Day Traders Diary

3/21/16

The stock market began the week on a higher note as the major averages recovered from a weaker-than-expected February Existing Home Sales reading (5.08 million; Briefing.com consensus 5.37 million) and volatile oil trade. Today's advance was owed to key sector leadership from the heavyweight health care (+0.5%) space and boosted investor sentiment, courtesy of increased M&A activity. To be fair though, an uptick in oil probably helped matters. The Nasdaq Composite (+0.3%) finished ahead of the Dow Jones Industrial Average (+0.1%) and the S&P 500 (+0.1%).

Today's trade got off to a shaky start as market participants eyed volatile oil trade in the wake of last week's increase to the Baker Hughes Rig Count. Meanwhile, today's Existing Home Sales Report reading showed a 7.1% decline in existing home sales month-over-month. These two concerns dampened investor sentiment and pushed the averages to their lowest levels. However, a rebound in the heavily-weighted health care (+0.5%) space assisted a rebound effort in the broader market.

Six of ten sectors ended their day in positive territory with countercyclical telecom services (+0.6%) and health care (+0.5%) leading the upside. Meanwhile, commodity-sensitive materials (-0.5%) and energy (-0.5%) rounded out the leaderboard while the financial sector (-0.2%) settled just below its flat line.

In the health care space (+0.5%), Valeant Pharmaceuticals (VRX 28.98, +2.00) outperformed after announcing a search for a new CEO and naming investor Bill Ackman to its Board of Directors. Biotechnology was able to take advantage of the boost in sentiment as the iShares Nasdaq Biotechnology ETF (IBB 256.46, +5.12) rebounded 2.0%, narrowing its March loss to 2.0%.

The broader consumer discretionary sector (UNCH) ended its day off its low after recovering from the initial sell off following the Existing Home Sales Report. Both Home Depot (HD 131.01, -0.34) and Lowe's (LOW 75.22, +0.29) were able to end the first session of the week near their flat lines after recovering from respective losses of 0.8% apiece. On the flipside, the iShares Dow Jones US Home Construction ETF (ITB 26.53, -0.31) tumbled 1.2%.

On the commodities front, WTI crude ended its day higher by 1.0% ($41.57/bbl), extending its month-to-date climb to 23.2%. This compares to a 11.2% gain in the energy sector (-0.5%) over that period. Meanwhile, oil and gas pipeline companies displayed relative weakness while oil field service name Schlumberger (SLB 74.89, +1.37) outperformed.

On the M&A front, Starwood Hotels (HOT 84.19, +3.62) climbed 4.5% after the company received a revised merger proposal from Marriott (MAR 72.30, -0.86), at $85.36 per share. Separately, IHS (IHS 122.09, +11.38) and Markit (MRKT 33.51, +4.02) agreed to a merger of equals after IHS reported an earnings beat.

The U.S. Dollar Index (95.37,+ 0.28) extended its gain as the yen and the euro slipped against the dollar. The euro/dollar pair ticked down 0.2% to 1.1242 after ticking off the 1.1237 level. Meanwhile, the dollar/yen pair climbed off the overnight low near 111.25 to trade at 111.91 (+0.3%).

The Treasury complex tumbled to fresh lows at the start of the day and continued to fall as stock rallied off their lows. The yield on the 10-yr note ended the day higher by five basis points at 1.92%.

Today's participation fell beneath the recent average with fewer that 812.09 million shares changing hands at the NYSE floor.

On the economic front, today's data was limited to Existing Home Sales for February:

After hitting their highest annual rate in six months in January, total existing home sales declined 7.1% in February to a seasonally adjusted annual rate of 5.08 million. That was below the Briefing.com consensus estimate of 5.37 million and the lowest number of existing homes sold since November 2015. Single-family sales fell 7.2% to a seasonally adjusted annual rate of 4.51 million.

Sales were down in all regions, led by the Northeast (-17.1%) and the Midwest (-13.8%). Those downturns were blamed on the lull in contract signings in January due to the large East Coast blizzard and the slump in the stock market. Sales in the West and in the South were down 1.8% and 3.4%, respectively.

Supply and affordability were touted as the main headwinds for existing home sales, although there was an acknowledgment that households are anxious about the economy losing steam.

The median sales price increased 4.4% versus last year to $210,800, which is the 48th consecutive month of year-over-year gains. All-cash sales slipped to 25% of sales from 26% of sales in January and the same period a year ago.

The share of first-time buyers dipped to 30% in February versus 29% a year ago; however, February marked the lowest share of first-time buyers since November 2015.

Unsold inventory is at a 4.4-month supply at the current sales pace. That is up slightly from a 4.0-month supply in January, yet well below the 6-month supply that is typically seen during normal periods of buying and selling.

Tomorrow's economic data will be limited to January's FHFA Housing Price Index, which will be released at 9:00 ET.

Nasdaq Composite: -4.0% YTD

Russell 2000: -3.3% YTD

S&P 500: +0.4% YTD

Dow Jones +1.1%