Day Traders Diary

2/25/16

The major U.S. indices managed to end their session on a higher note as news from the oil patch helped lift the averages to their best levels of the day. Additionally, a stronger than expected reading in the durable goods report (+4.9%; Briefing.com consensus 2.5%), and strong sector leadership from financials contributed to today's sharp reversal. The Dow Jones Industrial Average (+1.3%) managed to climb 239 points off its morning low to end ahead of the S&P 500 (+1.1%) and the tech-heavy Nasdaq (+0.9%). Meanwhile, the benchmark index was able to close above its 50-day simple moving average (1946.71).

Oil was pressured in the early going as mixed trade overseas and concerns over the persisting supply glut weighed on the commodity. The energy-component was able to mount a rally after Venezuela's oil minister Eulogio Del Pino announced that the country, Saudi Arabia, Russia, and Qatar had settled on meeting in March to discuss their proposed production freeze. As a result, oil was able to rally 4.6% from where it was trading before the news ($31.63/bbl). WTI crude ended its day higher by 2.8% at $33.11/bbl.

The energy sector (+0.2%) was able to climb of its low (-1.9%), but found it difficult to move beyond its flat line. The main beneficiary of the move in oil was the the commodity-sensitive materials sector (+1.3%), which climbed the leaderboard to jockey financials (+1.4%). In the materials space large-cap constituents Dow Chemical (DOW 48.10, +0.91) and DuPont (DD 60.42, +1.40) rose to their best levels of the day in the ensuing rally. Elsewhere in the group, CF Industries (CF 33.16, +1.41) rallied 4.4% after it was disclosed that its CEO and Senior Vice President bought 33,000 shares valued at $1 million.

The financial group outperformed throughout the day, continuing yesterday's rebound. Morgan Stanley (MS 24.63, +0.92) showed relative strength as it climbed 3.9%. Meanwhile, LendingTree (TREE 85.50, +15.56) rocketed higher by 22.3% after the company reported a beat on top and bottom-line figures while issuing above-consensus guidance for Q1.

Aerospace and defense names capitalized on the strong durable orders report after it showed that non-defense aircraft and parts surged 54.2% in January. Additionally, orders for defense aircraft and parts increased 84.8% over that same period, following a 66.8% decline in December. To that point, Boeing (BA 116.82, 1.23) and Lockheed Martin (LMT 220.03, +3.40) gained 1.1% and 1.6%, respectively. Additionally, United Technologies (UTX 98.07, +4.46) climbed 4.8% today after an antitrust attorney for Honeywell (HON 104.19, +0.89) stated that a potential deal could meet antitrust requirements, given a set list of divestitures.

Meanwhile, the countercyclical sectors managed to outperform during the entirety of the session as the groups gained between 0.7% (telecom services) and 1.3% (health care).

The Treasury complex was forced off is high during the second-half rally but managed to maintain most of its advance. The yield on the 10-yr note ended its day lower by five basis points at 1.70%.

Today's rally was forged on trading volume that was a bit below recent averages with 930 million shares changing hands at the NYSE floor.

Economic data included weekly initial claims, Durable Orders for January, and the FHFA Housing Price Index for December.

Initial claims for the week ending February 20 increased 10,000 from the prior week to 272,000 (Briefing.com consensus 270,000).

Despite the increase, weekly claims remain in the lower half of the 250,000 to 300,000 range they have been in since July 2014. The four-week moving average dipped by 1,250 to 273,250. There were no special factors influencing the latest initial claims reading.

Continuing claims for the week ending February 13 decreased 19,000 to 2.253 million (Briefing.com consensus 2.268 mln). The four-week moving average for this series decreased 5,250 to 2.257 million.

Durable goods orders jumped 4.9% in January (Briefing.com consensus 2.0%) on the heels of an upwardly revised 4.6% decline (from -5.0%) in December. Excluding transportation, orders rose 1.8% (Briefing.com consensus +0.4%) after declining an upwardly revised 0.7% (from -1.0%) in December.

The January upturn followed on the back of month-over-month declines in both November and December. On a year-over-year basis, durable goods orders are up just 0.6%.

The durable goods orders data are notoriously volatile due to the influence of aircraft and defense spending. Both played a big part in driving the January turnaround. Orders for nondefense aircraft and parts surged 54.2% after a 29.1% decline in December while orders for defense aircraft and parts increased 84.8% following a 66.8% decline in December.

New order gains, however, were seen in a host of areas, including primary metals (+0.7%), fabricated metal products (+1.6%), and machinery (+6.9%).

The strength in January could simply be a rebound from a depressed base of order activity. We'll know more when the February report is released. For now, it can be seen as encouraging news, particularly since nondefense capital goods orders excluding aircraft -- a proxy for business spending -- increased 3.9%.

The one damper on things is that shipments of these goods, which factor into GDP computations, declined 0.4%.

The FHFA Housing Price Index for December rose 0.4% month-over-month after increasing a revised 0.6% (from 0.5%) in November.

Tomorrow's economic data will include the second estimate of Q4 GDP (Briefing.com consensus 0.4%) and PCE Prices for January (Briefing.com consensus 0.1%), which will both cross the wires at 8:30 ET. Meanwhile, the final reading of the February Michigan Sentiment Index (Briefing.com consensus 91.0) will be released at 10:00 ET.

Russell 2000 -9.2% YTD

Nasdaq -8.5% YTD

S&P 500 -4.5% YTD

Dow Jones -4.2% YTD