Market Outlook
Tuesday, July 27, 2010

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

7:45… ICSC Retail Store Sales

8:55 … Redbook Chain Store Sales

9:00… S&P Case-Shiller Home Price Index

10:00 … Consumer Confidence

10:00… State Street Investor Confidence Index

10:00… Richmond Fed Mfg.

12:00 PM … Chicago Fed Midwest Manufacturing Index

5:00 PM … ABC Consumer Confidence Index

Also the following companies are reporting their quarterly earnings:-

• AK Steel Holding Corp. (AKS),

• BP plc ( BP),

• CIT Group Inc. (CIT),

• Cummins Inc. (CMI),

• Domino's Pizza Inc. (DPZ),

• DuPont (DD),

• L-3 Communications Holdings Inc. (LLL),

• LCA-Vision Inc. (LCAV),

• Lexmark International Inc. (LXK),

• Office Depot Inc. (ODP),

• Lockheed Martin Corp. (LMT),

• United States Steel Corp. (X),

• Teva Pharmaceutical Industries Ltd. (TEVA),

• Under Armour Inc. (UA),

• Valero Energy Corp. (VLO),

• Aetna Inc. (AET), AFLAC Inc. (AFL),

• Broadcom Corp. (BRCM),

• Buffalo Wild Wings (BWLD),

• CB Richard Ellis Group Inc. (CBG)

• Cephalon Inc. (CEPH),

• DreamWorks Animation SKG Inc. (DWA),

• Fiserv Inc. (FISV),

• Massey Energy Co. ( MEE) and

• Panera Bread Co. (PNRA).


Tuesday saw U.S. stocks set to continue their run higher as economic and earnings reports worldwide are boosting optimism about the health of the global economy.

Chemical maker DuPont Co. became the latest company to easily top second-quarter profit and revenue forecasts, adding to a string of earnings reports in recent days that have shown the economy might not be slowing as much as investors had anticipated.

Stock futures are modestly higher this morning following strong earnings out of European banking giants UBS (UBS) and Deutsche Bank (DB).

Investors are also working through the earnings results of BP (BP) who posted a $17.2 billion quarterly loss and confirmed that CEO Tony Hayward would step down later this year.

DuPont shares rose $1.29, or 3.3 percent, to $40.28 in pre-opening trading. Shares of Deutsche Bank trading in the U.S. rose $1.65, or 2.5 percent, to $67.83, while UBS shares rose $1.11, or 7.3 percent, to $16.26.

"Today's gains are being firmly dictated by the strong demand for bank stocks, after UBS posted better-than-expected earnings while Deutsche bank, whose results were largely in line with expectations, showed loan-loss provisions were decreasing strongly," said Joshua Raymond, market strategist at City Index, in a note.

Economic Concerns

The Case-Shiller 20-city home price index is expected to have risen 4% in May after rising 3.8% in April.

After the start of trading, the Conference Board releases the Consumer Confidence index for July. The index is expected to have fallen to 51 in July from 52.9 in June.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) The Dow Jones Industrial Average (DJIA) soared to its third consecutive 100-point rally on Monday - a feat last accomplished on Jan. 2, 2009, and one that the DJIA has completed only eight times since 1997. During this three-day bullish binge, the Dow has added roughly 4%, while the CBOE Market Volatility Index (VIX) has plunged some 11.4%. It is currently perched above potential support near 10,500, with resistance looming overhead near 10,600 (site of the Dow's June 21 high).

The S&P 500 Index (SPX) is perched above its 200-day moving average for the first time since June 21, as the broad-market index looks to leave the dregs of July in the rear-view mirror. While the SPX has potential support at its 200-day moving average and the 1,100 level, the index must still overcome its June high near 1,130.

Gold futures have added 10 cents to trade at $1,187.10 in London. The malleable metal has lacked the buying strength to reclaim the psychologically important $1,200 level, with the region now providing stiff overhead resistance on a short-term basis.

• The U.S. Dollar Index is hovering just above support at the 82 level heading into the open. The index has not closed a session below this level since April 30.

Benchmark crude futures are hovering just above $79 per barrel, up 8 cents in pre-market trading. Oil prices have once again rallied into resistance in the $79-$80 per-barrel range, and could be poised to roll over from a double-top formation.

Bonds: Treasury prices fell, and the yield on the 10-year note edged up to 3.02% from 3% late Monday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,095,255 call contracts traded on Monday, compared to 608,484 put contracts.

The CBOE Market Volatility Index (VIX) is trading at a two-month low, below its 200-day moving average.

