Day Traders Diary

8/6/14

The major averages spent some time on both sides of their flat lines on Wednesday before ending little changed. The S&P 500 settled on its flat line with six sectors finishing in the red, while the Russell 2000 (+0.3%) displayed relative strength throughout the session.

Although stocks finished on a flat note, the early indication suggested the market could be in for a rough day as economic data from the eurozone and domestic corporate news weighed.

On the economic front, Germany reported its second monthly decline in factory orders (-3.2% versus expected 1.0%; prior -1.6%), while the Italian economy slipped into recession following its second consecutive quarterly GDP contraction (-0.2%; previous -0.1%).

Back at home, two potential acquisitions were called off with 21st Century Fox (FOXA 32.33, +1.03) terminating its pursuit of Time Warner (TWX 74.24, -10.95) and Sprint (S 5.90, -1.38) withdrawing its offer for T-Mobile (TMUS 31.06, -2.85).

In addition, shares of Walgreen (WAG 59.21, -9.91) plunged 14.3%, which also contributed to the early weakness. The drugstore operator said it will acquire the remaining 55.0% stake in Alliance Boots that it does not currently own and that it will not move its corporate headquarters out of the United States.

Despite the opening weakness, the S&P 500 was quick to find support at its 100-day moving average. The index breached that level for the first time since mid-April, but was able to claw back to its flat line in short order. However, extending the rebound proved challenging as a handful of influential sectors like consumer discretionary (-0.3%), health care (-0.1%), industrials (-0.5%), and technology (-0.2%) weighed.

Notably, the industrial sector lagged throughout the session amid weakness in defense contractors and transport stocks. The PHLX Defense Index lost 1.0%, while the Dow Jones Transportation Average fell 0.6% to extend its week-to-date loss to 1.4%. Almost all 20 components of the bellwether complex posted losses with the lone bright spot appearing among airlines. Alaska Air (ALK 42.94, +0.22) and JetBlue (JBLU 10.92, +0.14) added 0.5% and 1.3%, respectively.

Elsewhere, the health care sector posted a slim loss, while biotech stocks displayed some intraday volatility. The iShares Nasdaq Biotechnology ETF (IBB 251.82, +0.18) ended just above its flat line after alternating between gains and losses during the session.

On the upside, yesterday's weakest sectorenergy (+0.4%)seized the lead at the open, but surrendered a significant portion of its gain during the afternoon.

Outside of energy, financials (+0.4%), materials (+0.7%), and consumer staples (+0.9%) were the only sectors to register gains. The materials space drew strength from mining stocks. The Market Vectors Gold Miners ETF (GDX 26.69, +0.59) gained 2.3%, whereas gold futures jumped 1.8% to $1308.30/ozt.

Treasuries held gains throughout the session, but the 10-yr note relinquished roughly two-thirds of its advance by the close. The benchmark 10-yr yield slipped two basis points to 2.47%.

Participation was a bit below average with fewer than 680 million shares changing hands at the NYSE floor.

Economic data was limited to the June Trade Deficit and the MBA Mortgage Index:
The U.S. trade deficit narrowed to $41.50 billion in June from an upwardly revised $44.70 billion (from $44.40 billion), while the Briefing.com consensus expected an increase to $45.20 billion
According to the advance estimate for Q2 2014 GDP, the BEA assumed the trade deficit widened to roughly $45.10 billion in June. The fact that the deficit was much smaller than the BEA expected suggests that the new trade balance will contribute positively in the second estimate
The goods deficit fell to $60.30 billion in June from $63.30 billion in May
The services surplus remained at $18.70 billion
Exports increased by 0.1% in June, while imports declined 1.2%
The weekly MBA Mortgage Index rose 1.6% to follow last week's 2.2% decline
Tomorrow, weekly initial claims (Briefing.com consensus 308K) will be released at 8:30 ET, while the Consumer Credit report for June (consensus $15.80 billion) will cross the wires at 15:00 ET.
S&P 500 +3.9% YTD
Nasdaq Composite +4.3% YTD
Dow Jones Industrial Average -0.8% YTD
Russell 2000 -3.1% YTD

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