Day Traders Diary

12/12/14

The major averages ended the week on a broadly lower note with the S&P 500 registering its first weekly decline in more than two months. The benchmark index fell 1.6% to widen its weekly loss to 3.5% while the Nasdaq Composite (-1.2%) displayed relative strength, but still lost 2.7% for the week.

Last evening, the House of Representatives passed a $1.1 trillion spending bill to fund the government through September, but that news took the back seat to today's main event, which took place in the oil trading pits with other markets responding to the happenings there.

Overnight, the International Energy Agency issued its fourth global demand forecast cut in five months, which kept the pressure on crude oil ($57.80/bbl). The energy component ended the pit session lower by 3.7% for the day and lost nearly 11.0% for the week.

Furthermore, the decline widened oil's slide from the mid-year high of $107.73/bbl to 46.3%, thus rekindling concerns about how this drop will be handled by energy companies and other entities that rely on a higher price of the commodity. This was most notable in the energy sector (-1.9%), which ended the week lower by 7.8%.

Of course there is another side to lower oil prices, and the benefit that consumers are expected to receive from cheaper gasoline did not go unnoticed. However, the broader implications of the big plunge in crude price caused a reduction in overall risk exposure. Understandably, the consumer discretionary sector (-0.6%) was a spot of relative strength with retailers and restaurant names showing strength. The SPDR S&P Retail ETF (XRT 92.28, +0.57) gained 0.6%.

However, the remaining cyclical sectors ended in-line with or behind the broader market. Equities tried to stage a comeback from their opening lows with a near-record high reading of the Michigan Sentiment Index providing a short-lived confidence boost that evaporated over the next hour. A fresh round of selling in the afternoon sent the major averages to new lows into the close.

Outside of energy, commodity-linked sectors like industrials (-1.8%) and materials (-2.8%) bore the brunt of the pressure while influential groups like financials (-2.0%) and technology (-1.5%) did little to stem the bleeding.

Among industrials, transport stocks held up relatively well with the Dow Jones Transportation Average losing 'only' 0.9%, but defense contractors kept the sector behind the broader market. The PHLX Defense Index lost 2.9% with Dow components Boeing (BA 120.77, -2.60) and General Electric (GE 24.89, -0.52) each tumbling 2.1%.

Elsewhere, the technology sector ended in-line with the market. Apple (AAPL 109.85, -1.77) and IBM (IBM 155.38, -5.69) lost 1.6% and 3.5%, respectively, with the latter weighing on the Dow. On the upside, Adobe Systems (ADBE 76.06, +6.32) surged 9.1% after reporting better than expected results.

Shares of Adobe helped the Nasdaq Composite end a bit ahead of the broader market, but the index was also kept from sliding deeper into the red by the outperformance of biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 306.10, -3.95) lost 1.3% after making a brief intraday appearance in the green. As for health care, the sector ended just a step ahead of the market.

Safe haven demand gave a boost to Treasuries with the 10-yr yield ending lower by eight basis points at 2.10%, which represented a 21-basis point decline for the week.

Also of note, the CBOE Volatility Index (VIX 21.82, +1.74) spiked almost 9.0% to its highest level since late October as participants showed demand for downside protection.

The sell-off invited above average participation with more than 940 million shares changing hands at the NYSE floor.

Economic data included PPI and Michigan Sentiment:

Producer prices declined 0.2% in November after increasing by 0.2% while the Briefing.com consensus expected a decline of 0.1%
As expected, energy prices fell for the fifth consecutive month with total costs declining 3.1% in November, which followed a 3.0% decline in October
Gasoline prices dropped 6.3%
After increasing 1.0% in October, food prices declined 0.2%
Excluding food and energy, core PPI was unchanged in November after increasing 0.4% while the consensus expected an increase of 0.1%
The University of Michigan Consumer Sentiment Index increased to 93.8 in the preliminary December reading from 88.8 while the Briefing.com consensus expected an increase to 89.5
The December reading marked the highest point in consumer sentiment since the index reached 96.9 in January 2007
Strong improvements in the labor market and lower gasoline prices offset a slightly downward trending stock market, which helped boost sentiment
On Monday, the Empire Manufacturing Index for December (Briefing.com consensus 14.0) will be released at 8:30 ET while November Industrial Production (consensus 0.7%) and Capacity Utilization (consensus 79.3%) will cross the wires at 9:15 ET. The NAHB Housing Market Index for December (expected 58) will be reported at 10:00 ET and the Net Long-Term TIC Flows for October will cross at 16:00 ET.

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