Day Traders Diary

12/9/14

The major averages ended the Tuesday session on a mixed note after starting the day with sharp losses. The Russell 2000 and Nasdaq Composite paced the rebound, climbing 1.7% and 0.5%, respectively, while the S&P 500 settled just below its flat line. The Dow shed 0.3% and was the weakest performer among the key indices.

Equity futures were pressured this morning after the overnight session featured a 5.4% plunge in China's Shanghai Composite, which endured its biggest one-day decline since 2009. The dive occurred after the index soared 25.0% in a month and was catalyzed by the People's Bank of China taking measures to tighten liquidity conditions. The central bank fixed the USDCNY exchange rate at its highest level since July and imposed stricter collateral rules on short-term loans.

The cautious sentiment carried over to the European session with Greece's ASE Index sinking 12.8% while the country's 10-yr yield surged 91 basis points to 7.95% after Prime Minister Antonis Samaras called for a presidential election. This took place right after the country was granted a two-month extension to meet its bailout requirements and the early indications suggest the election could put the Coalition of the Radical Left (Syriza) in power, which rattled markets. Adding insult to injury, Germany reported a 3.1% decline in November imports, which was the biggest drop in almost two years.

Despite the global weakness, U.S. equities did not spend much time near their early lows. In fact, the Russell 2000, which led the rebound, marked its low five minutes into the session and never looked back. Since most stocks in that arena are domestically-oriented, they benefited from the consideration that the difficulties for Greece and China make the U.S. economy (and market) look comparatively better. It didn't hurt either that the NFIB Small Business Optimism Index for November hit its highest level (98.1) since February 2007.

The strength among small caps emboldened investors to delve into some other high-beta areas like biotechnology and chipmakers. The iShares Nasdaq Biotechnology ETF (IBB 314.92, +1.13) gained 0.4%, but the health care sector (-0.4%) underperformed throughout the session.

However, biotechnology did help the Nasdaq make it into the green while chipmakers climbed off their opening lows with the PHLX Semiconductor Index returning to its flat line. Large cap components of the technology sector (+0.5%) also displayed some strength with Apple (AAPL 114.13, +1.73), Google (GOOGL 536.11, +5.38), and Oracle (ORCL 41.87, +0.50) adding between 1.0% and 1.5%.

Outside of technology, energy (+0.9%), materials (+0.3%), and industrials (+0.1%) were the only other advancers on the cyclical side. The energy sector ended in the lead while crude oil jumped 1.1% to $63.82/bbl.

Although biotechnology and chipmakers contributed to the rebound, another high-beta grouptransport stocksdid not play along. The Dow Jones Transportation Average (-0.6%) ended in the middle of its intraday range with airlines showing broad weakness after Spirit Airlines (SAVE 73.77, -10.70) issued disappointing guidance in reaction to increased promotional activity among its peers. Shares of SAVE plunged 12.7% while DJTA components Delta Air Lines (DAL 46.33, -1.01) and United Continental (UAL 62.52, -1.73) lost 2.1% and 2.7%, respectively.

Treasuries rallied in the morning, but surrendered a portion of their gains into the close. The 10-yr yield fell four basis points to 2.22%.

Also of note, the Dollar Index (88.73, -0.31) posted its second consecutive decline with the dollar giving ground to the yen. The dollar/yen pair was down as much as 300 pips and tested the 118.00 level before recovering to 119.60 into the afternoon.

Participation was a bit ahead of average with more than 810 million shares changing hands at the NYSE floor.

Economic data was limited to wholesale inventories and JOLTS:

Wholesale inventories increased 0.4% for a second consecutive month in October after an upward revision to the September data (from 0.3%) while the Briefing.com consensus expected an increase of 0.2%
Durable inventory levels were flat in October after increasing 0.7% in September with increases in hardware (1.6%) and machinery (0.4%) offsetting declines in autos (-1.4%) and professional equipment (-0.7%)
Nondurable inventories increased 1.2% in October after being unchanged in September with petroleum inventories falling 1.9%, which was more than offset by gains in farm products (3.6%), drugs (3.2%), and groceries (1.1%)
The Job Openings and Labor Turnover Survey for October indicated job opening increased to 4.834 million from 4.685 million
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while the Treasury Budget for November will cross at 14:00 ET (Briefing.com consensus -$59.00 billion).

Nasdaq Composite +14.1% YTD
S&P 500 +11.4% YTD
Dow Jones Industrial Average +7.4% YTD
Russell 2000 +2.0% YTD

All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.