Day Traders Diary

6/24/13

The stock market began the week on a fitful note as rising interest rates at home and falling equity markets abroad conspired to keep the major averages in negative territory throughout today's trading. The focal points on those fronts were the 10-yr note yield, which spiked to 2.66% in early action, and China's Shanghai Composite, which plummeted 5.3% overnight.

The drop in China was attributed to a growing sense of angst that a liquidity crisis and credit crunch are brewing there. That notion is predicated on the understanding that the People's Bank of China (PBOC) is purposely backing away from injecting liquidity in an effort to curtail speculative excesses through the lending channel. The PBOC fed this notion by acknowledging today that there is sufficient liquidity in the system and by admonishing Chinese banks to do a better job of cash and risk management.

Whether the PBOC sticks to its guns remains to be seen, but the hardline stance it took today got the week started off on the wrong foot for global markets.

It didn't help matters either that follow-through selling efforts persisted in the Treasury market. The 10-yr note fell more than a point at its worst levels of the morning, sending its yield up to 2.66% or nearly 50 basis points above its cash settlement last Tuesday. Contributing to that selling effort was a warning from the Bank for International Settlements that central banks should end their bond purchases and focus on inflation while letting governments spearhead the economic recovery effort.

Traders wasted little time getting the US stock market on track with its foreign counterparts. Things never got as bad as they did in China, but the Dow, Nasdaq, and S&P 500 were down as many as 248, 62, and 32 points, respectively, at their lows in the morning session. That equated to a 2.0% decline for the S&P 500.

The stock market, however, did show some fight when the Treasury market got off the mat. Remarkably, the 10-year note recouped everything it lost early and traded with modest gains in the afternoon before getting some pushback late in the day. That rebound effort saw the 10-yr yield drop back to 2.53% before it faded into the cash close and settled at 2.55%.

The recovery effort in the stock market seemed to mirror that move. The S&P 500 cuts its losses to single digits and the Dow reclaimed more than 200 points of its early losses by mid-afternoon; however, the market rolled over in the final hour as bonds faded and sellers renewed their profit-taking efforts.

The global growth concerns linked to China and rising interest rates weighed heavily on the cyclical sectors throughout the day. Financials (-1.8%) led the losses and were joined by materials (-1.7%), industrials (-1.7%), energy (-1.5%), and technology (-1.4) as the worst-performing areas. Every sector ended lower today, although the countercyclical sectors were not impacted as much by the selling interest. The utilities sector, for instance, ended with only a negligible loss.

Industrial metals also fared poorly. Copper prices fell 1.8% to $3.04/lb. Crude prices were a notable standout in the commodity complex, rising 1.3% to $94.93/bbl.

The roller-coaster action today left the CBOE Volatility Index on its own roller-coaster ride. It was up 10% at one point, gave that entire gain back, and then finished up 5.6% at 19.96 with the late selloff in stocks.

There wasn't any economic data to trade off today, but that will change tomorrow with a full lineup that includes the April Case-Shiller Home Price Index, May Durable Goods, May New Home Sales, and June Consumer Confidence reports.

Volume was heavy today with 968 mln shares traded at the NYSE. The A/D line reflected the market's negative disposition. Declining issues at the NYSE outnumbered advancing issues by a 7-to-1 margin while at the Nasdaq they led by a 3-to-1 margin.

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