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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Day Traders Diary

3/18/14

The major averages finished the Tuesday session with solid gains, but outside of a few pockets of considerable relative strength, most sectors could be classified as reluctant participants in the daylong rally. Small caps led the way with the Russell 2000 climbing 1.5% while the S&P 500 advanced 0.7% with nine sectors posting gains.

This morning, equity indices were on track for a lower start to the session, but that changed in a hurry when comments from Russian President Vladimir Putin began making the rounds. Although Mr. Putin did not provide any groundbreaking insight, European markets and equity futures rallied when he said Russia does not want to see a break-up of Ukraine.

The comments also gave a boost to risk sentiment in the foreign exchange market, sending the dollar/yen pair from a morning low of 101.33 to 101.80. Interestingly, the yen weakness was short-lived as the currency pair slid to a fresh session low (101.29) over the next five hours while equity indices built on their opening gains thanks to the outperformance of three heavily-weighted sectorsenergy (+0.8%), health care (+1.2%), and technology (+1.4%)that account for just a shade over 41.0% of the entire S&P 500.

The energy sector drew strength from Dow component Chevron (CVX 116.24, +1.17), which gained 1.0% after being added to the US Focus List at Credit Suisse, while also receiving a boost from the 1.7% gain in crude oil ($99.69/bbl).

Elsewhere, the health care sector was underpinned by companies specializing in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 262.22, +6.75) surged 2.6%, which also factored into the outperformance of the tech-heavy Nasdaq Composite.

Speaking of the Nasdaq, the index got a big boost from shares of Microsoft (MSFT 39.55, +1.50), which rallied 3.9% in reaction to widespread reports indicating the company will release its Office suite for the Apple (AAPL 531.40, +4.66) iPad.

Strikingly, outside of the three influential sectors, the remaining groups could never catch up with the broader market. Most notably, the financial sector (+0.5%) lagged throughout the session, ending behind most of the remaining growth-sensitive groups.

On the countercyclical side, health care was the only outperformer while consumer staples (+0.2%), utilities (-0.2%), and telecom services (+0.66%) lagged.

Treasuries erased their overnight gains in reaction to the comments from Vladimir Putin, but spent the session in a climb towards the early highs. The benchmark 10-yr yield ended at 2.67% after starting the New York session just north of 2.69%.

Despite the mixed sentiment signals emanating from the foreign exchange, Treasury, and stock markets, participants did not show much demand for volatility protection as indicated by the 7.2% decline in the CBOE Volatility Index (VIX 14.52, -1.12).

Trading volume was on the light side for the second day in a row with only 574 million shares changing hands at the NYSE floor.

Today's economic data included the February Housing Starts and Building Permits report and February CPI:
"Housing starts fell 0.2% in February to 907,000 from an upwardly revised 909,000 (from 880,000) in January. The Briefing.com consensus expected housing starts to increase to 915,000. After two months where starts surpassed one million, construction levels in January and February returned to their April - October 2013 pace. There wasn't much evidence of significant shocks from winter weather conditions. Building Permits rose to a seasonally adjusted annualized rate of 1,018,000, which was better than the Briefing.com consensus estimate of 955,000.
"Consumer prices edged up 0.1% in February after increasing 0.2% in January. The Briefing.com consensus expected the CPI to increase 0.2%. Energy costs, which provided a sizable boost to the PPI, fell 0.5% in February. A 1.7% decline in gasoline prices offset a 3.6% increase in natural gas costs. Food price growth, which had been very low and stable for the past several months, shot up 0.5% in February. That was the largest one-month increase since September 2011. Most of the food components rose more than their long-term trends. That included a 1.2% increase in meats, poultry, fish, and eggs. Excluding food and energy, core CPI increased 0.1% for a third consecutive month in February. That was exactly what the consensus expected.
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while the fourth quarter current account balance (Briefing.com consensus -$87.60 billion) will be announced at 8:30 ET. Also of note, the Federal Open Market Committee will conclude its two-day meeting with the latest policy statement scheduled to be released at 14:00 ET. The statement will be followed by Janet Yellen's first press conference as Fed Chair, scheduled to begin at 14:30 ET.
"Russell 2000 +3.8% YTD
"Nasdaq Composite +3.8% YTD
"S&P 500 +1.3% YTD
"Dow Jones Industrial Average -1.5% YTD
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.