NYSE MAC DESK MID-DAY MARKET UPDATE:
DOW 16,237 (-65 points), S&P500 1852 (-13 handles), Brent Crude $107.25/barrel (+$0.33), Gold $1,311.50/oz. (-$24.50)
MARKET DRIVERS: (Stocks are trading to the downside as a weaker-than-expected flash manufacturing PMI and continued uncertainty in Ukraine weigh on trader sentiment.)
• The U.S. Markit flash PMI dipped to 55.5 in March, missing consensus, after rebounding 3.4 points to 57.1 for the final February print - which was the strongest reading since May 2010. The slowdown in manufacturing growth represented by the index is consistent with Asian and European indicators which were also released today.
• The Chicago Fed’s national index rose to 0.14 in February versus the forecast of +0.1. It was revised to minus 0.45 in January from minus 0.39.
• China’s March Flash PMI was worse than expected, falling to 48.1, an eight-month low. New orders were especially weak at 46.9. The Shanghai stock market closed up 0.9%, however, on speculation that the government may have to embark on a stimulus program. We get the “official” manufacturing data in a week or so, but if this keeps up, analysts see Q1 GDP almost certainly coming in below 7%.
• The flash estimate of the Markit Euro-zone PMI Composite Output Index came in at 53.2, only slightly lower than February’s 32-month high of 53.3, but topping the consensus of 52.6.
• President Obama arrived in Europe for talks as Russia, which completed its annexation of Crimea last week, masses soldiers on the border with Ukraine.
Dead last place… That is where I stand in our $10 “Friends and Family” NCAA Bracket Pool… It’s embarrassing… My six-year old niece is even kicking my butt. And all she does is play with dolls(?!)… Have to admit, Wichita State losing yesterday really killed me because I had them winning the whole tournament. After the Shockers missed a three-pointer at the buzzer, I kind of felt like this dude. (Which reminds me, I also had Duke going to the Final Four. Genius!) Okay – enough with my bracket issues… Today, in the market we’re seeing recent market leaders and big momentum names selling off hard. For instance, looking at the ETF-space, we see biotech stocks (XBI) trading down 5%; Gold miners (GDX) down 3.7%; and semi-conductors (XSW) down over 1%. In addition, the big high-tech momentum names are trading down between 5% to 7% on the day. Conversely, we are seeing a rotation out of these “high-fliers” and into some older blue chip names… What’s going on?? Any time traders are concerned with a little frothiness in the market, or when they are concerned that interest rates are headed higher, you historically will see some profit-taking in market leaders and big momentum, (Big Mo’), names… On another note, (although not as much of a factor in today’s trading), earnings expectations have been reduced substantially, as analysts now anticipate no earnings growth in Q1 from a year ago, according to FactSet. For the record, profits among S&P 500 companies this quarter were forecast to grow at 4.4% at the start of the quarter. Not anymore…Technically, the S&P made a new intraday high on Friday’s opening surge, (circa 1884). As we observed, it then rolled over and closed in negative territory. Large one day reversals like that can often be a warning signal for the overall market. Friday, however, was a Quarterly Expiration/S&P re-weight so that puts a big asterisk on the one day reversal. At the current level of 1852 in the S&P, next support is at the 30-day moving average, last at 1846. Resistance can be found at 1866.52, Friday’s closing price… Moving on, the Dow remains near session-highs, while volume has picked-up a bit, (remember tomorrow is a huge Quad-witch/S&P re-weight day), with 265M shares on the tape at this time… Internally, breadth is mixed with issues and volume bearish while new highs to new lows are bullish (positive divergence). Advancing Issues: 1262 / Declining Issues: 2949 — for a ratio of 0.4 to 1. New 52-Week Highs: 103/ New 52-Week Lows: 35… Meanwhile, in the trading pits, Gold is near a five-week low amid the firmer dollar… By the way, on Friday, NYSE total volume exceeded 2 billion shares(!), and over 1 billion were executed on the close(!!). A huge day, indeed… Have a tremendous day!
John’s Options Commentary: Friday afternoon the Emerging Market ETF (EEM)saw a large spread trade. With the EEM trading $39.16 an investor sold May 37 puts on the fund at 60 cents to buy the May 40-41 call spread for 40 cents, 28,000 times. The three way, at 20 cents, appears to be expressing a bullish short term outlook for emerging markets as well as hinting the EEM may have bottomed. Breakeven is $36.80 (37.00-.20) while the ideal close at May expiration is with the fund at $41.00. The maximum profit potential is $1.20 with the investor collecting 60 cents on the sale of the puts and 60 cents on the call spread. Across the board, option markets are fairly quiet today. In individual names, the flow is mostly focused on April upside calls. It looks as if investors are betting on rebound in equities over the next 4 weeks-We shall see! With today’s slide, the VIX has popped, up .93 to 15.93, right near resistance of 16.00.
