Day Traders Diary

1/27/21

The major averages fell sharply on Wednesday amid disappointing earnings, while concern about heightened speculative trading activity deepened. The Dow Jones Industrial Average lost 633 points, or 2.1%, to 30,303 for its worst day since Oct. 28. The S&P 500 dropped 2.6% to 3,750, slipping from a record high and suffering its biggest drop in three months. Wednesday's steep losses wiped out the 2021 gains for the S&P 500. The tech-heavy Nasdaq Composite slid 2.6% to 13,270.60.

Boeing fell nearly 4% after its earnings report showed its 2020 net loss hit a record of $11.9 billion amid the 737 Max grounding and the coronavirus pandemic. Shares of AMD tumbled more than 6% even after the chipmaker posted revenue and earnings that beat Wall Street's already high expectations.

But it was intensifying speculative behavior among retail investors that was causing the most concern. Heavily shorted names, including GameStop and AMC Entertainment, continued to be pushed higher by amateur day traders in online chat rooms. Some investors are worried about mounting losses by hedge funds spilling over to other areas of the market as those funds sell other securities to raise cash. Investors are also concerned the speculative behavior is a sign the market is overvalued, and a pullback is near.

GameStop shares exploded again, more than doubling on Wednesday. CNBC learned Melvin Capital, the hedge fund targeted by the retail investing crowd on Reddit had sold out of its short position. More hedge funds were facing big losses because of their losing short positions, CNBC's David Faber reported on Wednesday.

AMC soared more than 300% Wednesday. More than one billion AMC shares traded in the name during the session.

TD Ameritrade midday Wednesday said it put in place restrictions on certain transactions involving GameStop and AMC "in the interest of mitigating risk for our company and clients."

But the strategist added that the sell-off Wednesday was temporary and stocks would resume their upswing soon.

The Cboe Volatility Index, known as the VIX or Wall Street's fear gauge, jumped above 30 on Wednesday, hitting its highest level since November.

The Federal Reserve failed to stem the market sell-off even as it said it would kept interest rates unchanged near zero, while maintaining an asset purchasing program with at least $120 billion buying a month.

Microsoft gained 0.3% after reporting a stellar quarter. Sales grew by 17% on a year-over-year basis in its fiscal second quarter, while its cloud business accelerated.

U.S. Treasuries finished with modest gains amid the weak performance in the stock market and were less influenced by the Fed today. The 2-yr yield declined one basis point to 0.12%, and the 10-yr yield declined three basis points to 1.01%. The U.S. Dollar Index rose 0.5% to 90.65. WTI crude futures increased 0.4% to $52.84/bbl amid bullish inventory data.

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