Overseas Markets

European markets were broadly higher overnight following the results of UBS and Deutsche Bank, two of the continent's largest banks, as both banks posted stronger-than-expected profits especially at a time that the European banking system had been under stress.

Swiss bank UBS rallied nearly 10% in Europe after the bank said it earned $1.9 billion last quarter, coming back from a $1.2 billion quarterly loss last year. The results were well ahead of analysts' expectations.

Deutsche Bank shares were up 4% on news that the bank earned $1.5 billion last quarter, well ahead of expectations.

European share markets: were higher in the early going. The CAC 40 in France gained 0.7%, Germany's DAX rose 1% and the FTSE 100 added 0.5% in the early going.

In Europe at midday, London +0.8%. Paris +1.1%. Frankfurt +0.6%.

The dollar was up versus the euro and the Japanese yen, but down against the British pound.

The euro rose above $1.30. Asian Concerns

Earlier in Asia, the markets finished the session mixed. Japan's benchmark Nikkei index edged down 0.07% and the Hang Seng in Hong Kong ended 0.6% higher.

In Asia, Japan -0.1% to 9497. Hong Kong +0.6% to 20973. China -0.5% to 2575. India +0.3% to 18078.

Futures Trading

As of 6:45 a.m. in New York, the Dow Jones Industrial Average futures added 45 points, or 0.43%, to 10502, the S&P 500 index futures were up 5 points to 1114.50 and the Nasdaq 100 futures were higher by 9.5 points to 1897.00.

Futures: Dow +0.4%. S&P +0.5%. Nasdaq +0.5%. Crude +0.1% to $79.07. Gold -0.1% to $1182.

us futures-july27,2010

Company News

With more than 100 companies reporting earnings this week, investors awaited a fresh batch of second-quarter results Tuesday.

Earnings are currently on track to have risen 34% from a year ago, according to earnings tracker Thomson Reuters.

**Before the opening bell, BP (BP) booked a massive quarterly loss of $17.2 billion due to costs related to the Gulf of Mexico oil spill. The company also announced early Tuesday that Tony Hayward will step down as chief executive and be replaced by American Robert Dudley effective Oct. 1.

Shares of BP were also higher this morning despite the bank posting a massive $17.2 billion loss. The bank said in its results that it had taken $32.2 billion in charges related to the Gulf of Mexico oil spill.

**Chemical giant DuPont (DD) reported second-quarter net income of $1.16 billion, or $1.26 per share. Excluding items, DD earned $1.17 per share, blowing past analyst expectations for earnings of 93 cents per share. Net sales climbed to $8.6 billion. "We grew sales across every segment," said CEO Ellen Kullman. The company lifted its full-year earnings outlook to a range of $2.90 to $3.05 per share, excluding significant items, from its previous range of $2.50 to $2.70 per share.

**Shares ofFluor (FLR) rose 1.8 percent after the bell on Monday after the company reported results and said it raised guidance.

** Office Depot Inc. (ODP) said that its second-quarter net loss narrowed to $18.7 million, or 7 cents per share. Excluding one-time costs related to restructuring, ODP earned 2 cents per share. Sales fell to $2.7 billion, from $2.8 billion. Wall Street analysts expected a loss of 17 cents per share on revenue of $2.75 billion.

Some Interesting News

BP posts $17.15B loss, bids adieu to Hayward. Beleaguered BP (BP) CEO Tony Hayward will step down as of October 1, and will be replaced by American Bob Dudley who has been heading up the company's Gulf spill response. Hayward will be nominated as a non-executive director of TNK-BP, the company's Russian joint venture. "It will be a different company going forward," BP said in a statement, "requiring fresh leadership supported by robust governance and a very engaged board." BP also posted its Q2 results today, reporting a $17.15B loss from a year-earlier profit of $4.4B. It recorded a pre-tax charge of $32.2B related to the Gulf spill, which includes the $20B escrow account, and plans to sell up to $30B in assets, mostly upstream, over the next 18 months to pay for the spill. Premarket: BP +0.8% (7:00 ET).

IBM faces EU antitrust probes. The European Commission launched two formal antitrust probes against IBM (IBM) on suspicions the company has abused its dominant position in the mainframe computer markets. The first probe will examine whether IBM improperly blocks customers from using the mainframe's operating system without IBM's expensive hardware. The second probe will examine whether IBM is squeezing third-party providers of spare mainframe parts. Concerns about IBM's dominance in mainframes go back more than fifty years, but scrutiny of the matter had died down in recent years.

