Day Traders Diary

6/22/16

The stock market ended the midweek affair on a lower note as investors showed caution ahead of the United Kingdom's referendum vote regarding membership in the European Union. Contributing factors impacting today's trade included a downturn in oil and divided sector leadership between the heavily-weighted health care (+0.3%) and technology (-0.4%) sectors. The Dow Jones Industrial Average (-0.3%) finished the session behind both the Nasdaq Composite (-0.2%) and the S&P 500 (-0.2%).

Equity indices began the day on a higher note as investors responded to a positive bias in global equity markets. Global bourses ticked up overnight as investors looked to largely even polls between the "Brexit" camps and an uptick in crude oil. However, support from the oil pit faded through the session as the Department of Energy's weekly inventory report surprised to the downside. The stockpile data showed below-consensus results for crude oil (-0.91 million barrels; estimate: -1.67 million) and gasoline (+0.62 million barrels; estimate: -0.32 million) inventories. As a result, WTI crude finished its pit session lower by 1.3% ($49.12/bbl; -$0.65).

The S&P 500 (-0.2%) decoupled from oil in the first hour of trade as the heavyweight health care sector (+0.3%) climbed the leaderboard. The rally in the countercyclical sector took root after the Center for Medicare and Medicaid Services reported that spending levels did not exceed targets, which in turn did not trigger cost-cutting provisions in the program. The resulting strength in the health care sector helped the benchmark index briefly clear resistance at the 2095 price level, notching a session high at 2099.71.

The major averages pared gains in the early afternoon, which corresponded to both the close of trade in Europe and the release of a new Brexit poll. The polling data indicated that the "Leave" camp held a one-point lead over the "Remain" camp. The S&P 500 (-0.2%) drifted through the afternoon and eventually revisited its low in the final hour of trade. Seven sectors finished in the red with commodity-sensitive energy (-0.6%) trailing utilities (-0.5%) and technology (-0.4%) in the back of the pack. On the flipside, health care (+0.3%), telecom services (+0.2%) and materials (+0.1%) outperformed.

In the influential technology sector (-0.4%), software and cloud names demonstrated relative weakness as Adobe Systems (ADBE 94.01, -5.71) sank 5.7%. The stock was pressured after cautious guidance overshadowed better-than-expected results. Fellow software name Red Hat (RHT 79.75, -0.64) lost 0.8% ahead of this evening's quarterly report. Elsewhere, HP (HPQ 12.61, -0.72) fell 5.4% after its revised guidance for the quarter failed to impress.

The Dow Jones Industrial Average (-0.6%) underperformed after component FedEx (FDX 156.51, -7.44) slid 4.5%. The company reported top- and bottom-line beats for the quarter, but failed to show the impact of its recent TNT Express acquisition. Trucking names were also pressured in the index, as an earnings warning from Covenant Transport (CVTI 18.34, -3.63) weighed on the sub-group.

Biotechnology outperformed in the health care space (+0.3%), evidenced by the 0.7% gain in the iShares Nasdaq Biotechnology ETF (IBB 256.56, +1.77). The ETF trimmed its monthly loss to 8.3% as the Medicare decision eased pressure regarding the group's drug-pricing. In the broader sector, Humana (HUM 187.67, -2.40) and Anthem (ANTM 128.72, -2.73) underperformed after members of the U.S. Senate called on the Department of Justice to block large health insurance mergers.

The U.S. Dollar Index (93.76, -0.25) ended off its session low as the greenback lost ground to the pound, yen, and euro. The dollar/yen pair finished lower by 0.3% (104.42) while the euro gained 0.5% against the buck (1.1298). Separately, the cable gained 0.3%, settling at 1.4703.

The Treasury complex ended its day higher with the yield on the 10-yr note slipping three basis points to 1.68%.

Today's participation was below the recent average as fewer than 804 million shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, the FHFA Housing Price Index, and Existing Home Sales for May:

The weekly MBA Mortgage Index showed a seasonally adjusted increase of 2.9% in mortgage applications.

The FHFA Housing Price Index for April rose 0.2%, which followed an increase of 0.8% in March.

Existing home sales in May increased 1.8% month-over-month to a seasonally adjusted annual rate of 5.53 million (Briefing.com consensus 5.50 mln) from a downwardly revised 5.43 million (from 5.45 mln) in April.

The month of May marked the strongest pace of home sales since February 2007.

There were gains in all regions, with the exception of the Midwest, which saw sales drop 6.5% to an annual rate of 1.30 million.

Sales increased 4.1% in the Northeast, 4.6% in the South, and 5.4% in the West.

The most striking statistic out of the report was the 4.7% increase in the median existing home price for all housing types to $239,700.

That surpassed the peak median sales price of $236,300 last June and marked the 51st consecutive month of year-over-year gains.

Total housing inventory at the end of May increased 1.4% to 2.15 million existing homes for sale, but at the current sales pace, that left unsold inventory unchanged at a 4.7-month supply.

A 6.0-month supply is typically seen during normal periods of buying and selling.

The uptick in existing home sales has been helped by the increase in home equity, which has afforded homeowners increased move-up capability.

However, the increase in home prices, limited supply, and student loan debt repayment obligations have continued to compress buying activity among first-time buyers, who accounted for 30% of existing home sales in May versus 32% in April.

In a sign of the competitive times for buyers, properties typically stayed on the market for 32 days in May, down from 39 days in April and 40 days a year ago.

That is the shortest time on market since the National Association of Realtors began tracking this measure in May 2011.

Tomorrow's economic data will include weekly initial claims (Briefing.com consensus 273k) and New Home Sales for May (Briefing.com consensus 560k), which will be released at 8:30 ET and 10:00 ET, respectively.

Nasdaq Composite -3.5% YTD

Russell 2000 +1.1% YTD

Dow Jones +2.0% YTD

S&P 500 +2.0% YTD