Investors remained cautious following four straight losing sessions in the wake of the Federal Reserve's bearish outlook last week. A raft of downbeat economic reports and some tepid earnings results added pressure.
Stocks stumbled into the red right out of the gate this morning, as the Street digested weaker-than-expected economic data from Japan and a disappointing manufacturing report on the home front. More specifically, Japan said its economy grew at a meager pace of just 0.1% in the second quarter, falling short of predictions for 1.2% growth, and making China the world's No. 2 economy behind the U.S. Meanwhile, the Federal Reserve Bank of New York said manufacturing activity rebounded by less than forecast in July, hinting at tame economic expansion in the region. However, thanks to the bulls' valiant effort to reclaim the reins, the Dow Jones Industrial Average (DJIA) significantly pared its triple-digit deficit by the close, while its fellow broad-market barometers effectively snapped their four-session losing streaks.
Investors found little reason to buy stocks as the Dow and S&P 500 ended barely changed, suggesting that even several days of losses have not convinced institutions share prices are attractive.
"In the end, not much happened," observed Schaeffer’s Senior Technical Strategist, Ryan Detrick. "On the S&P 500 Index (SPX), we continue to be trading in a range of about 100 points – from 1,020 to 1,120. Until this sideways pattern resolves itself, we expect more of the same: low-volume choppiness."
"The economic data hasn't been at its weakest levels, and I don't anticipate we're going to roll over, and crash and burn," said Phil Streible, a senior market strategist with Lind-Waldock. "But I think we're going to waffle around here until volume picks up again in September."
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,302.01) finished with a loss of 1.14 points, or 0.01%.
The S&P 500 Index (SPX – 1,079.38) had a small gain, on the day, of 0.13 points, or 0.01%.
The Nasdaq Composite (COMP – 2,181.87) also had a gain of 8.39 points, or 0.39%.
The Russell 2000 Index of smaller companies had a good gain of 5.61 points, or 0.92%, to settle at 615.10.
Global conglomerates led decliners on the Dow, with shares of 3M Co. (MMM) and Boeing Co. (BA) off 0.7% and United Technologies Corp. (UTX) down 0.5%.
Cisco Systems Inc. (CSCO) , the world's biggest maker of networking equipment, rose 2.6%, the top gainer among the blue chips.
The S&P 500 Index (SPX) was led by gains in natural resource and tech stocks.
"Save for the six-week foray in late March through April to the yearly highs, the S&P 500 has been stuck between roughly 1,150 on the high side and 1,025 on the low side for 11 months," wrote Paul Nolte, managing director at Dearborn Partners, in a note. "Unless we see very strong economic data over the next couple of weeks, the stock markets could drift lower toward the bottom of the trading range."
Shares of Intel (INTC) advanced 1.7% after acquisition announcements from Intel and Dell (DELL) sparked excitement about other possible takeover deals in the tech sector.
Intel is buying Texas Instruments' cable modem product line, the company said Monday. It did not disclose the cost of the deal. Meanwhile, Dell said it will acquire data-storage company 3PAR for $1.15 billion, a deal the company said could cut its data management costs by 50%. Shares of Dell (DELL) fell 0.4% after the announcement, but 3PAR (PAR) rose 86%.
The Nasdaq Composite significantly outperformed the broader markets as technology stocks like eBay (EBAY) and SanDisk rallied.
The best performing sector on Wall Street was the basic materials group, which gained 0.50% as economically-sensitive copper climbed 0.78% a pound to $3.277. Stocks like AK Steel (AKS) and BHP Billiton (BHP) posted even stronger gains.
The biggest losers were education stocks, which tumbled on concerns federal regulators will impose tighter controls on student loans. Corinthian Colleges (NasdaqGS:COCO) lost 21.6 percent to $5.22 and was one of the most actively traded on the Nasdaq.
Strayer Education Inc (NasdaqGS:STRA) plummeted 18.4 percent to $163.26 and Capella Education Co (NasdaqGS:) slumped 13.2 percent to $60.94.
Volume was about 40 percent lower than last year's estimated daily average of 9.65 billion.
"Trading volume remains anemic as traders and portfolio managers found little reason to get excited enough to make a decision," said Scott Fullman, director of derivative investment strategy at WJB Capital Group.
Market breadth was positive. On the New York Stock Exchange, winners beat losers on a tight margin on volume of 789 million shares. On the Nasdaq, advancers beat decliners two to one on volume of 1.6 billion shares.
Notes of Interest….
• The Dow Jones Industrial Average (DJIA) maintained its foothold atop the round-number 10,300 level even after the fifth day of consecutive losses.
• The S&P 500 Index (SPX) recovered from an intraday deficit to eke out a gain of 0.1 point, or 0.01%.
• The Nasdaq Composite (COMP) fared the best of the major market indexes, adding 8.4 points, or 0.4%, by the closing bell.
• Crude futures swallowed their fifth consecutive daily loss today, as uninspiring economic data once again escalated concerns about demand. Furthermore, black gold got little support from an ailing greenback, which typically benefits the dollar-denominated commodity. By the close, crude oil for September delivery shed 15 cents, or 0.2%, to settle at $75.24 per barrel – the contract's lowest closing price since mid-July.
• Gold futures rallied to a six-week high today, as less-than-impressive economic data sparked a bout of safe-haven buying. The weaker-than-expected economic figures from Japan also weighed on the dollar, which helped to bolster the commodity's appeal among holders of foreign currencies. Furthermore, physical demand ahead of India's wedding season and the Hindu festival of Dhanteras contributed to the precious metal's gains. Against this backdrop, December-dated gold futures added $7.40, or 0.6%, to end at $1,224.20 an ounce.
