Day Traders Diary

1/6/16

The major averages ended their midweek session sharply lower with the S&P 500 (-1.3%) registering its third consecutive decline as global markets responded to fresh international concerns and continued pressure in oil. The benchmark index settled just above its worst level of the day while the tech-heavy Nasdaq (-1.1%) outperformed.

The selloff in futures began during the Asian session even though the Shanghai Composite (+2.3%) was able to end its day in positive territory. This came on the heels of the People's Bank of China devaluing the yuan to its lowest level in five years against the dollar. Meanwhile, other Asian markets succumbed to continuing selling pressure after North Korea announced that it successfully carried out a hydrogen nuclear device test. The resulting force from the blast was equivalent to a 5.1 magnitude earthquake, but U.S. officials expressed doubt regarding the success of this trial. These two issues weighed heavily on European markets and helped to drive down oil prices from their overnight levels. Oil sunk further on the day following the weekly gasoline inventories that reported a build of 10.5 million barrels. WTI crude ended its pit session lower by 5.4% at $34.04/bbl.

Once the U.S. session began, the stock market gapped down, spending the late morning in a slow climb off its first-hour low; however, the rebound effort found resistance in the middle of today's trading range and stocks marked new lows in afternoon action. A slight rebound during the final hour helped the S&P 500 end the day eleven points above its low.

The late-afternoon dive to lows took place about 45 minutes after the release of the FOMC Minutes from the December meeting, which showed that it was generally agreed that liftoff conditions were met in December. Interestingly, that did not stop some members from voicing concerns about a "considerable" risk to the inflation outlook. Despite the December rate hike, the minutes struck a dovish tone, leading to renewed worries that the Fed may have embarked on a tightening path amid less-than-ideal macroeconomic conditions. Speaking of less-than-ideal macroeconomic conditions, the World Bank lowered its 2016 global growth forecast to 2.9% from 3.3%, blaming a slowdown in emerging markets for the downward adjustment.

Leading the downside energy (-3.6%), materials (-2.6%), telecom services (-1.7%), and financials (-1.6%) trailed while utilities (-0.2%), consumer staples (-0.3%), health care (-0.8%), and consumer discretionary (-1.0%) outperformed.

In the consumer discretionary space, Netflix (NFLX 117.68, +10.02) was able to climb above both its 100-day (111.30) and its 50-day (117.01) moving averages after the company announced that its services are now available in 190 countries. The company soared 9.3% today. Elsewhere in the space, Amazon (AMZN 632.65, -1.14) started the day in negative territory but quickly rose to its flat line within the first hour. The stock ended its day lower by 0.2% but outperformed the broader sector.

Switching to technology (-1.3%), sector heavyweights Apple (AAPL 100.70, -2.01) and Microsoft (MSFT 54.05, -1.00) trailed the market with respective losses of 2.0% and 1.8%. Apple confronted the $100.00 price level while near its low but was able to defend that position. Microsoft on the other hand ceded it 50-day moving average (54.45). Elsewhere, the high-beta chipmakers had a sub-par day evidenced by the PHLX Semiconductor Index sliding 2.8%.

Meanwhile in energy, Dow component Chevron (CVX 86.07, -3.54) paced the retreat in the broader sector with a 4.0% decline. Fellow Dow member Exxon Mobil (XOM 77.47, -0.65) was able to outperform the space despite the heavy loss in oil.

In Treasuries, the benchmark note ended the day near its high with the yield on the 10-yr lower by six basis points at 2.18%.

Today's participation was ahead of average as more than a billion shares changed hands at the NYSE floor.

Economic data included ADP Employment, Trade Balance, Factory Orders, and ISM Services:

The ADP Employment report pointed to the addition of 257,000 jobs in December while the Briefing.com consensus expected a reading of 190,000

The November Trade Balance report produced a positive headline surprise, showing the trade deficit narrowing to $42.40 billion (Briefing.com consensus $44.70 billion) from a downwardly revised $44.60 billion deficit in October (from -$43.90 billion)

However, the narrowing deficit was a byproduct of imports, which were $3.80 billion less than October, falling more than exports, which were $1.60 billion less than October

Factory orders declined 0.2% in November, which was in-line with the Briefing.com consensus estimate

November marked the third decline in factory orders over the last four months

Excluding transportation, factory orders declined 0.3%

The ISM Services Index for December dipped to 55.3 from 55.9 in November, coming in below the Briefing.com consensus estimate, which was pegged at 56.4

December marked the 71st straight month of growth for the ISM Services Index. Conversely, the ISM Manufacturing Index was at 48.2 in December, which marked the first time since June-July 2009 that it has been below 50.0 in two consecutive months.

Tomorrow's economic data will be limited to the Challenger Job Cut report, which will be released at 7:30 ET, and the weekly Initial Claims report (Briefing.com consensus 270k), which will cross the wires at 8:30 ET.

Russell 2000 -3.6% YTD

Nasdaq  -3.4% YTD

Dow Jones -3.0% YTD

S&P 500 -2.6% YTD