Day Traders Diary


The S&P 500 snapped its modest two-day win streak with its second-largest decline of the month. The index lost 0.9% as nine of ten sectors registered losses.
Although stocks sold off throughout the day, the weakness actually started during the overnight futures session when three China-related developments began fueling the risk-off sentiment:
The HSBC flash PMI reading for January was below expectations at 49.6. The sub-50 reading is indicative of manufacturing activity contracting; and the January reading marked a six-month low for the series.
A Financial Times report indicated Chinese authorities are working to prevent a default of a $500 million high-yield investment trust, failure of which could trigger an unnerving fallout in China's shadow banking system.
An SEC administrative law judge issued a ruling that censures the accounting arms of the "Big Four" in China for six months due to their unwillingness to turn over requested documents involving US-listed Chinese companies under investigation for accounting fraud.
The three developments did enough damage to sentiment that a slate of mostly better-than-expected earnings could not halt the day-long slide. The discretionary sector (-0.7%) finished just ahead of the broader market after last year's top S&P 500 component, Netflix (NFLX 388.72, +54.99), surged 16.5% in reaction to its bottom-line beat and above-consensus guidance.
Outside of the discretionary space, the technology sector (-0.4%) was the only outperformer among cyclical groups. F5 Networks (FFIV 102.49, +5.01) spiked 5.1% following its better-than-expected results while the top sector component, Apple (AAPL 556.18, +4.67), gained 0.9% after investor Carl Icahn said he increased his stake in the company by another $500 million today. This comes after Mr. Icahn made similar comments yesterday.
The remaining four cyclical groupsenergy, financials, industrials, and materialsended with losses between 1.1% and 1.7% with financials posting the largest loss.
On the countercyclical side, the weakest sector of the year, telecom services (+1.0%), posted a solid loss while consumer staples (-0.9%), health care (-0.7%), and utilities (-0.3%) could not stay out of the red.
Treasuries booked solid gains, ending near their highs with the 10-yr yield down nine basis points at 2.78%. The safety bid was also reflected in gold futures (+1.9% to $1262.60) and the CBOE Volatility Index (VIX 13.76, +0.92), which notched a fresh 2014 intraday high at 14.66% before retreating into the close.
The selloff invited above-average participation as 765 million shares changed hands at the NYSE.
Today's economic data included four reports:
The initial claims level increased to 326,000 from a downwardly revised 325,000 (from 326,000) while the consensus expected the reading to increase to 327,000. The seasonal problems from the holiday period have ended, and, as expected, the initial claims have settled around 330,000. The numbers suggest that there have been no notable changes in labor conditions over the last couple of months.
The November Housing Price Index from the FHFA increased 0.1%, which followed an uptick of 0.5% observed during the prior month.
December existing home sales increased 1.0% to 4.87 million from a downwardly revised 4.82 million (from 4.90 million). The consensus pegged December existing home sales at 4.90 million. For the year, 5.090 million homes were sold in 2013. That was the most homes sold since 2006. Unfortunately, the trends are moving in a negative direction. Year-over-year sales in December fell 0.6%. That was the second consecutive, monthly year-over-year decline. Before November, existing home sales had not declined on a year-over-year basis since June 2011.
The Conference Board's Index of Leading Indicators increased 0.1% in December after increasing an upwardly revised 1.0% (from 0.8%) in November. The consensus expected the leading indicators to increase 0.2%. On the surface, the drop in the index seems like economic growth is poised for a slowdown. However, the seasonal biases that negatively impacted the initial claims level throughout December resulted in a 0.34 percentage-point reduction in the growth of leading indicators. Now that the volatility has ended and claims have returned to their normal and lower level, the negative contribution should reverse next month.
There is no economic data of note on tomorrow's schedule.

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