Day Traders Diary

5/26/16

The stock market trades on a flat note at midday as the major averages vacillate alongside oil. Today's trade has featured positive readings of April Durable Goods Orders (+3.4%; Briefing.com consensus +0.6%) and weekly Initial Claims (268k; Briefing.com consensus 275k), a downtick in the dollar, and the underperformance of the heavyweight financial (-0.6%) sector. The Dow Jones Industrial Average (-0.2%) trades behind the S&P 500 (-0.1%) and the Nasdaq Composite (-0.1%).

Equity futures received a modest bid this morning as the group responded to strength from the oil patch. Ahead of today's session, oil notched a 7-month high, breaking the $50.00/bbl price level. However, the energy component slipped from that level before the cash market opened. Futures pared gains after April Durable Goods and weekly Initial Claims each came in better than expected. The two datapoints could lend support to a potential fed funds rate hike in the short term.

The broader market has endured a choppy session thus far as wavering prices in crude oil and profit taking in the heavyweight financial sector (-0.6%) weigh on the broader market. Currently, WTI crude trades lower by 0.2% ($49.48/bbl). Six sectors trade in the red with commodity-sensitive materials (-0.9%) trailing financials (-0.6%) and energy (-0.3%). Conversely, countercyclical utilities (+0.8%), telecom services (+0.5%), and consumer staples (+0.3%) lead.

The financial sector sports a loss of 0.6%, trimming its weekly gain to 1.9%. The broader group is yielding to profit taking as investment brokerages and money center banks pare weekly gains. On that note, Bank of America (BAC 14.74, -0.17) and Goldman Sachs (GS 159.48, -1.77) sport losses of 1.1% apiece, but remain higher by a respective 1.5% and 3.2% on a weekly basis.

In the retail sub-group, discount retailers demonstrate relative strength as Costco (COST 149.90, +5.36), Dollar General (DG 88.33, +4.20), and Dollar Tree (DLTR 88.85, +10.49) outperform after reporting above-consensus bottom-line results for the quarter.

The broader consumer discretionary space has ticked higher by 0.1% as media names outperform. In the group, Time Warner (TWX 73.72, +0.76) has gained 1.1% after headlines reported that an Apple (AAPL 99.69, +0.06) executive proposed buying the media name last year. Elsewhere, Netflix (NFLX 102.38, +2.18) has gained 2.2% amid further speculation that the media group will see consolidation.

In the health care space (UNCH), biotechnology is also seeing some profit taking as the iShares Nasdaq Biotechnology ETF (IBB 273.84, -1.19) trims its week-to-date gain to 3.7%.

The U.S. Dollar Index (95.27, -0.09) floats below its flat line as commodity currencies and the euro trim their gains against the greenback. The dollar has lost 0.2% against the Canadian dollar (1.2995) after ticking off the 1.2915 price level before the session. Separately, the euro/dollar pair trades higher by 0.2% (1.1176).

The Treasury complex reflects weakness in equities as the 10-yr note sees a healthy bid, dropping its yield three basis points to 1.84%.

Today's economic data included weekly initial claims, April Durable Goods Orders, and Pending Home Sales for April:

Initial claims for the week ending May 21 were 268,000 (Briefing.com consensus 275,000), a decrease of 10,000 from the prior week.

There were no special factors influencing initial claims. They held below 300,000 for the 64th consecutive week, which is the longest streak since 1973.

The four-week moving average for initial claims increased by 2,750 to 278,500.

Continuing claims for the week ending May 14 jumped by 10,000 to 2.163 million.

The four-week moving average for continuing claims climbed by 8,500 to 2.151 million.

Altogether the claims data remains in the Fed's favor when it comes to contemplating a rate hike at the June meeting.

The Durable Goods Orders report for April was a real eye-opener. It indicated durable goods orders jumped 3.4% in April (Briefing.com consensus +0.6%).

This followed an upwardly revised 1.9% increase in March (from +0.8%).

Excluding transportation, orders were up 0.4% (Briefing.com consensus +0.5%) and were revised for March to show a 0.1% increase versus a previously reported 0.2% decline.

In brief, the headline surprise from the report was certainly inspiring at first blush, yet there are still some bothersome trends below the surface that suggest the manufacturing sector isn't exactly operating in a high gear.

The load in April was carried by transportation equipment, which saw an 8.9% jump in new orders led by a 64.9% increase in new orders for nondefense aircraft and parts.

Capital goods orders, in turn, were up a robust 7.2% after a 7.5% increase in March.

Machinery orders were a disappointment, declining 1.9% after declining 0.8% in March.

The other disappointment was the drop in business spending, as reflected in the 0.8% decline in new orders for nondefense capital goods excluding aircraft.

That followed on the heels of a 0.1% decline in March and a 2.1% decline in February.

Shipments of nondefense capital goods excluding aircraft were up 0.3%, so that will be a positive input for Q2 GDP forecasts.

Pending Home Sales for April climbed 5.1% while the Briefing.com consensus expected an uptick of 0.6%. Meanwhile, the March reading was revised to 1.6% from 1.4%.