Day Traders Diary

2/5/15

The major averages zoomed higher on Thursday, allowing the S&P 500 (+1.0%) to reclaim its loss from yesterday and then some. The benchmark index erased the remainder of its decline from January while the Dow (+1.2%) and Russell 2000 (+1.3%) outperformed. 

Equity indices made the bulk of their advance during the opening hour and spent the rest of the trading day in narrow ranges near their highs. The opening spike took place after investors realized that yesterday's ECB decision to lift a waiver that allowed for the acceptance of Greek government bonds as collateral was political at its core.

For the time being, Greek banks are still allowed to turn to the Bank of Greece, which in turn has access to funds through Emergency Liquidity Assistance from the European Central Bank. To that point, Germany's Die Welt reported that the ECB has granted up to EUR60 billion in funding to the Bank of Greece through ELA channels.

That being said, the negotiations are unlikely to unfold without a hitch, evidenced by today's press conference after Greece's Finance Minister Yanis Varoufakis met with his German counterpart Wolfgang Schaeuble. Mr. Schaeuble said he was advised to say the two "Agreed to disagree," but Mr. Varoufakis countered, saying "We didn't even agree to disagree."

The S&P 500 opened just above its 50-day moving average (2,044) and built on its early gain with the assistance from most sectors. The materials space (+2.4%) finished in the lead while health care (+1.6%) and energy (+1.4%) also outperformed.

The energy sector received a helping hand from crude oil, which followed yesterday's 9.3% plunge with a 4.2% spike to $50.47/bbl. Despite the surge, the energy component remains below its 50-day moving average, which resides in the $55.00/bbl area.

Meanwhile, the health care sector benefitted from strength in the biotech group with the iShares Nasdaq Biotechnology ETF (IBB 319.91, +7.36) climbing 2.4% to snap its four-day losing streak. Furthermore, Dow component Pfizer (PFE 32.99, +0.92) added 2.9% after agreeing to acquire Hospira (HSP 87.64, +22.84) for $90/share, which represents a 38.9% premium to HSP's closing price from yesterday.

Elsewhere among influential sectors, financials (+1.0%), industrials (+1.0%), and technology (+0.9%) finished near the broader market while the consumer discretionary sector (+0.6%) underperformed. Homebuilders struggled amid today's increase in Treasury yields with the iShares Dow Jones US Home Construction ETF (ITB 26.20, -0.15) shedding 0.6%. Also of note, apparel names ended in mixed fashion with Michael Kors (KORS 69.77, -1.61) falling 2.3% after cautious guidance and below-consensus comparable store sales overshadowed a bottom-line beat.

Treasuries retreated, ending near their lows with the 10-yr yield higher by six basis points at 1.81%.

Today's participation was below average with roughly 775 million shares changing hands at the NYSE floor.

Economic data included Initial Claims, Trade Deficit, Productivity/Unit Labor Cost Data, and Challenger Job Cuts:

The initial claims level increased to 278,000 from an upwardly revised 267,000 (from 265,000) while the Briefing.com consensus expected an increase to 290,000 

For the first few weeks of January, the initial claims level suddenly accelerated above 300,000. There was no supporting evidence that explained the increase, but we assumed that it must have been the result of increased layoff activities in the oil and gas sector

The trade deficit widened to $46.60 billion in December from a downwardly revised $39.8 billion ($39.0 billion) in November while the consensus expected a decrease to $38.00 billion 

According to the advance fourth quarter GDP report, the BEA assumed that the trade deficit would widen in December to roughly $45.00 billion. Not only did the December deficit exceed those expectations but inclusion of the downside November revisions means that the trade deficit will subtract more from GDP growth in the second estimate than it did in the advance release

Nonfarm labor productivity declined 1.8% in the fourth quarter after increasing an upwardly revised 3.7% (from 2.3%) in Q3 2014 while the Briefing.com consensus expected an increase of 0.2% 

Unit labor costs increased 2.7% in the fourth quarter after declining in both the second and third quarters. The increase resulted from a 0.9% jump in hourly compensation coupled with lower output gain

The Challenger Job Cuts report for January indicated a 17.6% increase to follow the prior rise of 6.6%

Tomorrow, the Nonfarm Payrolls report for January will be released at 8:30 ET (Briefing.com consensus 235K) while the Consumer Credit report for December will cross at 15:00 ET (consensus $15.00 billion).

Nasdaq Composite +0.6% YTD

Dow Jones Industrial Average +0.4% YTD

Russell 2000 +0.3% YTD

S&P 500 +0.2% YTD