Day Traders Diary


Volatility continued during Friday's trade, but stocks finished the day in mixed fashion. That made for a dull conclusion to the worst week of trade in more than two years.

Weakness from the prior session's precipitous drop had lingered ahead of today's open, but stocks were able to start the session with strong gains after participants reacted to an encouraging jobs report that showed a headline unemployment rate of 9.1%, rather than the 9.2% rate that had been widely expected... A breakdown of the numbers showed that non-farm payrolls for July increased by 117,000, which is greater than the increase of 84,000 that had been widely anticipated. Prior month payrolls were also revised upward to reflect an increase of 46,000, instead of the 18,000 increase that had been initially reported. As for private payrolls, they spiked by 154,000, which exceeds the 100,000 increase that had been broadly expected.

However, once trade opened, stocks were quickly hit with selling pressure as many traders, cognizant that a better-than-expected jobs number won't prevent a possible U.S. debt rating downgrade and skeptical of the market's ability to establish firm footing, opted to capitalize on the opportunity to limit losses. That stirred further selling, which took the three major equity averages down sharply to new 2011 lows and sent the Volatility Index up above 35 for the first time in more than a year... Concerns about the tenuous fiscal and financial state of countries in the eurozone periphery were quelled, at least for a time, by word that the European Central Bank is ready to provide support to Spanish and Italian bonds if the two countries commit to specific reforms. That spurred a rally that took both the Dow and S&P 500 to gains of more than 1% after they had been down more than 2%. The Nasdaq battled back to the neutral line after it had been down more than 3%, but it struggled to poke into positive territory. All three drifted lower into the close, though.

The broad market's flat finish to Friday's trade capped off what was otherwise dramatic week of trade, one that saw the S&P 500 surrender a cumulative 7.2%. The Nasdaq shed 8.1% this week, while the Dow ended the week 5.8% lower.

Such pronounced pressure against stocks triggered a rally in Treasuries this week, such that the yield on the 2-year Note set a record low near 0.25% and the benchmark 10-year Note dropped to a nine-month low near 2.40%. Treasuries turned lower today, causing the 2-year yield to move closer to 0.29% and the 10-year yield to approach 2.60%... The Dollar Index hit a near four-week high overnight, but drifted lower during regular trading hours. Any effort to bounce was largely restricted because of support for the euro following the ECB's pledge of support for Spanish and Italian bonds.

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