I like to share resources I feel are worthy of exploring, such is the one below by www.factset.com :

Overview:

  • US equities came under pressure this week as the S&P 500 suffered its biggest weekly pullback in over two years. Despite the magnitude of the move, there was not an overriding theme that captured the price action.
  • Widely cited headwinds included Fed angst, geopolitical tensions, disappointing earnings, the latest flare-up on the Eurozone periphery, the slowdown in the housing recovery, Argentina’s default, fatigue, technical and continued worries about stretched valuations and crowded trades.
  • However, there were notable pockets of reprieve surrounding some of these concerns, particularly when it came to monetary policy and earnings. In addition, geopolitics has not proved to be a sustainable directional driver, while the tipping point search has been in play for a while.
  • While largely on the backburner, there were some positive dynamics at work this week. The pickup in strategic M&A activity continued, while there more signs of stabilization in China, where the Shanghai Composite bucked the sell off in global equities with a nearly 3% rally.
  • There did not seem to be any great signals from the sector performance this week with the broad-based nature of the risk-off trade and company-specific takeaways from a very busy week of earnings. Energy and industrials put in the worst performance, while telecom held up the best.

Fed angst finds some reprieve:

  • Worries about the Fed being behind the curve and the potential for an earlier and more aggressive start to the policy normalization process continued to get a lot of attention as a source of market angst this week. There were two particular areas of focus. One was the 4% growth in Q2 GDP, which was a full point ahead of the consensus. The other was the 0.7% increase in the Q2 employment cost index (ECI), which was ahead of the 0.5% consensus and marked the fast growth in six years. The hotter ECI print was of particular interest because it followed on the heels of an FOMC statement that hedged an upgrade of the assessment of the labor market by noting that a range of indicators suggest a significant underutilization of labor resources. However, there was some reprieve late in the week as average hourly earnings were flat in July, leaving them up just 2.0% y/y. This compared to expectations for a 0.2% m/m and 2.2% y/y increase. In addition, while a sixth straight month of nonfarm payrolls growth above 200K kept the recovery traction theme in focus, the 209K was slightly below expectations and not robust enough to impact liftoff expectations. Finally, despite the hype surrounding Fed fears, yields in the front and belly of the curve were actually lower on the week.

Geopolitical concerns spill over to corporate level:

  • Geopolitical tensions were a widely cited overhang on the market this week. There seemed to be two different viewpoints on this front. On one hand was the notion that prior flare-ups have been quickly relegated the backburner. This played into thoughts that headlines surrounding the escalating violence in Gaza and new economic sanctions against Russia were largely just an excuse for the more lackluster sentiment surrounding stocks. On the other hand was the fact that the tensions over the Ukraine crisis are starting to spill over to the corporate level. Most of the focus here was on Europe, where stocks also sold off sharply with the Euro Stoxx 600 down ~2.9%, and most peripheral markets faring worse. Germany’s DAX also came under pressure, falling 4.5%. Adidas, which fell ~18% this week, was out with a full-year profit warning. One of the factors the company cited was the recent trend change in the Russian rouble and increasing risks to consumer sentiment and spending in the region. BP, which lost 3.2%, said sanctions could have a material adverse impact. Renault, which fell 13.3%, highlighted its weaker performance in Russia and concerns about further uncertainty following new sanctions. Metro and Siemens were some of the other companies that cited headwinds in Russia.

Q2 earnings and revenue growth rates continue to push higher:

  • Disappointing earnings were mentioned as one of the drivers of this week’s pullback, with particular scrutiny surrounding the industrials, HMOs and homebuilders (semis have also had a rough earnings season). For the most part however, post-earnings price action has seemingly had more to do with elevated expectations stemming from the widely discussed weather reprieve that drove better guidance and revision trends going into earnings season, as well as the broader shift in sentiment surrounding stocks over the last week or so. This was supported by the continued improvement in Q2 metrics. According to FactSet, the blended growth rate for Q2 S&P 500 EPS pushed up to 7.6% this week from 6.7% last week, ahead of the 4.9% growth expected at the start of the quarter. There were also some favorable takeaways for top -line performance as revenue growth increased to 4.2% from 3.2% last week, double the four-quarter average. Other key metrics, including the percentage of companies beating earnings and revenue expectations and the extent to which companies are reporting results above the consensus, also remained above trend. In addition, expectations for an acceleration in 2H growth remained intact.

Looking for tipping points:

  • One of the big topics of interest this year has revolved around a combination of correction expectations and bubble concerns. The bubble concerns seem much narrower, but tend to be viewed as potential tipping points for a broader market selloff. Such thinking was prevalent this week as junk bonds, a pocket of the market in which the Fed has highlighted stretched valuations, remained under scrutiny. A WSJ article noted that some of most successful fund managers during the financial crisis are starting to turn bearish. It highlighted junk bonds as a particular area of focus. Mutual funds and ETFs focused on high-yield debt saw net outflows of $1.5B this week. This followed redemptions of ~$2.5B in the prior week and ~$1.9B in the week before that. In addition, according to Lipper, investors pulled more than $5B from these funds in July, the most for any month since the record monthly outflow of $15.6B in June 2013, when the taper tantrum was in full swing. High-yield spreads also pushed out to six-month wides, while the iShares high-yield ETF, HYG (2.1%), fell for its sixth straight session on Friday and suffered its biggest weekly pullback in just over a year.

