Day Traders Diary


The stock market fluttered on Friday, trying to bounce back from Thursday's drubbing while at the same time contending with a further rise in the 10-yr note yield, which hit 2.86% at its highest level of the day. The latter got in the way of rebound efforts as the major indices ended this options expiration day modestly lower.

There was evidence in today's session of participants pressing the buy-the-dip trade that has worked so well for so long. That evidence was seen early on in the outperformance of the homebuilding stocks, which have been hit hard of late. Ultimately, though, the strength in homebuilding stocks faded as the yield on the 10-yr note, and concerns about rising mortgage rates, increased.

The on again-off again showing of the homebuilders was representative of the overall action. There just wasn't a lot of conviction on either the buy side or the sell side.

The S&P 500, for its part, danced above and below its 50-day simple moving average (1657/1656), but closed just below that notable support level due to some closing selling interest. Gains in individual stocks like Boeing (BA 103.47, +0.74), Apple (AAPL 502.33, +4.42), American Express (AXP 75.17, +0.29), and United Continental (UAL 30.86, +0.76) offered a measure of support, but clear-cut sector strength was lacking for the most part today.

The transports were about the only area where buying interest was broad-based and semiconductor stocks fared reasonably well after analysts defended Applied Materials (AMAT 15.62, +0.30) following an otherwise disappointing earnings report and fiscal fourth quarter outlook. The Dow Jones Transportation Average increased 0.6% while the Philadelphia Semiconductor Index rose 0.4%.

Retailers were once again on the soft side after Nordstrom (JWN 56.43, -2.90) and Jos. A. Bank (JOSB 41.00, -3.10) joined the roster of retail companies providing earnings warnings. Those warnings weighed most heavily on the apparel companies.

In terms of interest rates, they started out on a pretty subdued path, but selling picked up noticeably around 12:30 p.m. ET. Soon thereafter, CNBC reported that it had been told by a White House source that chances of Larry Summers being nominated for Fed chairman were two in three. That report presumably triggered increased selling interest with participants concerned that Mr. Summers might be more inclined than Janet Yellen (the current Vice Chairman and other leading candidate) to dial back the Fed's asset purchases more readily than Ms. Yellen would be. The selling pressure took the yield on the 10-yr note as high as 2.86% before it settled at 2.84%.

The continued rise in long-term rates continued to take a toll on the high-dividend yielding utilities (-1.1%) and telecom services (-1.0%) sectors, which were the only sectors to lose at least 1.0% today. For the week, the utilities sector dropped 4.4% while the telecom services sector fell 2.3%.

There was another batch of economic data today that included the Housing Starts and Building Permits report for July, the Productivity report for the second quarter, and the University of Michigan Consumer Sentiment report for August. True to recent form, the economic data was uneven.

Housing starts and building permits were basically in-line with expectations, rising 5.9% and 2.7%, respectively, to an annualized rate of 896,000 and 943,000, yet those increases were driven entirely by multi-family units. Starts and permits for single-family homes were down 2.2% and 1.9% from June.

Second quarter productivity increased 0.9% and unit labor costs rose 1.4%. Both numbers were better than expected and both were promptly ignored by the market given the dated nature of the report.

The University of Michigan Consumer Sentiment report, however, captured some of the market's attention with a disappointing headline print of 80.0. That was down from 85.1 in July which, to be fair, was a six-year high. Still, the pullback in the indexes for current conditions and expectations were downers in terms of the report's overall messaging.

With the options expiration today, volume was the heaviest it has been all week with 835 mln shares traded at the NYSE. All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.