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• Healthcare the worst performer with the S&P Healthcare Index (1.7%)
o Biotech underperforming and continuing its recent move lower, with NBI (4.1%) and BTK (3.6%). Recall the space came under heavy selling pressure on Friday, attributed to concerns about government pushback on pricing and valuation concerns. IDRA (23.9%), ARWR (20.3%), GALT (15.4%), NVAX (11.1%), ITMN (7.1%) and INCY (6.2%) among the notable decliners today. Note ARWR began dosing in Phase 2A trial of ARC-250 in chronic hepatitis B patients. GALT reported earnings and filed a $100M common share shelf. BIIB (4.3%) and GILD (1.8%) both continuing their moves lower as well.
o Pharma underperforming with the DRG (1.3%). ENDP (6.4%), MYL (4.2%), BMY (2.4%) and ACT (2.4%) the notable performers.
o Managed care lower with the exception of WLP +0.8%. Recall the space rallied last week on the back of the latest exchange enrollment figures, dampened risk surrounding Q1 earnings and relative valuations. HNT (2.5%), WCG (1.8%) and CNC (1.6%) leading the space lower today.
o Other notable performers: HCA (2.3%), MCK (1.9%)
• Consumer discretionary underperforming with the S&P Consumer Discretionary Index (1.4%)
o Homebuilders underperforming with the XHB (1.4%). Recall the space underperformed last week on the backup in rates. KBH (3.9%), BZH (3.1%) and SPF (2.9%) leading the way lower this morning.
o Retail underperforming with the S&P Retail Index (1.9%). WTSL (9.7%) leading the apparel space lower on a downgrade at B. Riley. Recall the stock fell ~11% on Friday after it reported earnings. ARO (2.2%) and EXPR (1.9%) the other notable decliner, while JOSB +0.1% outperforms. Housing-related space led lower by PIR (2.3%) and LL (1.7%). The latter continuing its move lower from Friday, when it fell >4%. Dollar stores underperforming with DG (2.3%) and DLTR (1.1%). BBY (2.5%) and HGG (1.9%) the notable performers among the CE names. Department stores lower with the exception of BONT +5.1%. Buckingham had a positive note out on the stock, saying it sees the potential for an acquisition of the company. SHLD (2.6%) and M (1.5%) the notable decliners.
o Media space underperforming. DISH (4%), AHC (3.7%), MNI (3.6%) and GCI (2.3%) the laggards.
o OTAs underperforming, with TRIP (3.7%), PCLN (3.6%) and EXPE (3.1%).
o Apparel and accessories led lower by KORS (4%), TIF (3.1%) and MOV (3.1%). TIF was removed from the Conviction Buy List at Goldman Sachs.
o Restaurants lower with the exception of MCD +1%. WEN (2.8%), CMG (2.7%), SONC (2.2%) and GMCR (2.2%) the notable decliners.
• Tech underperforming with the S&P Information Technology Index (0.9%)
o Hardware: IBM +0.8% the best performer. AAPL +0.7% faring well on back of positive mention in Barron’s (UBS also positive) and WSJ report on TV-streaming talks with CMCSA (0.8%). NTAP (3.7%) lagging on the Morgan Stanley downgrade. EMC (0.9%). HDD names weaker with STX (1.9%) and WDC (1.5%).
o Semis: Mostly weaker after last week’s outperformance. SOX (0.4%). LEDs lagging with RBCN (1.8%), and CREE (1%). FSL (1.9%), TXN (1.2%) and SNDK (0.3%) some of the other notable decliners. CRUS +1.3%, MU +1.2%, BRCM +0.9% and MXIM +0.5% among names bucking the trend.
o Software: Most of the SaaS names have lagged today. Note a lot of the momentum groups in the market have underperformed over last couple of days. ADBE (2.3%) and CTXS (1.6%) leading the move lower. JIVE (4%) another big decliner.
o Internet: Group largely under pressure. P (7.5%), NFLX (6.7%), LNKD (4.8%), FB (4.4%), ANGI (3.9%) and YHOO (3.4%). Nothing specific behind selloff. WSJ discussed threat to online advertising from bogus traffic.
• Financials relatively outperforming with the S&P Financials Index (0.4%)
o Banking group a tad firmer overall with the BKX (0.2%). Recall group put in a strong performance last week with the backup in yields stemming from the FOMC developments. Loan growth dynamics also seemed supportive (though C&I did slip in latest weekly Fed data). Capital returns in focus this week with the CCAR results on Wednesday. JPM +0.6% the standout among the money center anmes. BAC (1.1%) a laggard following a downgrade at Atlantic. Firm cited strong performance over past year, along with weakness in FICC and poor stress test performance. Also upgraded USB +0.4% and WFC (0.2%). ZION (2.8%) downgraded at BMO. STT +1.6% extending its recent outperformance vs the trust group. Investment banks lagging with MS (1.2%) and GS (0.9%).
• Energy outperforming with the S&P Energy Index (0.02%)
o Brent crude slightly higher at $107.25, up $0.33.
o Majors mixed. XOM +0.6% and CVX +0.3% outperforming, while OXY (0.6%) and HES (0.4%) among laggards.
o Refiners mostly lower, giving back some of strong mtd gains. WTI-Brent spread narrowing today. WNR (2.3%) and HFC (1.7%) sharply lower, but MUR +1.5% outperforming.
o Coal mixed. JRCC +10.2% rallying, while WLT (1.1%) and ANR (0.3%) lag.
o E&Ps mostly lower. KWK (7.6%) and PXD (3.1%) continuing recent weak performance. GDP (2.5%) underperforming after announcing CMR 8-5H-1 well results and providing an operational update in the Tuscaloosa Marine Shale. XEC (2.7%) reaffirmed Q1 and FY production. FST +1.6% outperforming.
Oil services broadly lower with OSX (0.8%). CAM (1.4%) and TDW (1.3%) among the laggards. NBR +0.5% trading higher despite saying it expects Q1 EPS to be below consensus. WFT +0.2% higher after announcing the sale of pipeline and specialty services business for $250M to BHI (0.5%). SLB +1% continuing strong recent performance.
