Day Traders Diary


The major averages ended Friday with a broad-based retreat that caused the market to turn negative for the week. The S&P 500 lost 1.1%, ending the week lower by 1.0%, while the Russell 2000 (-1.6%) underperformed today, but ended the week in-line with the benchmark index.

For background on today's retreat, we must start with the overnight session when a widespread outage took all Bloomberg terminals offline, which prevented large investors around the globe from communicating with their peers. The outage was followed by a plunge in Hang Seng and China-linked futures after China Regulatory Commission announced plans to ban margin financing for over-the-counter trades while also increasing the number of stocks eligible for short selling to 1,100.

In all likelihood, participants saw the big slide in Asia with little news to account for the move at that time and responded by reducing their risk exposure. Interestingly, S&P futures hit their overnight low around the time when access to Bloomberg terminals was restored and large investors could communicate with others once again.

That being said, the cautious posture persisted through the European session with Greece-related concerns keeping investors on the defensive. To that point, overseas units of Greek banks have been asked to divest their Greek sovereign debt holdings to avoid contagion in the event of a default. The request was reportedly issued by various central banks with backing from the European Central Bank. As a result, investors showed increased demand for German bunds with the 10-yr yield ticking down to 0.08% after dropping as low as 0.05%. 

Meanwhile, U.S. Treasuries endured a volatile session. The 10-yr note rallied overnight, but that was followed by a morning retreat, which was followed by an intraday climb to a fresh high, dropping the benchmark yield three points to 1.86%.

As for stocks, the S&P 500 dropped below its 50-day moving average (2,085) during late-morning action and distanced itself from that level into the afternoon. Taking a look at the bigger picture, this week's retreat placed the benchmark index smack dab in the middle of a range (2,040-2,120) that has held since early February even though earnings estimates for Q1 have been reduced during that stretch.

Speaking of earnings, most of the reports released since yesterday's closing bell surpassed bottom-line estimates, but revenue growth and guidance left a lot to be desired. General Electric (GE 27.25, -0.03) was a good example as the industrial conglomerate reported what has become a customary one-cent beat while revenue fell 3.1% year-over-year. Similarly, Honeywell (HON 101.70, -2.22) reported a bottom-line beat, but lower guidance and below-consensus revenue sent the stock lower by 2.1%.

Moving to other cyclical sectors, financials (-1.3%) finished near the bottom of the barrel with American Express (AXP 77.32, -3.59) contributing to the relative weakness. The Dow component lost 4.4% after its earnings beat was overshadowed by light revenue.

Elsewhere, the consumer discretionary sector (-1.5%) also finished among the laggards with media names extending their losses during the afternoon after Bloomberg reported that federal regulators are leaning in favor of opposing the proposed merger between Time Warner Cable (TWC 149.61, -8.59) and Comcast (CMCSA 58.42, -1.25). The two names ended lower by 5.4% and 2.1%, respectively. On the flip side, toymaker Mattel (MAT 26.74, +1.48) escaped the broad pressure, climbing 5.8% after reporting better than expected results.

All in all, the six cyclical sectors lost between 0.8% and 1.5% while the countercyclical side was treated to a lighter shade of red with the four defensively-oriented groups falling between 0.3% and 0.9%.

Today's trading volume surpassed recent averages thanks to a boost from options expiration with more than 865 million shares changing hands at the NYSE floor.

Economic data included CPI, Leading Indicators, and Michigan Sentiment:
  • Consumer prices increased 0.2% for a second consecutive month in March while the consensus expected an increase of 0.3% 
    • Energy prices rose 1.1% in March after increasing 1.0% in February 
      • Gasoline prices, one of the main drivers of the increase in energy costs, rose 3.9% in March after increasing 2.4% in February 
    • Food prices declined 0.2% in March after increasing 0.2% in February 
    • Excluding food and energy, core CPI increased 0.2% for a third consecutive month in March while the consensus expected an increase of 0.1% 
  • The Conference Board's Leading Economic Index increased 0.2% in March after increasing a downwardly revised 0.1% (from 0.2%) in February while the consensus expected an increase of 0.3%. 
  • The University of Michigan Consumer Sentiment Index increased to 95.9 in the preliminary April reading from 93.0 in March while the consensus expected an increase to 94.0 
    • Consumer sentiment recovered the entire decline from February (95.4) despite relatively higher gasoline costs and a significant weakening in the latest payrolls data. 
    • The Current Conditions Index increased to 108.2 in April from 105.0 in March. The Expectations Index increased to 88.0 from 85.3. 
Monday's session will be free of economic data.
  • Nasdaq Composite +4.1% YTD 
  • Russell 2000 +4.0% YTD 
  • S&P 500 +1.1% YTD 
  • Dow Jones Industrial Average UNCH YTD 


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