Day Traders Diary

7/6/16

 The stock market ended the Wednesday affair on a higher note, rebounding from selling pressure in the opening hour. Factors impacting today's rebound included a positive reading of the ISM Services Index for June, a reversal in oil, softening in the dollar, and the outperformance of the heavily-weighted health care (+1.2%), consumer discretionary (+0.8%), and technology (+0.5%) sectors. The Nasdaq Composite (+0.8%) finished ahead of the S&P 500 (+0.5%) and the Dow Jones Industrial Average (+0.4%).

The major averages began the day on a choppy note as global bourses responded to implications from the United Kingdom's decision to leave the European Union. European indices led the losses as investors weighed reports from the U.K. that several real estate funds were halting redemptions due to liquidity concerns. Additionally, growing uncertainty in the Italian banking sector added to the negative bias in regional bourses.

U.S. equity markets shrugged off early weakness, responding in part to a better-than-expected reading of the ISM Services Index for June and a reversal in the biotechnology sub-group. The major averages extended their rebound through the afternoon as the minutes from the June FOMC meeting failed to rock the boat. The minutes indicated that the Fed will likely remain on hold, pending further economic data. Additionally, the central bank commented on the need to see the outcome of the Brexit referendum (the Fed meeting was held ahead of the vote) in order to better estimate the speed and path of interest rate normalization.

The benchmark index climbed in the final hour, testing and clearing resistance near the 2095/2096 price level. The S&P 500 (+0.5%) ended off its high with eight sectors trading in the green. The heavily-weighted health care (+1.2%) sector led consumer discretionary (+0.8%), and (+0.6%) energy. The remaining gainers finished with upticks between 0.2% (utilities) and 0.5% (technology).

In the health care space (+1.2%), biotechnology outperformed as the iShares Nasdaq Biotechnology ETF (IBB 266.24, +6.16) climbed 2.4%. In the ETF, Celgene (CELG 104.60, +4.35) gained 4.3% after signing a confidentiality agreement with Medivation (MDVN 62.33, +0.57). Additionally, Sanofi (SNY 41.23, -0.13) and Pfizer (PFE 35.86, +0.05) signed similar agreements, indicating that each could be exploring a potential transaction with Medivation. Elsewhere, Valeant Pharmaceuticals (VRX 23.06, +3.11) spiked 15.6% after Walgreens Boot Alliance (WBA 81.55, -1.97) announced during its conference call that it is pleased with its relationship with Valeant.

Retail names outperformed in the consumer discretionary sector (+0.8%), evidenced by the 1.5% gain in the SPDR S&P Retail ETF (XRT 42.29, +0.63). CarMax (KMX 50.45, +2.69) outperformed among specialty retailers, rallying 5.6%. Conversely, Netflix (NFLX 94.60, -3.31) ended lower by 3.4% after Jefferies downgraded the stock to "Underperform" from "Hold." This follows Netflix receiving a downgrade to "Hold" at Needham yesterday.

The economically-sensitive financial sector (+0.4%) finished modestly higher as banking names erased early losses. Wells Fargo (WFC 46.65, +0.44) and JPMorgan Chase (JPM 60.19, +0.64) ended the day higher by 1.0% and 1.1%, respectively. The two names began the day with respective losses of 0.7% and 1.1%. Real estate investment trusts were pressured through the session as risk appetite increased throughout the session.

The U.S. Dollar Index (96.05, -0.11) ended the day on a lower note as the euro and the yen gained ground against the buck. The euro/dollar pair ended higher by 0.2% (1.1103) while the greenback lost 0.4% against the yen (101.32). Separately, cable declined 0.7% (1.2931).

The Treasury complex finished on a mixed note as the yield on the 10-yr note ended flat at 1.37%.

Today's participation was above the recent average as more than one billion shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, May Trade Balance, and June ISM Services:

The weekly MBA Mortgage Index showed a seasonally adjusted increase of 14.2% in mortgage applications.

The trade deficit widened to $41.10 billion in May from $37.40 billion in April.

That was worse than the Briefing.com consensus, which expected the deficit to hit $40.00 billion.

Exports were down $0.30 billion to $182.40 billion while imports increased $3.40 billion to $223.50 billion.

The dynamic indicates some relative strength in the U.S. economy when compared to the rest of the world.

On a year-over-year basis, exports were down 4.9% to $47.20 billion while imports declined 4.7% to $54.30 billion. The goods and services deficit declined 3.5% to $7.20 billion.

The real goods deficit increased $3.60 billion to $61.10 billion, which will be a negative for Q2 GDP since it is above the first quarter average of $60.50 billion.

The Non-Manufacturing ISM Report on Business (aka The ISM Services Index) increased to 56.5 in June from 52.9 in May. The Briefing.com consensus estimate was pegged at 53.3.

The June report represented the 77th consecutive expansionary (i.e. above 50) reading and it was the highest mark of the year.

However, the true test is likely to take place in the upcoming months as the index approaches a multi-year high near 60.0.

The June improvement was driven by growth in most categories.

Business Activity/Production increased to 59.5 from 55.1, New Orders increased to 59.9 from 54.2, Employment ticked up to 52.7 from 49.7, and New Export Orders improved to 53.0 from 49.0.

Conversely, Prices slipped to 55.5 from 55.6 and Backlog of Orders declined to 47.5 from 50.0.

Tomorrow's economic data will include June Challenger Job Cuts and the June ADP Employment Change Report (Briefing.com consensus 152k), which will be released at 7:30 ET and 8:15 ET, respectively. Separately, weekly initial claims (Briefing.com consensus 268k) will cross the wires at 8:30 ET. 

Nasdaq Composite -3.0% YTD

Russell 2000 +1.0% YTD

S&P 500 +2.7% YTD

Dow Jones +2.8% YTD