Market Outlook
Thursday, August 26, 2010

Thursday has quite a few economic reports scheduled. They are:-

8:30… Initial Jobless Claims

10:30… EIA Natural Gas Inventory

11:00 …Kansas City Fed Mfg Survey

12:00 PM… Chicago Fed's Manufacturing Index

1:00 PM… Results of $29B, 7-Year Note Auction

4:30 PM …Money Supply

4:30 PM …Fed Balance Sheet

Also the following companies are reporting their quarterly earnings:-

• Aruba Networks Inc. (ARUN),

• bebe stores inc. (BEBE),

• Novell Inc. (NOVL), and

• OmniVision Technologies Inc. (OVTI).


Thursday sees U.S. stock set for a modestly higher open, as cautious investors awaited a weekly report on jobless claims.

Stocks ended higher Wednesday after spending most of the day lower, following another round of dismal housing news.

"There's more potential to claw back from recent losses, but the market is still very much under pressure," said David Jones, chief market strategist at IG Markets in London.

A worse-than-expected plunge in new home sales sent indexes lower, but they recouped losses as homebuilding and housing material stocks crept higher. The Dow ended the day 20 points higher.

Jones said investors may remain cautious ahead of the latest reading on second-quarter GDP due Friday. It's expected to show the economy grew much less than previously estimated, which could unnerve investors. Also, investors will be keen to hear Federal Reserve Chairman Ben Bernanke's comments at the central bank's symposium in Jackson Hole, Wyo.

U.S. stock futures eked out modest gains on Thursday, as investors waded into the market to hunt for bargains but caution dominated sentiment ahead of economic data.

Economic Concerns

Initial Jobless Claims

Before the bell, the government will release its weekly numbers on first-time unemployment filers. Last week, stocks took a hit when the figure increased dramatically to 500,000 initial claims. Analysts polled by expect Thursday's report to show new claims fell to 485,000 last week.

The recent upward trend in the number of people filing for unemployment insurance has been one of the more telling signs of possible pause in the economic recovery. Last week, jobless claims rose above the 500,000-claim mark to a new 2010 high.

**Central bankers from around the world will converge later Thursday at the Jackson Hole, Wyoming, mountain retreat to assess the darkening economic outlook.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) held support at the 10,000 level yesterday, and even managed to finish in positive territory despite a fresh round of weak economic data. The Dow still faces some stiff technical hurdles, including the 10,100 level, not to mention another round of economic reports today, with jobless claims, and tomorrow, with second-quarter gross domestic product. That said, Wall Street appears to have recovered its footing after yesterday's trip below 10,000 on the DJIA, and some bargain hunting may finally be taking place.

The S&P 500 Index (SPX) is flat apparently unwilling to test battle resistance at the 1,100 level again today.

Gold futures are on the rise, with the lead contract up $4.30 at $1,245.60 an ounce in London - the metal's highest point since June 30.

• The U.S. Dollar Index: With investors slowly returning to the equities market, the U.S. dollar is beginning to lose its safe-haven appeal. However, indications that Japan is closer to taking direct action in limiting the yen's rise versus the greenback has provided some lift for the U.S. currency. At last check, the U.S. Dollar Index was down 0.38% at 82.94.

Benchmark crude futures: Given crude's steep decline during the past several days, commodities traders have been more than happy to go bargain hunting, especially in the wake of a weakening U.S. dollar. In electronic trading, the front-month crude contract is up 85 cents at $73.37 per barrel.

Bonds: Treasury prices moved higher. The yield on the 10-year note fell to 2.52% from 2.54% late Wednesday. In Washington, the Treasury is scheduled to sell $29 billion in 7-year notes.


Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,068,964 call contracts traded on Wednesday, compared to 664,930 put contracts.

The CBOE Market Volatility Index (VIX)was turned back by resistance in the 28 region. This area is home to the VIX's 80-day moving average.

Overseas Markets

European Concerns

European share markets were higher in early trading. The CAC 40 in France rose 0.5%, Britain's FTSE 100 climbed 0.6% and the DAX in Germany added 0.3%.

In Europe, at midday, London +0.8%. Paris +0.5%. Frankfurt +0.5%.

The dollar fell against the euro, the British pound and the Japanese yen.

Asian Concerns

Earlier, Asian markets ended mixed. Japan's benchmark Nikkei index increased 0.7%, and the Shanghai Composite edged up 0.3%. The Hang Seng in Hong Kong lost 0.1%.

In Asia, Japan +0.7% to 8906. Hong Kong -0.1% to 20612. China +0.3% to 2603. India +0.3% to 18226.

Futures Trading

At 6:35 a.m. in New York, the Dow Jones Industrial Average futures rose 32 points, or 0.32%, to 10079, the S&P 500 index futures rose 2.6 points to 1057.20 and the Nasdaq 100 futures were up 3.75 points to 1793.50.

Futures: Dow +0.2%. S&P +0.3%. Nasdaq +0.25%. Crude +1.25% to $73.43. Gold +0.2% to $1243.80.


