Day Traders Diary

5/19/15

The major averages ended the Tuesday session on an unchanged note after spending the entire day near their flat lines. The S&P 500 settled lower by 0.1% while the Dow Jones Industrial Average (+0.1%) outperformed slightly, edging up to another record closing high.

Overall, the Tuesday session was a snoozer that saw the benchmark index bounce inside a five-point range that was expanded to nine points by the close. The index was able to set a fresh intraday record high at 2,133.02 during the afternoon, but returned near its session low by the close.

For the second day in a row, heavily-weighted health care (+0.5%) and financials (+0.7%) outperformed throughout the day and kept the benchmark index from dipping too far below its flat line. The health care sector outperformed even as biotechnology struggled to keep pace with the iShares Nasdaq Biotechnology ETF (IBB 360.60, +0.30) adding 0.1%.

Elsewhere, the financial sector continued its recent outperformance amid increasing Treasury yields that are expected to boost net interest margins for banks. Thanks to today's gain, the sector is now up 3.4% in May versus a 2.0% gain for the S&P 500.

Treasury yields rose once again today, but not before an overnight rally in global bonds that followed remarks from European Central Bank executive member Benoit Coeure who said the ECB plans to frontload its asset purchases in hopes of avoiding thin liquidity conditions in July and August. The remarks boosted global bonds and weighed on the euro, sending the single currency lower by 1.5% against the dollar to 1.1150. Furthermore, the timing of the comments from Mr. Coeure was viewed as controversial because the original speech was delivered on Monday evening, London time, when the ECB member appeared before a private group of hedge fund investors; however, the speech was not released to the public until this morning. In response, the European Central Bank blamed the delay on an "internal procedural error."

Despite rallying overnight, U.S. Treasuries surrendered their gains in the morning after the April Housing Starts report beat expectations (1.135 mln; Briefing.com consensus 1.019 mln). True to recent form, the better than expected data point was seen as a potential headwind to the market considering a strong showing from the housing sector is likely to be used as an argument in favor of the Fed hiking rates sooner rather than later. That being said, homebuilder stocks outperformed with iShares Dow Jones US Home Construction ETF (ITB 27.30, +0.19) climbing 0.7%. Meanwhile, the broader consumer discretionary sector settled just below its flat line.

Also of note, another cyclical sector—energy—lost 1.2%, and settled behind the remaining nine groups as crude oil weighed. WTI crude ended lower by 3.6% at $58.08 and surrendered its May gain with the 1.1% increase in the Dollar Index (95.29, +1.07) adding to the pressure.

Today's participation represented an improvement from yesterday as more than 720 million shares changed hands at the NYSE floor.

Economic data was limited to Housing Starts and Building Permits:

Housing starts increased 20.2% in April to 1.135 mln from an upwardly revised 944,000 (from 926,000) in March while the Briefing.com consensus expected an increase to 1.019 mln 

After the subpar first quarter, when housing starts plummeted to some of their worst levels since the middle of last year, construction levels rebounded significantly in April.

This was the first time starts reached 1.135 mln since November 2007 and it was the first time starts increased by at least 20.2% in a month since a 20.9% increase in February 1991.

Single-family starts increased 16.7% in April to 733,000 from 628,000 in March. That was the most single-family homes started since January 2008 when 773,000 were started.

Building permits rose to a seasonally adjusted annualized rate of 1.143 mln in April from a revised 1.038 mln for March (from 1.039 mln) while the Briefing.com consensus expected a reading of 1.065 mln

Tomorrow, the Weekly MBA Mortgage Index will be reported at 7:00 ET while the FOMC minutes from the April 29 meeting will be released at 14:00 ET.

Nasdaq Composite +7.1% YTD

Russell 2000 +4.4% YTD

S&P 500 +3.4% YTD

Dow Jones Industrial Average +2.8% YTD