Beyond the Numbers
Overbought Levels May Create Uneasiness
9/17/2012 8:59 AM
The major U.S. index futures are pointing to a lower opening on Monday, with sentiment reflecting caution among traders, given the overbought levels of the market. Additionally, doubts concerning the efficacy of the Fed stimulus may also create uneasiness among traders. An economic report released earlier in the day showed that manufacturing condition in the New York region continued to be downbeat. Some degree of profit taking or consolidation may be in the offing.
U.S. stocks extended their advances in the week ended September 14, as the Fed’s benevolence warmed the Street and triggered massive buying of risky bets, including equities.
Last Monday, the major averages moved about in a lackluster manner amid uncertainty about the possibility of further stimulus expectation. The major averages closed moderately to notably lower. The averages reversed course on Tuesday, as traders expressed renewed confidence in Fed support.
With the German constitutional court ruling upholding Germany’s participation in the ESM, hopes concerning the resolution of the eurozone debt crisis brightened, sending the major averages modestly higher on Wednesday. The next two days saw the markets relishing the Fed decision, with the averages rising strongly on Thursday and more modestly on Friday.
For the week, the Dow Industrials rose 2.15 percent and the S&P 500 Index climbed 1.93 percent, while the Nasdaq Composite advanced 1.52 percent.
Among the sector indexes, the NYSE Arca Gold Bugs Index and the Philadelphia Housing Index rallied 7.04 percent and 8.85 percent, respectively for the week. The Philadelphia Oil Service Index added 5.13 percent and the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index rose over 4 percent each.Currency, Commodity Markets
Crude oil futures are slipping $0.32 to $98.68 a barrel after climbing $2.58 or 2.68 percent to $99 a barrel in the week ended September 14th. Last Monday, crude oil futures rose modestly following the previous week’s retreat. The commodity added to its gains on Tuesday, as stimulus hopes strengthened.
Oil prices retreated on Wednesday amid the release of a bearish oil inventory report. The commodity advanced sharply in the next two sessions before ending the week notably higher.
Gold futures, which rose $32.20 or 1.85 percent to $1,772.70 an ounce in the previous week, are currently slipping $1.80 to $1,770.90 an ounce. Gold was the beneficiary of a weaker dollar for most of last week.
Among currencies, the dollar ended weaker against most currencies in the week ended September 14th, succumbing to the selling pressure generated by the Fed’s announcement of more bond buying.
The greenback fell 2.43 percent against the euro to $1.3129, while it added 0.18 percent against the yen to 78.39 yen.
The U.S. dollar is trading at 78.40 yen and is valued at $1.3105 versus the dollarAsia
The major Asian markets that were open for trading closed on a mixed note, as sentiment turned lackluster following the Fed stimulus. The Japanese and the Malaysian markets remained closed for public holidays.
Australia’s All Ordinaries opened higher and moved mostly above the unchanged line, with the buying interest intensifying in late trading. The index closed up 11.60 points or 0.26 percent at 4,422. Healthcare and material stocks led the declines.
Hong Kong’s Hang Seng Index closed at 20,658, up 28.33 points or 0.14 percent. China’s Shanghai Composite Index closed 45.35 points or 2.14 percent lower at 2,079. Sentiment in China was spoiled by a report, showing home sales fell in major Chinese cities in September, which dragged down property developers.
South Korea’s Kospi ended down 5.23 points or 0.26 percent at 2,002. Europe
The major European markets are seeing weakness, as stimulus optimism slowly gives way to economic doubts. Profit taking in risky bets, which rallied throughout last week on stimulus optimism, is also contributing to the weakness.
In corporate news, H&M reported total sales growth of 6 percent year-over-year, while comparable unit decreased 4 percent.U.S. Economic Reports
After the Fed support, the markets now turn their attention to fundamental data to assess the economic momentum. The focus of the unfolding week is on a trio of housing market reports, a couple of regional manufacturing reports and a slew of Fed speeches, including one from Bernanke.
Traders may focus on the National Association of Home Builders’ housing market index for September, the National Association of Realtors’ existing home sales report, the Commerce Department’s housing starts report for August and the results of the regional manufacturing surveys by the New York Federal Reserve and the Philadelphia Federal Reserve.
It will be interesting to hear from the several Fed speakers scheduled to deliver public addresses this week to understand the Fed’s thinking on the economy and the need to support the recovery. The Conference Board’s leading economic indicators index and announcements concerning Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
Builder sentiment is expected to improve further in September, aided by better affordability. The inventory situation is also improving, as reflected by the months of supply of both existing and new homes currently below its historic median.
The regional manufacturing surveys are expected to show modest improvement in September, although conditions are most likely to have remained weak.
Conditions for New York manufacturers have deteriorated at an accelerated rate in the month of September, according to a report released by the Federal Reserve Bank of New York, with the index of activity in the sector falling to its lowest level in over three years.
New York Fed said its general business conditions index fell to a negative 10.41 in September from a negative 5.85 in August, with a negative reading indicating a contraction in regional manufacturing activity. Economists had been expecting the index to climb to a negative 2.0.Stocks in Focus
Apple (AAPL) announced that pre-orders of its iPhone 5 topped two million in just 24 hours, more than double the previous record of one million held by iPhone 4S.
InterContinentalExchange (ICE) announced that it has agreed to acquire a majority stake in APX-ENDEX derivates and spot natural gas business. ICE will acquire a 79.12 percent stake, while Gasuine, an existing shareholder of APX-ENDEX, will retain the remaining stake.
Waste Connection (WCN) announced a deal to buy the business and operating subsidiaries of R360 Environmental Solutions for about $1.3 billion in cash.
Lowe’s Companies (LOW) said it has formally withdrawn its non-binding proposal to the board of RONA for acquiring all outstanding shares of RONA for C$14.50 in cash per share.
Tyco (TYC) said its shareholders have approved the spinoffs of its North American ADT business and its flow control business. Consequently, the company said it expects to complete the distributions of equity interests in ADT Corp. and TYCO Flow Control International. The company also updated its fourth quarter guidance, expecting revenues of about $2.75 billion from its Fire & Security segment.
Danaher Corp. (DHR) announced that it has agreed to acquire IRIS International (IRIS) is rising 44 percent to $19.35. Danaher Corp. (DHR) announced that it has agreed to acquire the company for $19.50 per share.