Day Traders Diary

2/22/16

The major U.S. indices began their week on an upbeat note as equities rallied in tandem with crude oil. Meanwhile, a reversal in industrial metals buoyed investor sentiment while chatter regarding a merger between industrial giants Honeywell (HON 105.17, -2.10) and United Technologies (UTX 92.37, +4.14) pushed the stock market to its highest level of the day. The averages ended off their best levels with the Nasdaq Composite (+1.5%) and the S&P 500 (+1.5%) leading the Dow Jones Industrial Average (+1.4%). To be fair, conviction in today's rally was lacking, evidenced by relatively light trading volume as fewer than 976 million shares changed hands at the NYSE floor.

Ahead of today's session, oil continued its rebound from the last week as a report from the International Energy Agency elicited a bullish response from investors. The IEA reported that U.S. shale production was expected to decline by 600,000 barrels per day (bpd) in 2016 while falling an additional 200,000 bpd in 2017. As a result, the oil market would begin rebalancing in 2017. Market participants ran with the mid-term outlook and bid WTI crude, sending the commodity higher by 5.1% to $33.38/bbl. Separately, rising industrial metal prices boosted investor confidence as it reportedly reflected receding worries regarding economic growth.

Predictably, commodity-sensitive energy (+2.2%) and materials (+1.9%) were able to end their day in the front of the pack as consumer discretionary (+1.9%) and industrials (+1.7%) followed. Oil and gas companies demonstrated relative strength in the energy sector and helped move the cyclical sector into positive territory for the month (+0.4%).

In the material sector, Alcoa (AA 8.91, +1.04) gained 13.2% amid today's rebound in aluminum (+1.4%) while Eastman Chemical Co. (EMN 64.52, +2.12) outperformed with a gain of 3.4%.

Consumer discretionary names Amazon (AMZN 559.50,+24.60) and Netflix (NFLX 91.93, +2.70) benefited from a a positive profile in Barron's. The two companies were cited as possible beneficiaries of the FCC's decision to move forward with efforts to open the cable box market.

Honeywell and United Technologies initially spiked when CNBC reported that the two companies held merger talks. By the end of the day though, Honeywell settled lower by  2.0% while United Technologies climbed 4.7%. However, it is worth noting that United Technologies reportedly expressed concerns about the deal getting blocked on anti-trust grounds.

The Treasury complex traded in a narrow range, showing modest losses throughout the day. As a result, the yield on the 10-yr note edged up one basis point to 1.76%.

Participants received no economic data of note today, but tomorrow's economic calendar will include the 9:00 ET release of the December Case-Shiller 20-city Index (Briefing.com consensus 5.8%). Separately, February Consumer Confidence (Briefing.com consensus 97.3) and the Existing Home Sales report for January (Briefing.com consensus 5.30 million) will cross the wires at 10:00 ET.

Russell 2000 -9.8% YTD

Nasdaq Composite -8.7% YTD

S&P 500 -4.8% YTD

Dow Jones -4.6% YTD