Ford ($F) and General Motors ($GM) under fire- Economic Data and Automatic Data Processing (ADP) Reports This Week

August 2, 2016
By Vlad Karpel

Stocks opened modestly lower and the decline is gathering a bit of momentum into midday Tuesday. The S&P 500 is down 13.32 points to 2157.52 and 1 point from session lows.

Treasury bonds are seeing weakness for a second day and the yield on the benchmark ten-year is ticking up to 1.56% ahead of key jobs data later this week.

Crude oil dipped below $40 per barrel and to multi-month lows Monday and is up 48 cents to $40.54. Gold gained $12 to $1371.50.

On Wall Street, nine of ten market sectors are seeing red. Consumer Discretionary (XLY), Telecomm (IYZ), and Utilities (XLU) are the biggest losers. Energy (XLE) is bucking the bearish trend and sporting a modest gain after leading the market lower on Monday.

CBOE Volatility Index (VIX) is up 1.16 to 13.60 and options volumes are a bit light, but puts outpace calls for a second consecutive day. 6.6 million calls and 7 million puts traded Monday. 2 million calls and 2.4 million puts traded in the first hour Tuesday.

iShares Emerging Markets Fund (EEM) Dec 33 puts, Ford (F) Aug 12 puts, and Newmont Mining (NEM) Sep 49 calls are among the most actives.

A notable options block in the iShares Long-term Treasury Bond Fund (TLT) traded Tuesday morning when 10,000 September 134 puts printed for $1.19 per contract. The $1.19 million options play opens a new position in the product (volume exceeds current open interest at that strike) and is expressing concerns about potential losses in shares through the September expiration.

The chart below shows the recent performance of the ETF, which holds a basket of Treasury bonds that mature in 20+ years. It had rallied to record highs in early July, but is down $1.39 to $138.38 Tuesday and testing its late July closing lows near $138.50. The aforementioned September 134 puts are now 3.2% out of the money.

See Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)


Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)

The performance of the longer-term bond fund will be worth watching in the near-term for a number of reasons. It has been trending lower this week and moving lower along with the S&P 500. This stands in contrast to the trend of recent weeks, as the S&P 500 was grinding to new highs, the longer-term Treasury bond fund was chopping lower from its record levels.

Meanwhile, key jobs data Friday conclude a busy week for economic data and ADP offers a first peek at the July jobs number Wednesday morning.

Moreover, weakness in bonds in the past two days comes despite a round of disappointing economic data this week. It was reported Monday that construction spending was down .6% in July. Economists were expecting an increase of .7%. ISM Manufacturing for July was 52.6 and below estimates of 53.1.

Shares of Ford (F) and GM are both under fire Tuesday in the wake of disappointing July auto sales results.

Suffice it to say, Treasury bonds are losing steam in the wake of rather dismal economic news this week and could potentially see additional volatility as economic news unfolds from now through Friday jobs report. Volatility in bonds could, in turn,  spill over into the equities market, of Treasuries are roiled and yields spike.

Key levels to watch on the bond ETF include support at $138.50, the 50-day moving average, and $138 per share. For the S&P 500, there is support near 2155, 2150, and 2144. Resistance at 2160, 2165 and 2174.

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