Market Outlook
Wednesday, August 18, 2010

Wednesday has very little in the way of economic reports scheduled. They are:-

7:00… MBA Mortgage Applications

10:30… EIA Petroleum Inventories

Also the following companies are reporting their quarterly earnings:-

• BJ's Wholesale Club Inc. (BJ),

• Chico's FAS Inc. (CHS),

• Target Corp. (TGT),

• Applied Materials Inc. (AMAT),

• Brocade Communications Systems Inc. (BRCD),

• Hot Topic Inc. (HOTT), and

• Limited Brands Inc. (LTD).

wednesday outlook

Wednesday sees U.S. stock futures edging marginally lower, with Potash Corp. of Saskatchewan remaining in focus after mining giant BHP Billiton decided to bypass the firm and go directly to its shareholders with a hostile bid. Also, the S&P 500 struggled to push above a key technical level amid continued concerns about the health of the economy.

The broad-based S&P has traded around its 50-day moving average for the last four days after falling sharply last week following a bleak assessment of the economy from the U.S. Federal Reserve. The 50-day average is currently about 1,088.

With no major economic releases due out today, the market may have trouble finding direction.

Economic Concerns

U.S. mortgage applications leaped to its highest level in 15 months last week as rock-bottom rates lifted demand for home refinancing loans, the Mortgage Bankers Association said.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) rallied 103 points on Monday, snapping a five-day losing streak for the blue-chip barometer. Despite the upturn in investor sentiment, the Dow met with staunch resistance near the 10,500 level yesterday. The area is home to the DJIA's 200-day moving average, and could become a considerable technical hurdle for the bulls. Support, meanwhile, continues to play out at the 10,300 level, with Wall Street refusing to allow the Dow to slip below this round-number region.

The S&P 500 Index (SPX) is staring up at psychological resistance in the 1,100 region, though support could materialize just below 1,090 at the SPX's 50-day moving average.

Gold futures: are retreating heading into the open, with the most active contract off $2.60 at $1,225.70 an ounce in London.

The U.S. Dollar Index: Despite overnight strength in Asia, the U.S. dollar is weakening in pre-market trading. At last check, the U.S. Dollar Index was seen lower by 0.15% at 82.10.

Benchmark crude futures prices are headed lower in pre-market activity, as investors weigh yesterday's U.S. petroleum supplies data from the American Petroleum Institute and gains in the U.S. dollar in Asian trading. At last check, the front-month contract was down 98 cents at $75.18 per barrel.

Bonds: Prices for Treasurys were higher. The yield on the 10-year note slipped to 2.61% from 2.63% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,092,171 call contracts traded on Tuesday, compared to 691,409 put contracts.

The CBOE Market Volatility Index (VIX) gapped below support/resistance at the 25 level yesterday. The VIX could now be range-bound between this potential technical hurdle and support at its 200-day trendline (near 23.50).

Overseas Markets

China's banking regulator has told banks in Beijing to test for the impact of a plunge in property values below what is owed on mortgages, a local newspaper reported.

European stocks .FTEU3 dipped in early trade, with a key index failing to stay above a resistance level pierced in the previous session. Heavyweight energy shares fell along with oil prices.

European Concerns

European share markets tumbled in morning trading. Britain's FTSE 100 and the CAC 40 in France fell 0.9%. Germany's DAX lost 0.6%.

In Europe at midday, London -0.7%. Paris -0.4%. Frankfurt -0.2%.

The dollar slipped 0.4% to 85.25 Japanese yen, while the euro (EURUSD) gained 0.2% at $1.2892.

Asian Concerns

Earlier in Asia, markets ended the session mixed. Japan's benchmark Nikkei jumped 0.9%. But the Hang Seng in Hong Kong and the Shanghai Composite both finished the session with losses.

In Asia, Japan +0.9% to 9241. Hong Kong -0.5% to 21023. China -0.2% to 2666. India +1.1% to 18257.

Futures Trading

As of 7:20 a.m. in New York, the Dow Jones Industrial Average futures were up 4 points, or 0.04%, to 10362, the S&P 500 index futures were down 1.1 points to 1088.00 and the Nasdaq 100 futures were down 2.5 points to 1837.00.

Futures: Dow -0.1%. S&P -0.1%. Nasdaq -0.2%. Crude -1% to $74.99. Gold -0.2% to $1225.50.

us futures-aug18,2010

Company News

Deere & Co. (DE)

Deere & Co. says its third-quarter profit grew 47 percent with American and Canadian farmers buying enough of the company's large equipment to offset weak demand in Europe.

The company said Wednesday it generated $617 million net income, or $1.44 per share, in the quarter. That's up from $420 million, or 99 cents per share, a year ago.

Deere says global revenue spiked 16 percent to $6.84 billion. The quarterly results from the maker of iconic green-and-yellow farm and construction equipment easily beat Wall Street expectations. On average, analysts expected earnings per share of $1.24 on $6.52 billion revenue.

Deere, based in Moline, Ill., is the world's largest maker of agricultural equipment, but it also makes construction, forestry and landscaping equipment.

Target Corp. (TGT)

Analysts polled by Thomson Reuters expect Target to report a profit of 92 cents a share when it reports before the opening bell. Target's numbers follow results out of Wal-Mart yesterday, which reported a better-than-expected profit but was light on sales.

Shares of Potash (POT) and BHP Billiton (BHP are expected to trade heavily for a second day following yesterday's disclosure of unsuccessful merger talks between the two companies.

Shares of Analog Devices Inc. (ADI) may rise after the chip maker late Tuesday posted fiscal third-quarter results that beat analyst forecasts and provided an outlook for the current quarter that was ahead of market expectations.

