Day Traders Diary

1/5/15

The stock market began the first full week of 2015 on a cautious note. The S&P 500 lost 1.8% while the Russell 2000 (-1.3%) outperformed.

Stocks began sliding at the sound of the opening bell amid weakness in Europe that was brought on by renewed fears of a potential Greek exit from the eurozone. With the January 25 Greek snap elections fast approaching, voices out of Germany have tried to calm investors, but those calls have fallen on deaf ears so far. Over the weekend, German Chancellor Angela Merkel said that a Greek exit from the eurozone would be manageable, but the comments did not stop the euro from falling below the 1.1900 level against the dollar immediately after the foreign exchange market opened on Sunday evening. The single currency was able to rebound into the 1.1940 area by Monday afternoon, but markets across Europe ended the day broadly lower.

Interestingly, the dollar rallied against the euro, but surrendered almost 100 pips to the yen (119.60), suggesting a sense of caution was present among foreign exchange traders. Treasuries also benefitted from safe-haven demand that sent the benchmark 10-yr yield lower by seven basis points to 2.04%.

As for stocks, there is no denying that today's selling produced notable losses for many influential sectors, but it is worth pointing out that the retreat unfolded over the course of the session and did not have a panicky feel of investors running for the exits. That being said, the return of global macroeconomic concerns was enough for participants to reduce their risk exposure, leaving the S&P 500 up 2.4% from its mid-December low.

All ten sectors finished in the red with energy (-4.0%) spending the entire session at the bottom of the leaderboard. The growth-sensitive group endured aggressive selling in crude oil that caused the commodity to dip below the $50.00/bbl level for the first time since April 2009. The energy component settled lower by 5.3% at $50.03/bbl and continued inching down in electronic trade.

Broadly speaking, the continued crash in oil prices has not been viewed as a positive due to the magnitude of the move. Instead, the market's consciousness is allowing for the possibility that there could be some latent financial, or economic, risk in the plummeting price of oil and the commensurate slippage in copper prices, which have fallen roughly 53% and 16%, respectively, from their highs last summer.

Like energy, four other cyclical sectors ended the day behind the broader market while technology (-1.8%) settled in-line with the S&P 500. Even transport stocks that would be expected to rally on cheaper oil struggled to keep pace. The Dow Jones Transportation Average lost 2.7% to narrow its gain from the December low to 1.3%.

Elsewhere, the four countercyclical sectors finished ahead of the broader market, but they could not stay out of the red. The health care sector (-0.6%) did make an intraday appearance in positive territory, but could not build on that short-lived gain. Gilead Sciences (GILD 96.78, +1.88) spiked 2.0% after an intraday report revealed that CVS Health (CVS 94.16, -0.94) will give preferred status to a pair of Gilead's drugs. Shares of GILD contributed to the outperformance of the iShares Nasdaq Biotechnology ETF (IBB 305.85, -0.49), which shed 0.2%.

Among other movers of note, Morgan Stanley (MS 37.49, -1.22) fell 3.2% after announcing that one of its employees has been terminated after stealing partial account information of about 10 percent of clients of the Wealth Management department. The broader financial sector lost 2.1%.

Today's slide caused participants to increase their hedges, evidenced by a 13.0% spike in the CBOE Volatility Index (VIX 20.10, +2.24).

Participation was just ahead of average as 823 million shares changed hands at the NYSE floor.

Tomorrow, Factory Orders for November (Briefing.com consensus -0.4%) and the ISM Services Index for December (consensus 58.5) will both be released at 10:00 ET.

Dow Jones Industrial Average -1.8% YTD
Nasdaq Composite -1.8% YTD
S&P 500 -1.9% YTD
Russell 2000 -1.9% YTD