Company News

Regis Corp (RGS)

Hair-salon operator Regis Corp (RGS), which is evaluating strategic alternatives, posted a fourth quarter profit that fell short of market expectations as fewer customers visited its higher priced salons.

The operator of the Vidal Sassoon and Supercuts chains has seen declining sales since the economic downturn as thrifty consumers went longer between haircuts, and earlier this month Regis said it had retained Peter J. Solomon Co L.P. as its financial adviser.

Minneapolis-based Regis earned $18.3 million, or 30 cents a share, compared with a net loss of $4.6 million, or 11 cents a share, a year ago.

Excluding items, the company earned 34 cents a share.

Analysts were looking for earnings of 37 cents a share, according to Thomson Reuters.

The company, which pre-announced a 6 percent drop in quarterly revenue in July, said it sees positive comparable sales in the second half of this year.

However, comparable sales slipped 1.9 percent in the first 55 days of the current quarter, Regis said in a statement.

Shares of Regis, which have risen 9 percent since the company said it was mulling strategic options, closed at $17.13 Wednesday on the New York Stock Exchange.

Some Interesting News

Debt-laden Dubai World to sell prized assets. Dubai World is preparing to sell some prized assets, including ports firm DP World, in order to raise as much as $19.4B to repay creditors. According to documents obtained by Reuters, the sale is necessary because Dubai World's debt stands at $39.9B, much higher than the widely expected mid-$20B range. The state-owned conglomerate is hoping creditors will give it 5-10 years to complete the sales, warning that a sale of assets at current prices would generate a maximum of $10.4B.

Shell, Cosan ink final JV agreement. Shell (RDS.A) and Cosan (CZZ) signed a binding agreement yesterday to form a $12B joint sugar and biofuels venture in Brazil. In February, the two companies had agreed to merge ethanol and fuel distribution units, and subsequently modified the deal to include all of Cosan's energy generation business and an additional 500M reais ($283.6M) in debt owed to Brazilian development bank BNDES. Shell will have the right to buy Cosan's stake after ten years; either company will be able to buy out its partner in 15 years. Premarket: RDS.A -0.2% (7:00 ET).

Fed scrambles to overturn disclosure ruling. The Federal Reserve filed an emergency request yesterday for a 90-day delay of a ruling that would force the Fed to disclose the details of its emergency lending program during the financial crisis. If the request is approved, the Fed and the Clearing House Association, a group of major U.S. and European banks, will have until Nov. 18 to appeal the ruling to the Supreme Court.

Wal-Mart appeals to Supreme Court. Wal-Mart (WMT) has petitioned the Supreme Court to overturn an appeals court ruling that will allow a long-running gender-discrimination lawsuit to go to trial with class action status. The lawsuit, which alleges Wal-Mart discriminates against women in promotions, pay, training and job assignments, could potentially force Wal-Mart to pay billions of dollars in damages, and any negative verdict could be "material" to Wal-Mart's earnings results.

Google takes on Skype. Google (GOOG) introduced voice calling through Gmail, allowing U.S.-based users to call landlines and cell phones in North America via the email service. The service is free at least until the end of the year, though there are charges to make international calls. Google hopes to offer the service internationally and to businesses at some point in the future. The new feature will be in direct competition with similar services offered by internet phone providers like Skype.

Nestle finishes Alcon sale. Nestle (NSRGY.PK) said this morning it has completed the sale of its remaining shares in Alcon (ACL) to Novartis (NVS) for $28.3B in cash. With the completion of the deal, originally agreed upon in April 2008, Novartis is Alcon's majority shareholder and controls approximately 77% of Alcon's outstanding shares.

Civil charges possible for high-frequency trading firm. Infinium Capital Management, a major high-frequency trading firm, faces possible civil charges by regulators after its computer malfunctioned in February, causing a spike in oil prices and losing the company a million dollars in the span of about a second. The documents obtained explain for the first time how the computer glitch caused the oil-trading surge on Feb. 3, and may also be responsible for the abrupt and largely unexplained $5 slide amid record volumes during the following two days. Futures exchange operator CME Group and the CFTC are both looking into the matter.

SEC, Reserve Primary founder abandon settlement talks. Settlement talks between the SEC and Reserve Primary co-founder Bruce Bent Sr. have ended in an "impasse," according to yesterday's court filing. The SEC had been trying to settle a lawsuit it brought over the money market mutual fund's 2008 implosion, and had accused Bent and his son of deceiving investors into believing the fund, which once held $62B, was safe.


Worries over the slowdown in the American economic recovery have progressively increased in recent days, leading investors to sell equities and other assets perceived as risky. A late-session rally on Wednesday helped the Dow (DJIA) break a four-session losing streak, with the index ending up 0.2%.

Investors will pay close attention to U.S. weekly jobless claims which will be released at 8:30 a.m. Eastern time. The data will come after a string of disappointing U.S. economic reports in recent days and ahead of Friday's second release of second-quarter gross domestic product data.

"The basic theme is that there is a larger tendency for market participants to believe that there is a strong likelihood for the U.S. to enter into a double-dip [recession]," Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank, said. "If we are going to have a double dip -- and I emphasize if, it's going to be very short-lived."


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