Canadian pension, P-E firm buy Tomkins. Canadian private equity firm Onex (ONEXF.PK) and the Canada Pension Plan Investment Board agreed to buy British car-parts maker Tomkins (TKS) for £2.89B ($4.5B). The deal marks a 41% premium to Tomkins' closing price on July 16, the day before the potential takeover was announced. It's the latest example of North American buyers capitalizing on the pound's relative weakness to snap up British assets.

Rambus wins patent fight. Rambus (RMBS) won a patent-infringement case against Nvidia (NVDA), with the International Trade Commission ruling that Nvidia chips infringed three Rambus patents. The ITC also issued an order that would ban imports of certain products containing the chips, though Nvidia will be able to continue sales through a licensing arrangement. Rambus also has a civil suit pending against Nvidia to collect "past damages for the eight years they were infringing our patents." The ruling, which will be appealed, is significant because it could prompt other companies to sign licensing deals with Rambus rather than try to fight in court. In after-hours trading, RMBS +8.5%, NVDA -0.7%.

UBS back to profitability. UBS (UBS) reported a Q2 net profit of 2.01B Swiss francs ($1.9B), helped in part by a 595M franc gain on its own debt. The results are a strong turnaround from the net loss of 1.4B francs the year before, and beat analysts' expectations of a 1.26B franc gain. UBS also noted that withdrawals narrowed at its private banking arm to 5.2B francs from 8B francs in Q1, indicating wealthy clients are regaining trust in the bank. Premarket: UBS +7.3% (7:00 ET).

Deutsche Bank caves on missing stress test details. Deutsche Bank (DB) reported its Q2 earnings this morning, booking a €1.16B ($1.5B) net profit for the quarter vs. $1.09B the year before. The 6.2% increase was partly due to a sharp drop in its provision for bad loans and gains from its acquisition of ABN Amro's commercial-banking assets in the Netherlands. The company said it's on track to earn a pretax profit of €10B by 2011. Deutsche also provided new details about its sovereign debt holdings, which include €1B in exposure to Spain, €8.1B in exposure to Italy and €1.1B to Greece. Premarket: DB +2.5% (7:00 ET).

Basel Committee scales back rules. The Basel Committee will scale back many of its proposals to shore up bank capital and liquidity rules, a concession as much to "common sense" as to heavy lobbying by banks and governments. Changes to the Basel III reform draft, originally published in December, include; longer phase-ins for leverage caps, a weaker requirement to exclude from a bank's Tier 1 the capital held by affiliated banks in which it has a minority stake, and an easing in the way counterparty credit risk is calculated.

Genzyme considers takeover offer. Genzyme (GENZ) is reportedly weighing an informal takeover offer from Sanofi-Aventis (SNY), but isn't looking to sell the company and may wait to see if other firms present better bids. Some analysts believe it's just a matter of time until Genzyme receives a competing offer, with a bid in the $75-85/share range likely to do the trick, “given that Genzyme has activists on its board, frustrated shareholders, and a management team generally perceived to be on thin ice." GENZ rose 7.8% in trading yesterday.

Lions Gate faces Icahn suit. Carl Icahn is taking legal action against Lions Gate Entertainment (LGF), accusing the studio of using "scorched earth" tactics to block his takeover bid. The lawsuit seeks "a preliminary and permanent injunction rescinding the note exchange and the issuance of shares" that reduced Icahn's stake to 33.5% from 37.9%. Icahn also wants to be paid punitive damages.


Stocks fell worldwide in May and June because of worries that mounting government debt across Europe would stall a global recovery and severely hurt banks across the continent. Strong earnings from U.S. and European companies over two weeks have helped to soothe those concerns.

A report on July consumer confidence due out later Tuesday could temper the upbeat mood in the market. The Conference Board report is expected to show its consumer confidence index dipped again in July, falling to 51.0 from 52.9, according to economists polled by Thomson Reuters. Last month, the index posted its largest drop since February, which helped push stocks sharply lower.

Confidence has waned in recent months primarily because of ongoing concern about high unemployment. With consumers not as confident as they were just a few months ago, their spending has slowed. Consumer spending accounts for a large portion of the nation's economy.

The Dow has surged in July, rising 7.7 percent during the month. The sharp gains helped push the index back into the black for the year on Monday. In the past three trading days alone, the Dow has jumped 4 percent because of consistently strong earnings and outlooks.

Stocks got a lift Monday after a report on new home sales rose more than expected last month. The housing market has remained weak, particularly since a tax credit for home buyers expired at the end of April.

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