Market Outlook
Wednesday, December 08, 2010

Wednesday has only a few economic reports scheduled. They are:-

  • 7:00 …MBA Mortgage Applications

  • 10:00… Quarterly Services Report

  • 10:30 …EIA Petroleum Inventories

  • 1:00 PM… Results of $21B, 10-Year Note Auction

Also the following companies are reporting their quarterly earnings:-

• SAIC Inc. (SAI) and Smith & Wesson Holding Corp. (SWHC).

wednesday outlook

Wednesday sees U.S stocks poised to open little changed as investors take a step back, which also signals that the bulls may face continued resistance in pushing Wall Street to fresh 2010 highs.

The Dow Jones industrial average (INDU), S&P 500 (SPX) and the Nasdaq (COMP) futures were flat ahead of the opening bell: the Dow and S&P futures edged lower while Nasdaq futures edged higher.

As has been the case for much of this week, Wall Street traders have no major economic or earnings reports on the agenda on Wednesday to use for guidance. That means the closely-watched euro may continue to play an outsized role in influencing Wall Street. The common currency took slight losses amid lingering sovereign debt jitters.

Economic Concerns

A report from the Mortgage Bankers Association on new mortgage applications is due before the bell, but the report does not typically move markets. After the opening bell, a report on crude inventories will be issued.

Notes of Importance

There are a few further points to the mornings trading which need to be considered:-

The Dow Jones Industrial Average (DJIA) was once again rejected by resistance at the 11,450 level on Tuesday, as the blue chip barometer refused to break out to a fresh two-year high.

Technically, the DJIA has pulled back to support at the 11,350 level, with this region potentially providing a floor for the Dow today. A break below this support level could send the DJIA down to support at the 11,300 level. Resistance, meanwhile, remains firm in the 11,450 region.

The S&P 500 (SPX)’s support lies at the 1,220 level, with resistance near 1,230.

• The U.S. Dollar Index is bouncing back a bit this morning, with the U.S. Dollar Index popping back above the round-number 80 level. At last check, the index was up 0.38% at 80.16.

Gold futures for February delivery fell $10.90 to $1398.10 an ounce.

Oil futures for January delivery slipped 42 cents to $88.27 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury slipped, pushing the yield up to 3.19% from 3.13% late Tuesday. That's the highest since late June.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,712,440 call contracts traded on Tuesday, compared to 805,420 put contracts. The resultant single-session put/call ratio arrived at 0.47 while the 21-day moving average held at 0.57.

Overseas Concerns

Market sentiment has been hurt a bit by further weakness for the euro, which slid 0.14% to $1.3239. The currency has failed to rally around Ireland passing a key budget that clears the way for it to receive emergency aid from the European Union.

Meanwhile, Asian markets took a hit amid continued worries that China will raise interest rates in an effort to prevent its economy from overheating. Talk of inflation problems in China has hurt U.S. markets because China serves as the engine for much of the global recovery.

North Korea fired artillery shells in a suspected military drill on Wednesday, spooking markets on an already tense peninsula, as the top U.S. military official warned of more provocations from Pyongyang's "bad guy".

Currencies: The dollar gained against the euro and the Japanese yen, but lost ground against the British pound.

The dollar extended gains on Wednesday on a spike in U.S. Treasury yields as Washington's proposed extension of tax cuts brightened the outlook for U.S. growth but raised fears of fiscal deterioration.

European Markets

European share markets were mixed in morning trading. Britain's FTSE 100 lost 0.1%, the DAX in Germany shed 0.3% and France's CAC 40 added 0.1%.

In Europe at midday,London -0.1%. Paris +0.2%. Frankfurt -0.2%.

Asian Markets

Earlier in Asia, markets ended the session mixed. The Shanghai Composite lost almost 1%, the Hang Seng in Hong Kong lost 1.4% and Japan's Nikkei added 0.9%.

In Asia, Japan +0.9% to 10232. Hong Kong -1.4% to 23093. China -0.9% to 2849. India -1.2% to 19696.

Futures Trading

As of 6:22 a.m. ET, the Dow Jones Industrial Average futures fell 24 points to 11331, the Standard & Poor's 500 futures lost 1.60 points to 1221.60 and the Nasdaq 100 futures was unchanged at 2190.00.

Futures at 7:00am: Dow -0.2%. S&P -0.1%. Nasdaq +0.1%. Crude -0.5% to $88.23. Gold -0.75% to $1398.40.



Company News

Costco (COST) reported an increase in both sales and profit for its fiscal first quarter that beat estimates. Net income rose 17% to $312 million compared to $266 million in the year prior. And earnings per share increased 18% to 71 cents per share. Shares of Costco were flat.

Fortune Brands (FO), maker of Jim Beam whiskey, Titleist golf clubs and home security systems, said it agreed to be split into three separate businesses.

• Microchip bellwether Texas Instruments Inc (TXN) said it was confident a recent demand correction would be short-lived and narrowed its quarterly earnings guidance in line with analysts' expectations.

• U.S. private equity firm Blackstone Group (BX) is in talks to join a bid by China's Bright Food Group Co for U.S. healthcare products seller GNC Holdings Inc, a source familiar with the situation said on Wednesday.

Home Depot Inc. (HD)said that it expects adjusted 2010 earnings of $1.97 per share, on sales growth of about 2% to 2.5%. For 2011, HD forecast earnings of $2.19 per share to $2.23 per share, excluding items. Wall Street is currently looking for 2010 earnings of $1.95 per share, with 2011 earnings expected to come in at $2.22 per share. Home Depot said that it plans to buy back $2.5 billion in stock in 2011. Inc. (CRM) announced that it will buy social networking firm Heroku. Salesforce expects the deal to cut adjusted earnings by 2 cents per share in the fiscal 2011 fourth quarter, and by 12 cents to 13 cents per share in fiscal 2012.

