Day Traders Diary


It was some day in the capital markets on Thursday. The major stock indices managed to hold fairly steady in what was a seesaw day of trading; longer-dated Treasuries experienced a notable reversal that left the 10-yr note down 12 ticks and yielding 2.63% while the front of the curve remain propped up with buying interest; commodity prices were higher with precious metals prices moving up sharply; and the US Dollar Index was down 0.3%

A 3.6% jump in gold prices to $1318.00/troy ounce and the weakness at the back end of the Treasury curve were cited as expressions of inflation concerns with market participants acting uneasy about the Fed's seemingly complacent view of inflation.

The explanation was not entirely out of bounds, but it also wasn't above reproach given that the dollar failed to bounce and the front of the Treasury curve held up just fine. Accordingly, it is too early to say if there were genuine inflation concerns today.

Nonetheless, it was a line of thinking that left equity investors reluctant to make any big moves outside of some individual story stocks like Coach (COH 35.69, -3.50), which issued a sales warning, and Kroger (KR 49.66, +2.39), which reported better than expected earnings and gave reassuring guidance.

Broadly speaking, the moves that were made fit the bill of a more cautious mindset than the one that prevailed following Wednesday's FOMC announcement and press conference. The best-performing sectors today were the utilities (+0.9%) and consumer staples (+0.6%) sectors. Energy (+0.6%) also fared well in the face of rising oil prices that were helped along by the weaker dollar and continued rumblings about the destabilizing situation in Iraq

Relative weakness in the technology (-0.2%) and financial (-0.2%) sectors acted as a restraint on the S&P 500 which ultimately managed to close near its best level of the day. In the process of doing so, it also established another new closing high.

Alas, there wasn't as much fear and loathing in the equity market as there was cheer and loafing. The buy-the-dip mentality shined through again in an otherwise laborious day of trading that saw the stock market take a back seat to other capital markets.

Aside from the advertised inflation concerns, longer-dated Treasuries also got pinched by a batch of encouraging economic data:
Initial claims for the week ending June 14 (the week in which the household survey for the June employment report was conducted) dipped by 6,000 to 312,000

The Philadelphia Fed Index for June increased to 17.8 from 15.4 in May, paced by broad-based gains in its various components; and
The Leading Indicators Index for May increased 0.5% on top of a 0.3% increase in the prior month

Trading volume picked up on Thursday with 636 mln shares changing hands at the NYSE versus 614 mln on Wednesday. Volume should be even higher on Friday with the S&P rebalancing at the close.

Overall, one could say there was some risk aversion in the stock market on Thursday, but there wasn't risk avoidance. To that end, the CBOE Volatility Index (VIX 10.65, +0.04) was up a scant 0.4% after plummeting 12% on Wednesday and money rotated within the market as opposed to rotating out of it completely.

S&P 500 YTD +6.0%
Dow Jones Industrial Average YTD +2.1%
Nasdaq Composite YTD +4.4%
Russell 2000 YTD +1.8%

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