Day Traders Diary

1/21/16

The major averages ended the Thursday session off their highs, as a rebound fizzled out in afternoon action, leaving the key indices near the middle of their trading ranges. The rebound in equities took place along with a similar effort in crude oil. The commodity and the stock market lost some of their momentum once the energy component traded above the $30.00/bbl price level. The Dow Jones Industrial Average (+0.7%) lead the S&P 500 (+0.5%) and the tech-heavy Nasdaq (UNCH).

Ahead of today's session, the European Central Bank left its deposit facility rate and refinancing operations rate unchanged at -0.3% and 0.05%, respectively. However, ECB President Mario Draghi stated that the central bank "will need to review and therefore possibly reconsider" its monetary policy stance in March as downside risks have increased in 2016. Mr. Draghi's comments invited heavy speculation regarding future stimulus provisions, lifting futures to new highs.

Oil was able to rally in unison with equity futures, as the oversold commodity sought to recover from a 20.0%+ decline since the start of 2016. WTI crude continued its rally despite poor readings from the Energy Information Administration's weekly inventory report. The report showed an inventory build of 3.979 million barrels (expected 2.811 million barrels) while the gasoline inventories report showed a 4.563 million barrel build (expected 1.378 million barrels). WTI crude was up more than 6.3% before it ticked down from its high into the commodities pit session close, ending 4.2% higher at $29.54/bbl.

In front of the pack, energy (+2.9%), telecom services (+2.4%), consumer discretionary (+1.4%) and materials (+0.9%) lead while financials (-0.3%), health care (-0.3%), and utilities (UNCH) trailing.

Looking at the energy sector, component Kinder Morgan (KMI 13.88, +1.87) climbed 15.6% today, thanks to positive price action in crude oil. Additionally, the company reported above-consensus Q4 earnings. Elsewhere in the group, Dow components Chevron (CVX 81.05, +2.07) and Exxon Mobil (XOM 74.10 +0.92) underperformed the space with respective advances of 2.6% and 1.3%.

Moving to the health care space, heavyweight UnitedHealth Group (UNH 113.50, -1.29) trailed the sector with a decline of 1.1%. This came after the company helped the health care sector top the leaderboard yesterday. On a related note, biotechnology showed relative weakness throughout today's session. The iShares Nasdaq Biotechnology ETF (IBB 278.75, -6.74) slid 2.4%% after yesterday's 3.5% climb.

In the technology space (+0.6%), large-cap constituents Apple (AAPL 96.30, -0.49) and Microsoft (MSFT 50.48, -0.31) were unable to make any headway. Meanwhile, data storage names posted some of the steepest declines with Seagate Technology (STX 27.56, -1.66) and Western Digital (WDC 43.94, -1.85). The two names declined 5.7% and 4.0%, respectively. Elsewhere the high-beta chipmakers showed relative strength, evidenced by the 1.5% gain in the PHLX Semiconductor Index.

In specific industry news, rail companies struggled following Union Pacific's (UNP 71.00 -2.61) disappointing earnings results this morning. The company fell 3.6% after announcing that revenue fell 15.4% year-over-year in Q4. The company cited uncertainty in the energy market and the relative strength of the dollar for the shortfall. Fellow rail company, Norfolk Southern (NSC 70.07, -1.11) felt some of the same headwinds, as it ended its day lower by 1.6%.

Treasuries retreated for most of the session as the rally in equities and oil kept buying suppressed. During the afternoon retreat, the benchmark note was able to move off its low, but the 10-yr yield still ended higher by three basis points at 2.01%.

Today's trading session was true to recent form, generating volume of more than 1.1 billion shares at the NYSE floor.

Economic data has included weekly initial/continuing claims and the January Philadelphia Fed Survey.

Initial claims for the week ending January 16 were higher than expected, rising 10,000 to 293,000 (Briefing.com consensus 280,000).

There were no special factors influencing initial claims, which have been bounded between 250,000 and 300,000 since July 2014. The latest reading, however, is the highest level of claims since the first week of July 2015.

With the latest reading, the four-week moving average for initial claims increased by 6,500 to 285,000, which is the highest average since July 11, 2015.

Continuing claims for the week ending January 9 were lower than expected, falling by 56,000 to 2.208 million (Briefing.com consensus 2.252 million).

The four-week moving average for continuing claims increased by 3,250 to 2.228 million.

The Philadelphia Fed Index for January checked in at -3.5 versus -10.2 in December. ( Briefing.com consensus -4.0).

While the headline number was better than expected, it still doesn't qualify as good considering a number below zero still connotes a contraction in manufacturing conditions.

The diffusion index for future general activity fell from a revised reading of 24.1 for December to 19.1 for January. In other words, confidence in the outlook is still positive but weakening. 

The business outlook survey for January, the improvement was driven by the shipments index, which moved from a contractionary reading of -2.1 for December to an expansionary reading of 9.6 for January.

Tomorrow's economic data will include December Existing Home Sales (Briefing.com consensus 5.12 million) and December Leading Indicators (Briefing.com consensus -0.1%) with both set to cross the wires at 10:00 ET.

Russell 2000 -12.1% YTD

Nasdaq  -10.7% YTD

Dow Jones -8.9% YTD

S&P 500 -8.6% YTD