Day Traders Diary


The major averages ended in the red after early gains evaporated during the opening hour amid a confluence of factors. Yesterday, the S&P 500 bounced off its 50-day moving average, but today's session saw the index get rejected by its 20-day average in the 1642 area.

In addition, two heavily-weighted sectors (energy and financials) lagged from the open and their weakness overshadowed the relative strength of defensive sectors.

Contributing to the softness was news that the International Monetary Fund cut its 2014 growth outlook for the United States to 2.7% from 3.0%. The IMF also said the Federal Reserve's large-scale asset buying is warranted at least until year's end.

The foreign exchange market presented another hurdle as dollar/yen continued selling off in a move reminiscent of an unwinding of the short-yen trade that fueled much of the rally in Japan's Nikkei. Dollar/yen dipped as low as 93.99 before ticking up to 94.30 in afternoon action.

The financial sector led to the downside, ending lower by 1.3% as all major components settled in the red. American Express (AXP 72.97, -2.24) lost 3.0% after Barclays downgraded the stock to 'Equal Weight' from 'Overweight.'

Another growth-oriented sector, energy, dropped 1.0% even as crude oil rose 1.2% to $97.85 per barrel.

While most cyclical groups trailed behind the broader market, the discretionary sector outperformed amid strength in media companies and homebuilders. Time Warner Cable (TWC 103.93, +7.78) surged 8.1% after reports indicated Time Warner has no plans to merge with Charter Communications (CHTR 116.61, +5.72).

Meanwhile, major homebuilders like DR Horton (DHI 23.89, +0.23) and Lennar (LEN 39.03, +0.30) ended with gains near 1.0%.

As mentioned earlier, defensive sectors outperformed the broader market. However, only the utilities sector was able to end with a slim gain of 0.1%. Today's advance came after the group endured a rough six-week period. The sector saw its best level of the year on April 30, before heavy selling sent it lower by 8.0% in May. So far, June has been better for utilities as the sector holds a month-to-date gain of 0.6% versus a narrow loss of 0.3% for the S&P.

The CBOE Volatility Index (VIX 17.11, +0.70) climbed throughout the week to notch its highest weekly close of the year as investors adjusted their near-term volatility expectations.

Treasuries booked gains this week as traders moved into the complex amid the weakness in equities. The benchmark 10-yr yield ended the week lower by three basis points at 2.126%.

Producer prices ended two consecutive months of declines and increased 0.5% in May after declining 0.7% in April. The consensus expected the PPI to increase 0.1%. The increase in producer prices was due almost entirely to higher food and energy costs. Food prices rose 0.6% in May after falling 0.8% in April. A 41.6% increase in egg prices accounted for most of the food price increase. Separately, energy prices, which had declined 2.5% in April and 3.4% in March, rose 1.3%. Most of that gain was the result of a 1.5% increase in gasoline costs.

Excluding food and energy, core prices rose 0.1% for a second consecutive month. That was exactly what the consensus expected.

Industrial production growth was unchanged in May after declining an upwardly revised 0.4% (from -0.5%) in April. The consensus expected industrial production to increase 0.1%.

The University of Michigan Consumer Sentiment Index dipped to 82.7 in the preliminary June report from 84.5 in May. The consensus expected the index to fall to 83.0. The Expectations Index rose to 76.7 in June from 75.8, which is the highest point since November 2012. The Present Conditions Index fell to 92.1 from 98.0 in May.

On Monday, the June Empire Manufacturing Survey and June NAHB Housing Market Index will be reported at 8:30 ET and 10:00 ET, respectively.

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