Day Traders Diary


The stock market capped a cautious week with a rally that sent the S&P 500 higher by 1.3%. The Russell 2000 (-0.3%) underperformed, but the small-cap index still ended the week higher by 2.8% versus a 1.0% decline for the S&P 500.

Equities spiked at the start of the session after overnight comments from central bank officials boosted investor sentiment. To that point, European Central Bank executive member Benoit Coeure said that ECB purchases of asset-backed securities are set to begin within days, while Bank of England Chief Economist Andy Haldane also walked the dovish line, saying that recent economic data speaks in favor of delaying the BoE's first rate hike.

The comments were met with a rally across Europe, while U.S. futures spiked to ensure a higher start for the major averages. The Dow, Nasdaq, and S&P 500 spent the first two hours of the session in a steady climb, but reversed from their highs around noon ET and surrendered almost a third of their gains. For its part, the Russell 2000 gapped up at the open and retreated steadily throughout the session.

Interestingly, the early advance received significant support from high-beta areas like chipmakers and biotechnology, but session-long profit taking and the weakness of the small-cap index pressured high-beta groups from their highs.

The iShares Nasdaq Biotechnology ETF (IBB 265.21, +4.23) was up in excess of 2.5% at the start, but narrowed its gain to 1.6% by the close. Meanwhile, the health care sector (+1.6%) settled among the leaders.

Elsewhere, the PHLX Semiconductor Index notched its high during the initial 15 minutes, but narrowed its gain to 0.8% by the close. SanDisk (SNDK 82.80, -2.51) weighed, falling 2.9%, after its cautious guidance overshadowed better than expected earnings. For its part, the tech sector (+1.2%) settled just behind the S&P 500. Most large cap components held up well, but their strength was masked by a 2.6% decline in the shares of Google (GOOGL 522.97, -13.95) after the company reported disappointing quarterly results.

Another cyclical sector-industrials (+2.0%)-spent the day in the lead after General Electric (GE 24.82, +0.57) and Honeywell (HON 90.06, +3.67) reported better than expected results. General Electric beat bottom-line estimates by a penny, which has been a common theme for the conglomerate. Excluding today's report, the past five quarterly results from GE revealed either in-line results or one-cent beats.

Transport stocks also contributed to the strength of the sector with the Dow Jones Transportation Average (+1.5%) boosting this week's gain to 3.2%.

Today's advance caused participants to reduce their hedges, pressuring the CBOE Volatility Index (VIX 22.11, -3.09) to Monday's levels. However, VIX futures remained in backwardation with October contracts demanding the highest premium, which suggests options traders remain on the lookout for turbulence in the near-term.

Treasuries ended in the red with the 10-yr yield climbing four basis points to 2.20%.

Participation received a boost from options expiration with more than a billion shares changing hands at the NYSE floor.

Economic data was limited to Housing Starts/Building Permits and the preliminary reading of the Michigan Sentiment Survey:
Housing starts increased 6.3% in September to 1.017 million from a slightly upwardly revised 957,000 (from 956,000), while the consensus expected an increase to 1.013 million
Single-family construction rebounded after a one-month decline, increasing 1.1% to 646,000 from 652,000 in August
Multifamily housing starts increased 15.6% to 371,000 in September after falling 28.0% in August
The University of Michigan Consumer Sentiment Index increased to 86.4 in the preliminary reading for October from 84.6 while the consensus expected a decline to 84.0
Sentiment levels are at their highest point since July 2007
Over the past couple of weeks, severe volatility in the equity market resulted in a sharp drop in stock market prices. The effect on the consumer, however, was negligible
There is no economic data of note scheduled for a Monday release.

S&P 500 +2.1% YTD
Nasdaq Composite +2.0% YTD
Dow Jones Industrial Average -1.2% YTD
Russell 2000 -6.9% YTD

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