Day Traders Diary

9/28/16

The major averages ended the midweek affair on a higher note as a leg higher in crude oil boosted risk appetite in the broader market. The energy component rallied in afternoon trade amid reports that OPEC reached a production cap agreement. The Dow Jones Industrial Average (+0.6%) finished ahead of the S&P 500 (+0.5%) and the Nasdaq Composite (+0.2%).

Equity indices began the day on a choppy note as volatility from the oil pit weighed on the broader market. Crude oil was in focus as a negative reading of the Department of Energy's weekly inventory report weighed on the energy component. The EIA reported that crude oil stockpiles fell by 1.88 million barrels (consensus: +2.99 million) while gasoline inventories rose by 2.02 million barrels (consensus: +0.17 million). Oil ticked lower following the data, falling to the $44.50/bbl price level.

The energy component staged a reversal shortly after midday as Reuters reported that OPEC agreed to lower its production to 32.5 million barrels per day from approximately 33.2 million barrels. However, the reduction will not go into effect until OPEC meets on November 30. Nevertheless, WTI crude rallied into its pit close, finishing higher by 5.4% ($47.07/bbl; +$2.40).

The rebound in oil boosted risk appetite as heavily-weighted consumer discretionary (+0.3%), technology (+0.3%), and financials (+0.5%) each erased modest losses. The benchmark index finished at its best level of the day, testing technical resistance near the 2168/2173 price level. Eight sectors ended in the green with industrials (+0.7%), materials (+1.0%), and energy (+4.3%) leading the pack. Conversely, countercyclical health care (-0.1%), utilities (-0.3%), and telecom services (-1.0%) lagged.

The heavily-weighted financial sector (+0.5%) finished behind the broader market as participants responded to commentary from Federal Reserve Chair Janet Yellen. Chair Yellen testified before the House Financial Services Committee today, keeping the majority of her remarks centered on regulatory policies. Ms. Yellen indicated that the Fed is exploring stricter capital requirements for Global Systemically Important Banks (GSIBs) while also looking to lower regulatory requirements for community banks. The commentary initially spurred some risk aversion among GSIBs, but the group recovered before the close. JPMorgan Chase (JPM 66.71, +0.35) and Citigroup (C 46.87, 0.50) finished higher by 0.5% and 1.1%, respectively. Separately, Wells Fargo (WFC 45.31, +0.22) finished in-line with the sector despite reports that the California State Treasurer sanctioned the bank for prior sales practices.

Biotechnology underperformed in the health care space (-0.1%), evidenced by the 0.8% decline in the iShares Nasdaq Biotechnology ETF (IBB 295.08, -2.40). In the ETF, Mylan Labs (MYL 40.22, -1.09) fel 2.6% after the company indicated in the prior session that that there may be discrepancies between EpiPen profit data and previous information provided to Congress on the profitability of the device. The EpiPen manufacturer remains in the spotlight following the recent drug pricing controversy. The biotechnology ETF narrowed its monthly gain to 5.1%, which compares to a gain of 0.2% in the broader sector.

In the consumer discretionary space (+0.3%), media names outperformed after reports indicated that Sumner Redstone's National Amusements is pushing for Viacom (VIAB 36.56, +1.09) and CBS (CBS 54.15, +2.10) to hold merger talks. Conversely, retail names underperform as the SPDR S&P Retail ETF (XRT 43.31, -0.28) ended lower by 0.6%. Dow component Nike (NKE 53.25, -2.09) finished lower by 3.8% after the company's futures orders and gross margins came in below consensus.

Treasuries ended on a lower note with yields rising through the curve. The yield on the 10-yr note finished higher by one basis point at 1.57%.

Today's participation was above the recent average as more than 903 million shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index and the Durable Goods Orders report for August:

The MBA Mortgage Index indicated that mortgage applications declined 0.7% in the week ending September 24. This followed a 7.3% decline in the prior week.

Total durable goods orders were unchanged in August (Briefing.com consensus -1.9%), which was better than expected, while orders excluding transportation were down 0.4%, as expected.

Total orders growth for July was revised down to 3.6% from 4.4% while growth in orders excluding transportation was also revised down to 1.1% from 1.5%.

For more on these economic releases, be sure to visit Briefing.com's Economic Calendar page.

Tomorrow's economic data will include the third estimate of second quarter GDP (Briefing.com consensus 1.3%), the third estimate for the second quarter GDP deflator (Briefing.com consensus 2.3%), weekly initial claims (Briefing.com consensus 259k), and International Trade in Goods for August, which will each cross the wires at 8:30 ET. Separately, Pending Home Sales for August (Briefing.com consensus 1.0%) will be released at 10:00 ET.

Russell 2000: +10.5% YTD

S&P 500: +6.2% YTD

Nasdaq: +6.2% YTD

Dow Jones: +5.3% YTD