Day Traders Diary


The S&P 500 fell 0.6% in the final session of the third quarter, trimming its quarterly advance to 4.7%.

Stocks stumbled out of the gate as political uncertainty in Washington and Italy caused participants to reduce their risk exposure.

In Washington, the federal government is on track to shut down at midnight following a game of political ping pong between the House of Representatives and the Senate. The two legislative bodies spent the day exchanging competing bill proposals with the House seeking to make changes to Obamacare while the Senate refused to engage in debate that would jeopardize funding for the health care law.

Overseas, the Italian government is on the ropes after five PDL ministers withdrew their support for the current legislature at the request of party leader Silvio Berlusconi. With the country's future in question, Prime Minister Enrico Letta is expected to appear in front of parliament on Wednesday to seek a new majority. Despite today's developments, Italian 10-yr yield ended little changed at 4.57% after increasing 20 basis points late last week in anticipation of the turmoil.

After notching their lows during the opening minutes, the major averages spent the first-half of the session in a steady climb with the Nasdaq (-0.3%) and Russell 2000 (-0.04%) pacing the rebound. The outperformance of the two indices was a recurring theme throughout the third quarter as the Nasdaq and Russell ended with respective gains of 10.8% and 9.9%.

All ten sectors settled in the red with consumer staples (-1.1%) leading to the downside. Meanwhile, other countercyclical groups ended mixed. Health care (-0.3%) and utilities (-0.1%) outperformed while telecom services (-0.6%) finished in-line.

The S&P 500 struggled with its 50-day moving average (1680) throughout the afternoon, but managed to close just above that level despite weakness among several cyclical sectors. Notably, energy, financials, and technology lost between 0.6% and 0.8% with energy leading to the downside as crude oil fell 0.5% to $102.32 per barrel.

Elsewhere, major financials lagged throughout the day. JPMorgan Chase (JPM 51.69, -0.55) was the weakest performer among the majors while the broader sector lost 0.7%.

Lastly, the technology sector saw some of its top components like Apple (AAPL 476.75, -6.00), Oracle (ORCL 33.17, -0.61), and Visa (V 191.10, -1.95) lose between 1.0% and 1.8%. Chipmakers withstood the bulk of the selling as the PHLX Semiconductor Index ended flat.

Treasuries ended little changed with the benchmark 10-yr yield down at 2.61%.

Trading volume surpassed the 200-day moving average of 728 million as 878 million shares changed hands on the floor of the New York Stock Exchange.

Economic data was limited to the September Chicago PMI report, which increased to 55.7 from 53.0 ( consensus 53.7), representing the strongest reading since February. The Production Index improved to 58.0 from 53.0 with the increase completely due to continued strengthening in new orders.

The new orders index increased to 58.9 from 57.2. Another month of accelerating production gains may not be in the cards. Order backlogs have contracted each of the previous four months, putting the index at 46.7. Without a steady supply of backlogs, production gains will completely rely on new orders, and maintaining new orders at their current elevated levels may be difficult.

Tomorrow, August construction spending and the September ISM Index will both be reported at 10:00 ET.

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