Day Traders Diary

2/11/16

 The capital markets have been a hot mess in 2016 and things heated up again on Thursday on a series of headlines that led mostly to a risk-averse disposition.

The concise overview is that stock prices declined, oil prices fell, gold prices surged, the yen continued to strengthen, and the 10-year Treasury yield slipped to its lowest level (1.54%) since August 2012.

To say the least, there were a lot of factors at play on Thursday, including a second day of monetary policy testimony from Fed Chair Yellen in front of the Senate Banking Committee. The key headline items contributing to the broader market's weakness included the following:

A 3.9% decline in Hong Kong's Hang Seng Index in its first day of trading after the Lunar New Year celebration

A decision by Sweden's Riksbank to take its key borrowing rate further into negative territory with a 15 basis point cut to -0.50%

Renewed concerns about the financial position of European banks, which took a heavy toll on European bourses and the S&P 500 financial sector (-3.0%)

Reports that Boeing (BA 108.44, -7.92, -6.8%) is the subject of an SEC investigation into its accounting for costs and sales of its 747 and 787 planes; and

Underlying angst about the state of the global economy and earnings prospects in general

The confluence of these factors, and others, led to a decidedly negative start to the day for the equity market.

Fed Chair Yellen didn't provide any reprieve from the selling pressure during her testimony either. She did acknowledge that negative interest rates are still on the table as a potential tool for further policy accommodation, yet she also asserted that economic evidence to date is not enough to suggest a rate cut is the Fed's next move.

Strikingly, the Dow Jones Industrial Average and S&P 500 fell to new lows for the day after the conclusion of her testimony while the Nasdaq Composite came back to test its morning low.  In the case of the S&P 500, it cut a path through its January 20 intraday low (1812.29) to 1810.10.  Just as it did, however, a headline from Dow Jones crossed the wires suggesting OPEC members are ready to cooperate on a possible production cut.

That headline led to a dramatic change in the trading tone, as the major indices rallied late in the day on the back of a resurgent energy sector (-0.4%), which had been down as much as 3.1% in response to a 5.1% drop in oil prices during pit trading to $26.14 per barrel.

At the same time, there was a large wave of buying interest in large-cap technology stocks that bolstered the S&P 500 technology sector (-0.2%) and helped drive the Nasdaq Composite back into positive territory after being down as many as 74 points earlier in the session.  A closing volley of selling interest left the Nasdaq down 0.4% for the day.

By the time the closing bell rang, all S&P 500 sectors had worked their way back from larger losses but none ended with a gain.  The financial sector (-3.0%) was the most conspicuous underperformer. 

The technology sector (-0.2%), which got a nice boost from Cisco (CSCO 24.68, +2.17, +9.6%) after its pleasing earnings report, exhibited relative strength along with the consumer staples (-0.8%), telecom services (-0.5%), energy sector (-0.4%) and consumer discretionary (-0.1%) sectors.

The US Treasury market was a picture of strength throughout Thursday's trading.  Granted the benchmark 10-yr note finished off its best levels of the session, yet it drew some notable buying interest that dropped its yield to 1.64% from 1.70 % on Wednesday.

That move was precipitated by a flight-to-safety amid the volatility elsewhere.  Similrly, gold prices also benefited from the safety trade, rising 4.4% to $1247.30/troy ounce.

The only economic release today was the weekly initial claims report.  It was better than expected with claims decreasing by 16,000 to 269,000 (Briefing.com consensus 280,000) for the week ending February 6.  Friday will feature the influential Retail Sales report for January at 8:30 a.m. ET.

Volume on Thursday was heavier than average with 1.32 billion shares trading at the NYSE.  The advance-decline line favored decliners at the NYSE by a 4-to-1 margin, which was better than earlier in the day but still indicative of a market lacking conviction from buyers.

Russell 2000 -16.0% YTD

Nasdaq -14.8% YTD

S&P 500 -10.5% YTD

Dow Jones -10.1% YTD