Day Traders Diary


The stock market finished an upbeat week on a mixed note amid the return of concerns about the immediate future of Ukraine. The S&P 500 added 0.3% after holding a solid 0.6% gain through the bulk of the trading day. The Nasdaq Composite and Russell 2000 lagged, falling 0.3% and 0.4%, respectively.

The early advance occurred after the release of several data points that were cast in a bullish light.

Specifically, the second estimate for Q4 GDP was weak, revised down to 2.4% from 3.2%. That was able to be spun as a basis for why the Fed isn't going to hurry the pace of its tapering or the timing of the first hike in the federal funds rate. The Chicago PMI and Consumer Sentiment reports were better than expected, providing some hope that recent economic weakness is primarily a weather phenomenon. And, finally, pending home sales were up a disappointing 0.1% in January, playing back into the notion that the Fed is going to be deliberate with its handling of monetary policy.

The major averages reached their highs by midday, but the Nasdaq was much more tentative in its advance as large cap names traded little changed while biotechnology lagged. Appropriately, the afternoon selloff was paced by the index, which underperformed earlier in the day. Biotechnology was pressured considerably, sending the iShares Nasdaq Biotechnology ETF (IBB 264.42, -7.73) lower by 2.8%.

The afternoon weakness came about after multiple reports indicated that Russian troops have increased their presence in Crimea, which is located in Southern Ukraine. In addition to yesterday's seizure of the parliament building, armed gunmen also took control of two airports as well as the local television station and a telecommunications company. The reports were followed by comments from Ukraine's acting President Oleksandr Turchynov, who said Russia invaded the country 'as a guise of exercise' with intent to 'provoke a conflict.' President Turchynov urged Russian President Vladimir Putin to 'show reason' and pull back the forces.

Despite the selloff, the S&P 500 was able to return into positive territory thanks to relative strength of heavily-weighted sectors like consumer discretionary (+0.5%), consumer staples (+0.7%), and financials (+0.5%).

With uncertainty back in the picture, participants rushed in search of volatility protection, which sent the CBOE Volatility Index (VIX 13.99, -0.05) from a session low of 13.49% to 14.79%. This represented a 9.6% swing in the near-term volatility measure before it settled near the middle of its range.

Elsewhere, Treasuries reclaimed a large portion of their morning losses. The benchmark 10-yr yield ended higher by two basis points at 2.66% after notching a session high at 2.70%.

Participation was above average with 944 million shares changing hands at the NYSE. MSCI rebalancing, which took place at the close, likely added some volume to the final tally.

Economic data included four reports:
Fourth quarter GDP was revised down from 3.2% to 2.4% in the second estimate while the consensus expected GDP to be revised down to 2.6%. Just about all of the data that came in over the last couple weeks were worse than what the BEA expected when it released its advance estimate. There was really nothing new in the GDP report that was a surprise from the most current monthly releases. The important takeaway is that real final sales, which were revised down to 2.3% from 2.8%, now show absolutely no breakout from trends that go back to Q1 2012. The "surge" in economic growth that led to strong 2014 economic forecasts did not actually happen.
The Chicago PMI for February increased to 59.8 from 59.6 while the consensus expected a decline to 56.0. Analysts have been quick to point to extreme winter weather conditions as the culprit for the recent poor economic data trends. Yet, the blustery weather in February had absolutely no effect on Chicago-area manufacturers. This is another data point suggesting the weather is being used as a scapegoat during a cyclical down period.
The final University of Michigan Consumer Sentiment Index for February was revised up to 81.6 from 81.2 while the consensus expected an increase to 81.5. While the index moved in the opposite direction from the Conference Board's Consumer Confidence index, overall sentiment trends were relatively flat this month. Gains in equity prices offset slightly weaker employment conditions. Changes in gasoline prices and media reports likely had little effect on overall confidence values. The Current Conditions Index strengthened to 95.4 in the final reading from 94.0 in the preliminary. The Expectations Index was revised down to 72.7 from 73.0.
Pending home sales for January rose 0.1%, which was worse than the 0.8% increase forecast by the consensus. Today's reading followed last month's revised decrease of 5.8% (from -8.7%).

Nasdaq Composite +3.2% YTD
Russell 2000 +1.9% YTD
S&P 500 +0.6% YTD
Dow Jones Industrial Average -1.5% YTD
Week in Review: S&P 500 Registers Fresh Record Close

On Monday, the stock market kicked off the new trading week on an upbeat note, sending the S&P 500 (+0.6%) to a fresh nominal intraday record high of 1858.71. Despite the rally, selling during the final hour kept the benchmark index from finishing the session above its 2013 closing high of 1848.36. Although the catalyst for the buying rush could be debated, some attributed the bullish tone to the resilience of the S&P 500 futures in the face of some disappointing economic data and market performance in China. To clarify, a bearish catalyst was there for the taking, but it wasn't taken. Once the U.S. stock market started with a bullish bias, a fear of missing out on further upside helped fuel some renewed buying interest following Friday's lackluster session. Seven of ten sectors posted gains with energy (+1.5%) ending in the lead. The sector seized the lead at the open and maintained its outperformance throughout the session.

The stock market spun its wheels during the Tuesday session, ending essentially where it started. The S&P 500 shed 0.1% after spending the bulk of day within a striking distance of its flat line. Equity indices tried to build on the relative strength of the two consumer sectors, but the rally attempts were stifled by the daylong underperformance of the top three groups. Financials (-0.6%), health care (-0.2%), and technology (-0.3%) lagged from the opening bell and slumped to lows during the final hour of action. Since the three sectors account for more than 46.0% of the entire S&P 500, their underperformance acted as a headwind.

Equity indices finished the Wednesday session on a flat note after surrendering their modest intraday gains. More importantly, the S&P 500 was unable to register a fresh record closing high for the third day in a row. Stocks slipped from their opening levels, but the early weakness was erased in a flash when it was reported that new home sales in January surpassed estimates (468,000 versus consensus 400,000). The upbeat report sent stocks to new highs, but the S&P 500 ran into resistance just below the 1853 area, which the index was unable to penetrate throughout the afternoon. Eight of ten sectors ended in the red with energy (-0.6%) seeing the largest loss. However, the daylong underperformance of financials (-0.1%) was more notable as it marked the second day of relative weakness for the bellwether sector.

Stocks finished the Thursday session on an upbeat note with the S&P 500 settling above its 2013 closing high of 1848.36 after three unsuccessful attempts. Stocks climbed throughout the session despite starting the day on a cautious note. The early weakness could be traced to European markets, which were pressured by news of renewed tensions in the pro-Russian region of Crimea in Southern Ukraine. The developments weighed on European equities and contributed to a risk-off sentiment in the foreign exchange market where the yen strengthened notably against all major currencies. The dollar/yen pair fell as low as 101.70, which fueled worries about forced unwinds of yen-based carry trades. Those worries were calmed by a rebound that sent the currency pair to a session high of 102.20. Meanwhile, the stock market began the trading day on a flat note and continued climbing throughout the day. Participants heard from Fed Chair Janet Yellen, but Ms. Yellen struck a familiar tone during her appearance before the Senate Banking Committee.

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