Day Traders Diary

4/22/14

Equity indices strung together a daylong rally on Tuesday, giving the S&P 500 its sixth consecutive advance. Some selling during the final hour of action pressured the indices from their highs, but they still ended with the bulk of their gains. The benchmark index added 0.4% with eight sectors finishing in the green, while the Nasdaq (+1.0%) outperformed throughout the session.
Although the stock market began the day on a flat note, the major averages quickly took the lead from two heavily-weighted sectorsconsumer discretionary (+0.8%) and health care (+1.0%)that displayed strength out of the gate.
The health care sector spent the entire session in the lead due, in part, to the relative strength of biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 234.72, +7.38) jumped 3.3% to post its third consecutive gain. M&A activity also contributed to the sector's outperformance as Allergan (AGN 163.65, +21.65) surged 15.3% after Valeant (VRX 135.41, +9.40) proposed a merger for $48.30 in cash and 0.83 shares of Valeant for each share of Allergan.
Elsewhere, the discretionary space was underpinned by a solid 7.0% gain in the shares of Netflix (NFLX 372.90, +24.41), which spiked in reaction to above-consensus earnings. The remainder of the sector held up nearly as well with homebuilders (ITB +0.8%) and retailers rallying (XRT +1.2%), while quick-service restaurants appeared unaffected by disappointing earnings from McDonald's (MCD 99.32, -0.35). The fast food giant reported bottom-line results $0.03 below the Capital IQ consensus estimate as comparable sales in the U.S. declined 1.7% during the first quarter.
Among other earnings of note, Dow components Travelers (TRV 86.89, +0.49) and United Technologies (UTX 119.19, +0.89) reported better than expected earnings, while their respective sectors ended in mixed fashion. Financials (+0.7%) settled among the leaders after lagging through the first half of action, whereas the industrial sector (+0.01%) kept pace with the S&P 500 during early afternoon action, but slumped into the close.
Even though the industrial sector ended well below its session high, that was not the case with transports as the Dow Jones Transportation Average advanced 0.6% to a fresh all-time high. Delta Air Lines (DAL 34.95, +1.01) gained 3.0% ahead of its quarterly report, which is expected ahead of Wednesday's opening bell.
On the downside, consumer staples (-0.1%) and energy (-0.2%) were the only two sectors ending in the red.
The Treasury market displayed gains overnight, but slumped shortly after the New York open, before reclaiming its losses into the close. The 10-yr yield ended at 2.72%.
Participation was on the light side as just over 665 million shares changed hands at the NYSE floor.
Today's economic data featured just two reports:
Existing home sales fell 0.2% in March to 4.59 million SAAR from an unrevised 4.60 million SAAR in February. The Briefing.com consensus expected existing home sales to remain at 4.60 million SAAR. Over the past three months, existing home sales have averaged only 4.603 million SAAR, down from an average of 4.94 million SAAR in Q4 2013. Initially, the decline in sales was attributed to extreme weather conditions at the beginning of 2014. However, weather conditions returned more or less to normal in March and sales failed to rebound. A more likely explanation for the recent downward trend is that rising prices combined with higher mortgage rates have caused affordability conditions to weaken. As a result, first-time home buyers, who are needed to drive stable growth, only accounted for 30% of total purchases. In March 2012, first time buyers accounted for 33% of total sales.
The February Housing Price Index from the FHFA increased 0.6%, which followed a revised uptick of 0.4% observed during the prior month.
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET and New Home Sales for March (Briefing.com consensus 455K) will be reported at 10:00 ET.

S&P 500 +1.7% YTD
Dow Jones Industrial Average -0.4% YTD
Nasdaq Composite -0.4% YTD
Russell 2000 -0.6% YTD

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