Day Traders Diary


The major indices strung together some modest gains on Tuesday on the back of some strong showings from blue-chip issues and a volatile rebound effort by the beaten-down biotechnology stocks.
The move followed on the heels of a strong outing by major European bourses, which shot up largely in response to some remarks from Bundesbank head, Jens Weidmann, who suggested it was not out of the realm of possibility for the ECB to implement a QE-type program to fight deflation. It would be remiss not to add that ECB President Draghi spoke later in the day and said the ECB is not currently seeing any evidence of deflation.
Mr. Draghi's viewpoint helped the euro recover a good portion of overnight losses, but his view did not lead to a major trend reversal in the US stock market.
There were indeed bouts of trading volatility in today's session. The iShares Nasdaq Biotechnology ETF (IBB 239.44, +0.21) was the standard bearer in that respect as it saw a 4.0% range between its intraday high and intraday low. The ETF, which had dropped as much as 11% over the preceding four sessions, gained just 0.1% on Tuesday. The roller-coaster action in that closely-watched and widely-chased sector kept a lid on things for the Nasdaq Composite, which trailed the blue-chip laden Dow Jones Industrial Average and S&P 500.
Strikingly, it was Big Blue itself -- IBM (IBM 195.04, +6.79) -- that carried the day for the broader market. It surged 3.6% on a few announcements detailing new business activity, yet we suspect it was also accorded a low-beta premium in an environment of late that has featured some material hiccups for high-beta momentum stocks. IBM led all Dow components; however, the blue chip bias was also evident in fellow components like Johnson & Johnson (JNJ 97.38, +2.18), Caterpillar (CAT 98.59, +1.74), Merck (MRK 55.19, +1.41), 3M (MMM 134.06, +1.64), and United Technologies (UTX 115.20, +1.45).
Today's gains were broad-based in nature. Nine out of ten S&P 500 sectors closed the day with a gain. The lone loser was the consumer discretionary sector (-0.6%), which was held back by a relatively weak showing from the apparel and media stocks. Some disappointing second quarter and full-year earnings guidance from Carnival Corp. (CCL 38.02, -1.98) also weighed on the sector.
Notwithstanding the broad-based gains, the financial sector (+0.01%) was a notable underperformer in Tuesday's trading as JPMorgan Chase (JPM 60.93, -0.14), Goldman Sachs (GS 163.25, -2.47), Bank of America (BAC 17.21, -0.16), and Morgan Stanley (MS 31.59, -0.85) all traded lower. Leadership from the industrial (+0.9%), energy (+0.8%), and health care (0.8%) sectors, though, provided an influential offset.
There was a round of economic data today that revolved largely around the housing sector:
The January Housing Price Index from the FHFA increased 0.5%, which followed a revised uptick of 0.7% observed during the prior month.
The Case-Shiller 20-city Home Price Index for January rose 13.2% while a 13.3% increase had been expected by the consensus. This followed the previous month's increase of 13.4%.
New home sales declined 3.3% in February to 440,000 from a downwardly revised 455,000 (from 468,000) in January. The consensus expected sales to fall to 445,000. Commentators will likely point out that the drop in sales was the result of extreme winter conditions, but sales actually increased 36.7% in the frigid Midwest and fell 15.9% in the West. In actuality, sales are running a little ahead of the 12-month average with the drop in February resulting from normal volatility.
The Conference Board's Consumer Confidence Index strengthened in March. The index increased to 82.3 from an upwardly revised 78.3 (from 78.1) in February. The consensus pegged the index at 78.2. The reading put confidence levels at the highest point since January 2008. Typically, confidence levels trend with unemployment, gasoline prices, and the equity market. The increase in volatility in the equity market over the past few weeks did nothing to harm confidence. Instead, consumers relied on more favorable employment conditions.
The stock market seemed to divorce itself from the data on Tuesday, following instead the path of activity in the biotech sector and leading blue chip issues. Similarly, the Treasury market rocked back and forth between negative and positive territory before ending modestly lower at the cash settlement.
On a related note, the $32 bln 2-yr note auction went okay, drawing a high yield of 0.469% (0.471% when issued) and a 3.20 bid-to-cover ratio. The latter was below the 12-auction average, but there was strong demand from indirect bidders who accounted for 40.9% of the allotment versus a 12-auction average of 25.7%.
A $35 bln 5-yr note auction will be held on Wednesday. In addition, the economic calendar will feature the latest reading for the mortgage applications index and February data for durable goods orders ( consensus +1.0%).

Dow Jones Industrial Average -1.24% YTD
Nasdaq Composite +1.4% YTD
S&P 500 +0.9% YTD
Russell 2000 +1.3% YTD
S&P 400 Midcap Index +2.2% YTD

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