Day Traders Diary


It was a poor start to the week for the equity market and the same thing could be said for politics in Washington. The two were inextricably linked today as stock market participants were put off by some revelations from House Speaker Boehner over the weekend that made it sound as if partisan positions are hardening and not easing the closer we get to the October 17 debt limit deadline.

In particular, Mr. Boehner told ABC's George Stephanopolous that:

the House does not have the votes to pass a clean continuing resolution
the votes are not in the House to pass a clean debt limit increase; and
the US is on a path to default because President Obama won't negotiate over the debt ceiling
Mr. Boehner's viewpoints were decried by his opponents as reckless rhetoric. The bottom-line for the market, however, is that nothing has been done yet with respect to the budget and debt ceiling. That understanding in turn left many participants sticking to the sidelines on concern that a deal may wait until the last minute.

Even though conventional wisdom holds that a deal will get done and that a worst-case scenario will be averted, the market is nonetheless mindful that a similarly-held position in 2011 didn't stop the S&P 500 from falling 17% between July 22 and August 8 that year.

Not surprisingly, volume was on the light side today as the incentive to participate was taken away by Washington's woes.

An absence of buyers paved a path to a sizable decline when the opening bell rang. Shortly after the start of trading, the Dow, Nasdaq, and S&P 500 dropped 152, 34, and 16 points, respectively. They would soon attract some buying interest with the S&P 500 holding support in the 1675/1674 area. The opening losses would eventually be cut in half, but the rebound effort ran out of steam. The major indices were then range-bound for the majority of today's session until they rolled over again in the final hour on a wave of late selling pressure that transpired without a specific news catalyst.

The only sector to escape today's weakness was the telecom services sector (+0.6%). All other sectors traded lower with the growth-sensitive cyclical sectors bearing the brunt of the selling pressure. The consumer discretionary (-1.4%), financial (-1.2%), and materials (-1.2%) sectors were the biggest losers.

In terms of market cap size, the small-cap Russell 2000 (-1.1%) and S&P 400 mid-cap (-1.1%) averages were the hardest hit, although the blue chip averages were not far behind, demonstrating that today's selling was broad-based.

The standout performer today was the CBOE Volatility Index (19.24, +2.50). It surged 15% to a three-month high as participants were positioning for an increase in near-term volatility.

The Consumer Credit report for August was the lone economic release today. The report, which is compiled by the Federal Reserve, showed consumer credit increased $13.6 bln ( consensus $11.8 bln) versus a prior increase of $10.4 bln. Like most other consumer credit reports, though, this one was also glossed over given its dated nature and history of seeing large revisions.

The August trade balance report and the JOLTS - Job Openings report were due to be released on Tuesday, but they will be delayed on account of the partial government shutdown which is looking like it will enter its eighth day on Tuesday.

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