Day Traders Diary

11/4/14

The major averages ended the Tuesday session on a mixed note. The Dow Jones Industrial Average (+0.1%) spent the bulk of the day near its flat line while the S&P 500 settled lower by 0.3%.

Stocks were pressured from the start, but the early weakness could be traced back to Europe where the European Commission lowered its GDP forecast for the region. The commission now expects 2014 GDP to grow at 0.8% (prior 1.2%) while the forecast for 2015 was lowered to 1.1% from 1.7%.

Also in Europe, a report from Reuters has revealed a potential power struggle at the European Central Bank. According to the report, ECB board members have been unhappy with President Mario Draghi effectively making some policy decisions on his own. Furthermore, the report claimed that up to ten out of 24 ECB members are not in favor of a sovereign QE program.

In all likelihood, the news of strong opposition to quantitative easing is why the euro climbed following the report. The single currency advanced to 1.2550 against the greenback, which contributed to a 0.4% decline in the Dollar Index (87.05, -0.25).

The downtick in the dollar did little to prevent crude oil from falling in response to the lowered growth outlook for the eurozone and lower export prices from Saudi Arabia. The energy component fell 2.0% to $77.13/bbl. For its part, the energy sector (-1.9%) spent the entire session at the bottom of the leaderboard.

The significant weakness in energy kept the market under pressure while other cyclical groups were mixed. Financials (+0.1%), industrials (+0.1%), and technology (unch) displayed relative strength while consumer discretionary (-1.3%) and materials (-1.0%) lagged.

Notably, the discretionary sector suffered from weakness among apparel names after Michael Kors (KORS 71.42, -6.57) issued disappointing comparable store sales guidance, which masked better than expected results. The stock tumbled 8.4%. Foot Locker (FL 53.63, -2.54) also weighed, falling 4.5% after announcing CEO Ken Hicks will be replaced by Richard Johnson. Homebuilders also pressured the sector with the iShares Dow Jones US Home Construction ETF (ITB 23.92, -0.26) ending lower by 1.1%.

Elsewhere, the industrial sector ended ahead of other cyclical groups thanks to gains among transport stocks. The Dow Jones Transportation Average added 0.4% with airlines leading the way after Delta Air Lines (DAL 42.32, +1.71) reported strong October metrics. However, the sector could not pull away from its flat line as growth concerns weighed on machinery stocks like Caterpillar (CAT 98.61, -1.61) and Joy Global (JOY 52.00, -0.31).

On the upside, the consumer staples sector (+0.5%) ended in the lead with help from upbeat earnings reported by Archer-Daniels Midland (ADM 49.54, +2.29). The health care sector (+0.1%) also finished in the green while telecom services (-0.2%) and utilities (-0.6%) registered losses.

Treasuries held intraday gains, but the 10-yr note returned to unchanged by the end of the session (2.33%). The long bond, meanwhile, ended in the green to lower its yield two basis points to 3.05%.

Participation was ahead of average with roughly 810 million shares changing hands at the NYSE floor.

Economic data was limited to the trade deficit and factory orders:

The September trade deficit widened to $43.00 billion from a downwardly revised $40.00 billion (from $40.10 billion) while the Briefing.com consensus expected the deficit to come in at $40.20 billion
According to the advance estimate of Q3 2014 GDP, the BEA assumed that the trade deficit narrowed to roughly $38 billion in September. The upward surprise should result in a downward revision to third quarter GDP in the second estimate
The goods deficit increased by $2.40 billion in September to $62.70 billion while the services surplus fell to $19.60 billion from $20.20 billion
Manufacturing orders declined 0.6% in September after falling an upwardly revised 10.0% (from -10.1%), while the Briefing.com consensus expected a decline of 0.5%
Durable orders fell 1.1% in September after declining 18.3% in August. That was a slightly stronger result than the 1.3% decline reported in the advance durable goods report
Much of the decline in durable goods demand resulted from a 14.7% decline in aircraft orders. Excluding transportation, durable goods orders slipped 0.1% in September
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while the October ADP Employment Change report (Briefing.com consensus 220K) will cross the wires at 8:15 ET. The day's data will be topped off with the 10:00 ET release of the ISM Services Index for October (consensus 58.0).

Nasdaq Composite +10.7% YTD
S&P 500 +8.9% YTD
Dow Jones Industrial Average +4.9% YTD
Russell 2000 +0.1% YTD

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