Day Traders Diary


The stock market began February on a sharply lower note after enduring a rough month of January. Small caps paced the Monday retreat as the Russell 2000 tumbled 3.1% while the S&P 500 fell 2.3%. For its part, the Dow Jones Industrial Average lost 2.1%, ending below its 200-day moving average (15470).
Despite the sharply lower finish, today's session actually started in the green. However, sellers emerged during the opening minutes and intensified their efforts after the January ISM Manufacturing Index registered a large decline (to 51.3 from 56.6).
Although the ISM report itself did not cause the aggressive selloff, it added to global growth concerns that have been percolating under the surface after China's Manufacturing PMI (50.5) fell to a six-month low while the Non-Manufacturing reading (53.4) registered an 11-month low.
Furthermore, the selloff was accompanied by another wave of yen strength. Dollar/yen traded right above the 102.00 level at the start of the session, but retreated along with equities. The pair finished the trading day right under 101.00 while yen futures added 1.4%, extending their 2014 gain to 4.3%.
The daylong pressure that was exerted on equities translated into strength for the bond market. The 10-yr note ended on its high with its yield down seven basis points at 2.59%. Gold futures also garnered interest, climbing 1.6% to $1259.50 per troy ounce.
Also of note, the retreat invited strong demand for volatility protection, sending the CBOE Volatility Index (VIX 21.12, +2.71) to its highest level since late June. Over the past two weeks, the near-term volatility gauge has added more than 72.0%.
All ten sectors finished in the red with the lowest-weighted grouptelecom services (-3.7%)ending at the bottom of the leaderboard. The remaining nine sectors fared a bit better, posting losses between 0.8% and 2.7%.
The discretionary sector (-2.7%) was the weakest performer among cyclical groups as retailers continued their recent weakness. The SPDR S&P Retail ETF (XRT 77.47, -2.38) lost 3.0%, sliding to levels not seen since late August. Today's loss widened the retail ETF's 2014 decline to 12.1%.
Automakers also pressured the discretionary space after Ford (F 14.55, -0.41) reported a 7.0% decline in January sales while General Motors (GM 35.25, -0.83) announced an 11.9% decrease in sales. The two names settled lower by 2.7% and 2.3%, respectively.
Elsewhere, other influential sectors like financials (-2.5%) and industrials (-2.7%) lagged while health care (-2.0%) and technology (-2.2%) ended just ahead of the S&P 500.
The utilities sector (-0.8%) was the only group that avoided losing 1.0% or more. The rate-sensitive sector is the only group that remains in positive territory for the year with a gain of 2.1%.
The selloff was accompanied by heavy volume as more than 900 million shares changed hands on the floor of the New York Stock Exchange.
Today's data was limited to just a pair of reports:

The ISM Manufacturing Index for January dropped to 51.3 from 56.5 while the consensus expected the reading to fall to 56.0. That tied the largest one-month decline since October 2008. The sharp decline in the national index did not correlate with the regional surveys from Federal Reserve banks. They showed modest improvements in manufacturing activity throughout the country. According to the ISM report, some of the weakness may have been due to the extreme winter weather conditions that occurred in January. If this is true, then the ISM Index should bounce back rather significantly in February.
Total construction spending increased 0.1% in December after increasing a downwardly revised 0.8% (from 1.0%) in November. The consensus expected construction spending to increase 0.1%. The residential construction spending data does not line up with the contraction reported in the advance estimate for fourth quarter GDP growth. The downturn in fourth quarter residential investment spending could have only occurred if spending fell in December or if there were large revisions to the November and/or October data. According to the Census data, that did not happen.
Tomorrow, December factory orders will be announced at 10:00 ET.

Nasdaq Composite -4.3% YTD
S&P 500 -5.8% YTD
Russell 2000 -5.8% YTD
Dow Jones Industrial Average -7.3% YTD

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