More strategic M&A, corporate actions:

  • While largely overshadowed by the heightened risk aversion this week, the pickup in strategic M&A activity continued. One of the higher profile deals involved the dollar stores, as FDO +25% agreed to be acquired by DLTR +0.9% in a cash-and-stock transaction valued at ~$8.5B. In the real estate space, TRLA +7.4% agreed to be acquired by rival Z (10.1%) in all-stock deal valued at $3.5B. In gaming technology, BYI +24.8% said that it would be acquired SGMS (2.8%) at a 38% premium in an all-cash deal valued at $5.1B. In the media space, JRN +22.2% and SSP +4% announced plans to merge their broadcast assets (TV and radio). The deal also included a spin off and merger of their newspaper assets. The telecom sector was also in focus this week. TMUS +7.2% received a surprise offer from France’s Iliad to acquire a 58.6% stake in the company for $15B in cash, or $33 a share. However, there seemed to be even more interest in the announcement from WIN +9.4% that it will spin off its fiber and copper network, along with other fixed real estates, into a REIT. The company noted that it had already received a favorable ruling from the IRS, triggering speculation that other names in the industry could follow suit.

Energy lags, telecom holds up the best:

  • The energy sector suffered its weekly pullback in over two years. September crude ended the week down 4.1%, the largest decline in seven months. The industrials sector extended its recent underperformance. Negative earnings sentiment remained a headwind with ETN (13.3%), OSK (13%) and ROK (9.4%) among the big decliners. The difficult competitive backdrop in the food space remained in focus with K (6%) cutting its 2014 organic sales, EPS and FCF guidance. Banks weighed on the financials with the BKX (3.4%), though there did not seem to be anything specific behind the underperformance. Materials lagged despite the better earnings and outlook commentary out of the steel space, particularly from X +20.6%. Chemicals and containerboard stocks came under pressure with EMN (11.6%) and IP (5%) both weaker following results. Software was one of the bigger drags on tech. Some pockets of strength in retail and restaurants helped consumer discretionary hold up a bit better than the tape. Healthcare managed to overcome a selloff in managed care names HUM (7.6%), MOH (7.5%) and CI (5.6%) on concerns about a shift in utilization trends. Telecom fared the best this week on defensive positioning and M&A and REIT headlines.

Sector Performance (vs S&P 500):

  • Outperformers: Telecom (1.17%), Healthcare (1.61%), Consumer Disc. (1.78%), Tech (2.46%), Utilities (2.51%)
  • Underperformers: Energy (4.11%), Industrials (3.63%), Financials (3.03%), Consumer Spls. (2.98%), Materials (2.83%)

 

FactSet StreetAccount provides financial professionals with real-time, equity market intelligence. Request a free trial at solutions.factset.com/sa_trial.

GOOD TRADING !

Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Past performance is not indicative to future results.

If you like Our Futures Trading Daily Support and Resistance Levels, Please share!

Futures Trading Levels

Contract Sept. 2014 SP500 Nasdaq100 Dow Jones Mini Russell Dollar Index
Resistance 3 1964.50 3968.08 16704 1147.10 81.55
Resistance 2 1951.00 3941.92 16616 1135.00 81.51
Resistance 1 1941.75 3919.58 16554 1127.60 81.45
Pivot 1928.25 3893.42 16466 1115.50 81.41
Support 1 1919.00 3871.08 16404 1108.10 81.35
Support 2 1905.50 3844.92 16316 1096.00 81.31
Support 3 1896.25 3822.58 16254 1088.60 81.25
Contract December Gold Sept.Silver Sept. Crude Oil September Bonds Sept. Euro
Resistance 3 1304.3 2070.7 100.18 138 27/32 1.3456
Resistance 2 1300.3 2059.3 99.43 138 22/32 1.3445
Resistance 1 1294.9 2039.7 98.94 138 13/32 1.3434
Pivot 1290.9 2028.3 98.19 138 8/32 1.3423
Support 1 1285.5 2008.7 97.70 137 31/32 1.3412
Support 2 1281.5 1997.3 96.95 137 26/32 1.3401
Support 3 1276.1 1977.7 96.46 137 17/32 1.3390
Contract Dec Corn Sept. Wheat Nov. Beans Dec. SoyMeal Dec. bean Oil
Resistance 3 375.1 557.8 1091.33 362.00 37.20
Resistance 2 372.4 554.7 1085.67 356.20 36.82
Resistance 1 370.8 549.3 1082.58 352.00 36.61
Pivot 368.2 546.2 1076.92 346.20 36.23
Support 1 366.6 540.8 1073.8 342.0 36.0
Support 2 363.9 537.7 1068.17 336.20 35.64
Support 3 362.3 532.3 1065.08 332.00 35.43
Economic Reports

source: http://www.forexfactory.com/calendar.php

All times are Eastern time Zone (EST)

Date 11:44am Currency Impact Detail Actual Forecast Previous Graph
TueAug 5 3:15am EUR Spanish Services PMI 55.1 54.8
3:45am EUR Italian Services PMI 53.2 53.9
4:00am EUR Final Services PMI 54.4 54.4
5:00am EUR Retail Sales m/m 0.4% 0.0%
9:45am USD Final Services PMI 61.0 61.0
10:00am USD ISM Non-Manufacturing PMI 56.6 56.0
USD Factory Orders m/m 0.6% -0.5%
USD IBD/TIPP Economic Optimism 46.2 45.6

Source: http://www.factset.com/insight/2014/7/sa_weekly_recap_8.1.14#.U-CdVaNVUXg

 

This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading.

Tags: > > Posted in: Financial Futures   | Future Trading News   | Futures Trading   | Index Futures  

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