Day Traders Diary


The stock market picked up where it left off Friday, riding the outperformance of the small-cap and momentum stocks to broad-based gains. In turn, a strong showing from the financial sector and continued strength in the transport stocks carried the S&P 500 and Dow Jones Transportation Average to new record highs.

The bulk of today's gains were achieved shortly after the opening bell. They followed on the heels of a generally positive showing from foreign markets for the two-day period that included the Memorial Day holiday in the US. That showing was underpinned by a seeming hint from ECB President Draghi that the ECB will be easing monetary policy soon and the Ukraine presidential election, which went the way of anti-separatist candidate Petro Poroshenko.

The early bullish bias was ultimately solidified by Pilgrim Pride's (PPC 25.52, +0.42) $6.4 bln cash offer for Hillshire Brands (HSH 45.19, +8.17), Bank of America's (BAC 15.21, +0.49) indication that it will be resubmitting its capital plan, and a batch of better-than-expected economic data out of the US.

In particular:

Durable orders rose 0.8% in April ( consensus -1.3%). Excluding transportation, orders jumped 0.1% ( consensus -0.2%).

The Case-Shiller Home Price Index showed prices up 12.4% year-over-year in March ( consensus +11.8%); and

The Consumer Confidence Index for May edged up to 83.0 ( consensus 82.7) from 81.7 in April.

From about 10:15 a.m. ET onward, it was mostly a sideways trade. That steady state, however, provided a glimpse of the prevailing bullish bias of late in the stock market as it would not give way to selling interest.

That resilience provided a measure of added support as it presumably left some participants fearful about missing out on another leg higher. The S&P 500 hit a new session high in the final 30 minutes of trading before tipping back below the 1912 level shortly ahead of the close.

The Nasdaq, meanwhile, went out at its high for the day and the Russell 2000 managed a late push to close above its 50-day moving average.

Every sector in the S&P 500 closed higher with the exception of the telecom services sector (-0.2%). The latter lagged throughout the day while the financial (+1.0%) and technology (+1.0%) sectors provided influential leadership. The utilities sector (+0.8%) was the other wining standout.

Frankly, there wasn't much that lagged badly today beyond some individual issues and precious metals. Gold prices dropped 1.9% to $1267.60/oz. while silver prices slipped 1.6% to $19.12/oz. That weakness was attributed to a lessening of geopolitical concerns surrounding Ukraine, although that view wasn't necessarily corroborated by the Treasury market.

The 10-yr note also settled near its best level of the day, up five ticks with its yield dipping two basis points to 2.52%. The strength in the Treasury market was all the more peculiar in light of the aforementioned economic data that produced a slate of headline surprises. A few items perhaps at work beneath the trading surface included the understanding that geopolitical strife is percolating in the South China Sea between China and Vietnam and that nondefense capital goods orders excluding aircraft -- a proxy for business investment -- slipped 1.2% in April after increasing 4.7% in March. Shipments of those goods, which factor into the GDP computation, declined 0.4%.

Whatever the case may be, it is safe to say that the Treasury market continued to defy fund flow expectations. Tomorrow's economic calendar features only the latest update for the weekly mortgage applications index. Volume at the NYSE was again on the light side of things, but higher than last week. 646 mln shares traded hands, which is below a recent average of 709 mln shares.

S&P 500 +3.4% YTD
Nasdaq +1.4% YTD
Dow Jones Industrial Average +0.6% YTD
Russell 2000 -2.0% YTD

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