Some Interesting News

BHP Billiton's bid to buy Potash turns hostile. Despite being called "grossly inadequate" by Potash's (POT) board, mining company BHP Billiton (BHP) says it will take its $38.6B bid to acquire Potash directly to shareholders of the fertilizer company. BHP chairman Jac Nasser said that the cash offer represented a 32% premium over a 30-day trading period. BHP confirmed Wednesday that it intended to make an all-cash offer to acquire Potash for $130 a share. Shares of Potash closed +27.7% Tuesday at $143.17. Premarket: POT -0.6%, BHP -0.9% (7:00 ET).

GM may issue preferred shares along with IPO. GM is expected to issue preferred shares when it launches its IPO. The shares, which would be listed on the NYSE, could give the automaker some proceeds, since the offering of common shares will mostly go to paying back government loans. They are also expected to lure hedge funds and other new investors because they have qualities of both debt and equity. The IPO may be filed with the SEC today, and would be the second largest in U.S. history behind Visa's (V) nearly $20B IPO in 2008.

Some Dell shareholders are unhappy with the boss. Michael Dell, founder of the computer empire that bears his name, didn't exactly get a ringing endorsement when he was reelected to Dell's (DELL) board earlier this month. In fact, more than 25% of the votes cast withheld support for Dell's candidacy, indicating they are unhappy with his performance as chairman and CEO. He received the lowest number of votes in favor of his election of all 11 directors reelected.

Reynolds Group bags Hefty owner with $4.4B offer. Reynolds Group, a Chicago-based subsidiary of New Zealand's Rank Group, will pay about $4.4B to purchase Pactiv (PTV), a maker of packaging materials, including the line of Hefty garbage bags. Including debt, the deal is valued at about $6B and could close as soon as later this year.

Mattel accused of spying by maker of Bratz dolls. MGA Entertainment, the maker of the popular Bratz line of dolls, accused rival Mattel (MAT) of spying on other toy companies for more than 15 years. In a filing in a Los Angeles federal court, MGA said Mattel workers, with the approval of executives, stole product ideas, price lists, and advertising strategies from rival toy companies, including MGA, Hasbro (HAS) and Sony (SNE). MGA's allegations are largely based on deposition testimony from a former Mattel employee.

Nidec to Buy Emerson Electric motor unit. Japanese maker of disk drive motors, Nidec (NJ), says it has agreed to purchase the motor and controls unit of Emerson Electric (EMR) as it attempts to expand its home appliance and automotive business in the U.S. Although terms of the cash deal, which is scheduled to be completed by the end of September, were not disclosed, the offer was thought to be in the area of $700M. It is Nidec's fourteenth deal in 5 years. Nidec shares were up 3% in overnight trading.

American Apparel on the edge of bankruptcy. In a regulatory filing, American Apparel (APP) warned that it could breach a loan covenant and raised doubts about whether it could continue as a going concern. The company also said that it received a subpoena from the U.S. Attorney's office for the Southern District of New York, and from the SEC, regarding the resignation of its former auditor. Deloitte resigned as the company's auditor in March after raising questions about the company's financial reporting. Shares closed down 25.9% yesterday to $1.03.

HBO stands in the way of Netflix's online plans. Plans by Netflix (NFLX) to offer movies from the largest studios online are not going over so well with HBO. Time Warner's (TWX) pay channel and home to some of the biggest hits on television holds cable and internet rights to movies from a number of studios, including Warner Bros. and Universal, and says it is unlikely to make a deal with Netflix for online distribution rights. Netflix already has such agreements in place with Epix cable channel and Liberty Media's (LCAPA) Starz channel.

SEC launches investigation of trading in General Growth. The SEC has launched a formal probe into allegations of insider trading by current and former officers and directors of mall owner General Growth Properties (GGP). An informal investigation started in October 2008, after the stock declined rapidly due to debt problems. The company has been in bankruptcy protection since April 2009 and plans to exit later this year. As many as 10 officers and directors may face charges that they improperly disposed of shares.

China Huaneng in talks to acquire a stake in InterGen. China's biggest electricity producer, China Huaneng, is in advanced talks to purchase a stake in InterGen, a Massachusetts-based power utility for about $1.2B. The state-owned Chinese company is seeking 50% of InterGen, which is jointly owned by the Ontario Teachers' Pension Plan and India's GMR Infrastructure. With the deal, Huaneng would gain access to 12 power plants in the U.K., Netherlands, Mexico, Australia and the Philippines.

U.S. bankruptcies hit a five-year high. Bankruptcy filings in the U.S. reached the highest rate since 2005, according to government data released yesterday. There were 422,061 bankruptcy filings between April and June of this year, according to the Administrative Office of the U.S. Courts, up 9% from 388,148 in the prior three-month period, and up 11% from 381,073 a year earlier. For the year ended June 30, there were 1.57M bankruptcies, up 20% from 1.31M a year earlier. Consumer bankruptcies rose 21% to 1.5M, and business bankruptcies rose 9% to 59,608.


A pause was to be expected after investors showed their first real enthusiasm for stocks in weeks and sent the Dow Jones industrial average up 103 points. There were no big economic reports planned, and markets overseas were mixed, giving U.S. investors little incentive to keep buying.

It's also too early to tell if Tuesday's advance, which came on improving economic and earnings numbers, was the start of a turnaround for the market, or a one-shot deal.

"Investors are looking for evidence in the daily economic data to figure out whether a double-dip recession can be averted or is our destiny, " said Mark Luschini, chief investment strategist at Janney Montgomery Scott. "In the absence of economic news, the market will see a pretty listless session."

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