Some Interesting News

FDA panel surprises by recommending diet drug. An FDA advisory panel voted 13-7 to recommend the approval of Contrave, a weight-loss drug being developed by Orexigen Therapeutics (OREX) in partnership with Takeda Pharmaceutical (TKPHF.PK). The panel said the drug's benefits outweigh its risks and that potential safety concerns could be addressed in a clinical study after approval. The decision comes as a surprise, as the FDA has set a very high bar for diet drugs and already rejected several obesity treatments from other companies this year. Though the FDA isn't required to follow the panel's recommendation, it usually does. Rivals gained in AH trading on the news: VVUS +10.9%, ARNA +12.1%. Takeda closed +2.45% today in Tokyo. In premarket trading, OREX +142% to $11.51 (7:00 ET).

Cephalon bets on stem cell therapies. Cephalon (CEPH) will pay $220M for a 20% stake in Mesoblast (MBLTY.PK) and the right to market the Australian company’s adult stem-cell therapies for heart and nervous system conditions. Cephalon will pay up to another $1.7B in milestone payments as the therapies move towards commercialization. It's the biggest agreement to date in the developing field of stem-cell therapies, and will give Cephalon a host of new products and a source of new revenue as its sleep-disorder drug, Provigil, faces increased competition from generics. In Aussie trading, Mesoblast closed +22%.

UBS faces additional Madoff claims. Up against a Dec. 11 deadline to file clawback suits, Madoff trustee Irving Picard is seeking an additional $555M from UBS (UBS), bringing his total claims against the bank to around $2.5B. In a lawsuit filed in federal bankruptcy court, Picard said he uncovered an additional 26 counts of financial fraud and misconduct by UBS, which 'capitalized on the Ponzi scheme' despite several red flags. UBS denies the allegations. Premarket: UBS +1% (7:00 ET).

ArcelorMittal moves forward on spin-off. ArcelorMittal (MT), the world's largest steelmaker, finalized details of its previously announced decision to spin off its stainless steel division: investors will receive shares in the unit on a 1-for-20 shares basis in the first quarter of next year, and the business will be listed on Euronext. An ArcelorMittal spokesman said the spin-off is meant to "create value, it's part of the business that can do better on its own," but analysts believe the move may spark a wave of consolidation in a sector burdened by over-capacity.

Fannie, Freddie in mortgage writedown talks. Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) are reportedly in talks with Obama administration officials to reduce the loan balances on underwater mortgages. An agreement to write down underwater loans would shore up the U.S. housing market by removing the threat of a supply glut following another wave of foreclosures. However, it would also add to already-significant losses at Fannie and Freddie, and the two mortgage giants have been understandably reluctant to reduce loan balances, especially for homeowners who are still making payments.

J&J launches Crucell bid. Johnson & Johnson (JNJ) formally launched a €1.75B ($2.3B) bid for the 82.1% of Crucell's (CRXL) shares it doesn't already own. The €24.75/share offer for the Dutch biotechnology company was disclosed in September, but J&J has faced continued objections from some of Crucell's shareholders and only moved forward with a formal offer this morning. If the deal closes, J&J will get control of Crucell's vaccine pipeline at a time when vaccine sales are outstripping those of prescription drugs and face less competition from generics. Crucell shareholders will vote on the offer in February. Premarket: CRXL +0.6%, JNJ +0.3% (7:00 ET).

States face multi-billion dollar budget shortfalls. Fifteen states are facing combined budget gaps midway through their 2011 fiscal year totaling $26.7B, according to a report scheduled to be released today by the National Conference of State Legislatures. In comparison, the combined budget gap at this time last year was a roughly similar $28.2B, but that shortfall was spread among 36 states. The message seems to be that more states are finding a way to make ends meet despite reductions in tax revenue and federal help, but those states that are short of funding are facing significantly larger shortfalls. The report predicts states will remain under financial duress for at least several more years.

SEC charges IT manager with insider trading. The SEC charges a former information technology manager at a law firm, and his brother-in-law, with insider trading. According to the SEC, Jeffrey Temple used insider information to make trades ahead of at least 22 deal announcements, and tipped off his brother-in-law, Benedict Pastro, about some of the trades.

BofA settles muni bond probe. Bank of America (BAC) agreed to pay $137M in restitution to settle a municipal bond bid-rigging probe, but didn't have to pay penalties because it voluntarily reported the violations to regulators and cooperated with the investigation. Justice Department official Christine Varney said she expects "a lot more activity in the coming weeks and months" on a sprawling industry probe that dates to 2007, but declined to say what other firms might be a target of the probe.

Lawmaker pushes for restrictions on Comcast-NBC deal. Representative Henry Waxman, head of the House Energy and Commerce Committee, sent a letter to FCC Chairman Julius Genachowski yesterday imploring him to impose conditions on Comcast's (CMCSA) proposed takeover of NBC Universal (GE). Waxman argued that without restrictions such as guaranteed program access for competing program distributors and protection against unreasonable fees, cable subscribers will face higher costs, degraded service and fewer choices. An FCC spokeswoman declined to comment on the likelihood of a vote on the merger this year.


Stocks ended mixed Tuesday as investor optimism over the extension of Bush-era tax cuts faded.

Stocks had been steadily rising through most of the session but lost momentum late in the day after Obama's comments about tax cuts for the rich. He said he would push to have them eliminated after the two-year extension is over.

The Dow Jones industrial average .DJI dropped 3.03 points, or 0.03 percent, to 11,359.16. The Standard & Poor's 500 Index .SPX added 0.63 points, or 0.05 percent, to 1,223.75. The Nasdaq Composite Index .IXIC gained 3.57 points, or 0.14 percent, to 2,598.49.

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