Day Traders Diary


Today marked the beginning of a new week for the stock market, yet the story played out much the same way it did last week. Long-term rates continued to rise, the stock market continued to sink, and trading volume remained light.

The major averages were mixed and little changed for much of the session, but they broke down in late trading as the technology sector gave up its leadership post and other sectors bowed to selling interest. There wasn't a specific news catalyst for the late-day breakdown, which led some to conclude it was a function of technical factors at work. Whatever one's view is, it was especially clear today that, outside of some specific stocks, buyers didn't want much to do with the market.

The stocks that benefited were familiar names like Boeing (BA 104.72, +1.25), Johnson & Johnson (JNJ 90.45, +1.08), Google (GOOG 868.65, +8.74), and Apple (AAPL 507.74, +5.41). Intel (INTC 22.28, +0.37) also found itself on the relative strength list following a Piper Jaffray upgrade to Neutral from Underweight and a positive mention in Barron's.

There wasn't a lot of corporate news to chew on today nor were there any economic releases in the US to digest. That helped explain why volume was light with just 640 mln shares trading at the NYSE.

Some distress in emerging markets, namely Indonesia where the Jakarta Composite declined 5.6%, proved to be a deterrent for participants along with the understanding that the minutes for the July 30-31 FOMC meeting will be released on Wednesday while the Kansas City Fed's Jackson Hole Symposium will get underway on Thursday.

Some anxiousness about what might be heard in the minutes and at the symposium kept pressure on the benchmark 10-yr note whose high yield today stopped just short of 2.90% before settling at 2.88%. The latter is up 30 basis points from the start of last week. The move is seen by some as the market discounting the prospect of a tapering announcement at the September 17-18 FOMC meeting, yet some rumblings are starting to be heard that it might also reflect concern that the Fed has lost control of things.

Undoubtedly, the path long-term interest rates take will be key in determining whether the stock market is going to continue to trade lower or whether it is going to show the buy-the-dip moxie it has been known for since the March 2009 lows.

The rate-sensitive financial sector (-1.3%) was a notable laggard all day and a major drag on the broader market along with the energy sector (-1.5%). The latter got clipped by yet another day of losses for ExxonMobil (XOM 86.92, -0.99), which declined for the 18th time in the last 20 sessions. The financial sector was hurt by a report China is investigating JPMorgan Chase (JPM 51.83, -1.46) for its hiring practices and a Wall Street Journal article suggesting the sector could fall out of favor in the wake of a tapering decision.

Other rate-sensitive areas like the high dividend-yielding utilities (-0.8%) and telecom services (-0.8%) sectors also underperformed the market. The home building stocks were among the weakest performers today with losses ranging between 3-5%. The iShares US Home Construction ETF (ITB 20.68, -0.67) fell 3.1%.

On the flip side, volatility was a notable area of strength. The CBOE Volatility Index (VIX 15.18, +0.81) surged 5.6% and is now up 28% over the last two weeks. Over the same period the S&P 500 has declined 3.6%.

There are no economic releases out of the US on Tuesday, so the market will be fixated early on the performance of foreign markets, the direction of interest rates, and the earnings results and guidance from Home Depot (HD 75.21, -0.17), Best Buy (BBY 30.73, +0.36), J.C. Penney (JCP 13.22, -0.18) and TJX Cos. (TJX 50.75, +0.27).

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