• Bonds: Prices for Treasurys rose. The yield on the 10-year note fell to a 17-month low of 2.58% from 2.68% late Friday.
The 2-year yield hovered near its record intraday low of 0.48%.
U.S. home-builder sentiment unexpectedly fell for a third straight month in August to its lowest level in nearly 1-1/2 years, according to a survey on Monday that pointed to a weak housing market.
The National Association of Home Builders/Wells Fargo Housing Market Index slipped one point to 13, defying market expectations for a rise to 15.
A reading above 50 indicates that more builders view sales conditions as good than poor. The index has not been above 50 since April 2006.
The NAHB survey showed the current sales conditions gauge for single-family home sales slipped one point to 14 in August, the lowest level since June 2009. The sales expectations measure for the next six months fell three points to 18, the lowest level since March 2009.
The traffic of prospective buyers index was unchanged at 10.
Empire State Manufacturing Index
Conditions for manufacturing in the New York region improved a bit in August from July but still remained well below levels of earlier in the summer, the New York Federal Reserve Bank said Monday.
The bank's Empire State Manufacturing index rose to 7.1 in August from 5.1 in July.
While positive, it is well below the high of 31.9 in April and 19.6 in June and suggests growth at only a modest pace. The details of the report were fairly weak.
The index for new orders and shipments dipped below zero for the first time since June 2009. The unfilled orders index was negative for the fifth straight month.
On the positive side, the index of employees rose to its highest level since May. The average workweek also increased. U.S. home builder sentiment fell for a third straight month in August to its lowest level in nearly 1-1/2 years, pointing to a weak housing market as the economic recovery loses steam.
Further signs that the recovery from the longest and deepest recession since the 1930s was taking a step back were contained in another report on Monday that showed below-forecast growth in manufacturing activity in New York state, with new orders and shipments tumbling.
Although the data remains weak, most economists still do not believe that the economy is slipping back into recession.
"While I don't take the view that the economy is faltering, what's happening out there is that there is not a lot of growth out there," said Joel Naroff, president, Naroff Economic Advisors in Holland, Pennsylvania.
In currencies, the dollar fell against the euro, the Japanese yen and the British pound.
European Markets ended mixed. France's CAC 40 dropped 0.4%, while the FTSE 100 in Britain and Germany's DAX were fractionally higher.
Asian Markets: While stocks in Asia ended mostly higher, Japan's benchmark Nikkei index slipped 0.6% following reports that Japan's economic growth slowed sharply to 0.4% in the second quarter -- putting China another step closer to becoming the world's second-largest economy.
Japan's gross domestic product totaled $1.29 trillion for the three months ending in June, while China's official figure for the same period was $1.34 trillion.
China is forecast to overtake Japan by the end of the year to become the world's No. 2 economy after the United States. Official annual figures won't come until early 2011.
Meanwhile, the Shanghai Composite rallied 2.1%, while the Hang Seng in Hong Kong ended the day up 0.2%.
Company Earnings Reports
Lowe's Companies (LOW)
Lowe's Cos. shares gained 3.5% in early trading Monday after the home improvement retailer posted higher fiscal second-quarter profit and revenue - although the company missed forecasts and lowered its outlook.
Lowe's (LOW) reported a profit of $832 million, or 58 cents per share, for the quarter ended July 30. That was below the 59 cents per share analysts were forecasting, but was up 9.6% from $759 million, or 51 cents a share, a year earlier, thanks to cost-cutting measures.
Sales for the quarter rose 3.7% to $14.4 billion from $13.8 billion a year earlier. Analysts were expecting revenue to jump 5% to $14.5 billion.
"The stock should benefit from a sigh of relief that it could have been worse, but risk still remains as the macro recovery remains elusive," said David Strasser, analyst at Janney Capital Markets, in a research note.
Lowe's also gave a more cautious outlook for the year.
"Longer term, we believe improvements in labor and housing markets will be necessary to support more consistent improvement in demand for home improvement products," said Robert A. Niblock, Lowe's chairman and chief executive.
Lowe's is anticipating earnings per share of up to $1.45 for the fiscal year ending in January, down from $1.47 it previously projected.
Total sales are expected to increase about 4%, a drop from the 5% to 7% increase the company said it was expecting at the end of the first quarter.
Lowe's stock was up 61 cents to $20.20 in early trading.
Urban Outfitters (URBN)
Urban Outfitters (URBN) shares rose 2.7% to $32.21 after the apparel retailer posted second-quarter net earnings of $71.7 million, or 42 cents a share, up from $49 million or 29 cents a year ago. Revenue jumped 20% to $552.2 million from $458.6 million last year. Analysts polled by FactSet Research had expected the Philadelphia-based company to report earnings of 39 cents a share on $541.6 million in sales.
Agilent shares (A)
Agilent shares (A) rose 2.3% to $27.79 in light volume. The company, which provides measurement products for electronic, life-science and chemical analysis, said earnings, excluding certain one-time gains and charges, would have been 54 cents a share for its fiscal third quarter. Net revenue rose 31% to $1.38 billion. Analysts were expecting earnings of 48 cents a share on revenue of $1.4 billion, according to consensus estimates from Thomson Reuters.
On a net basis, Agilent swung to a profit of $205 million, or 58 cents a share. A year ago, it lost $19 million or 6 cents a share.
Company News and Movements:
• Hewlett-Packard’s (HPQ) board of directors decided to oust CEO Mark Hurd after he settled a sexual harassment claim without the board’s knowledge or input, The Wall Street Journal reported. The move miffed the board, which felt Hurd impeded their own probe of the claim. However, a source close to Hurd told the paper the H-P board repeatedly told Hurd to settle and that he provided everything the board asked for during the probe.
• General Motors has completed the paperwork for its initial public offering and is expected to make the filing on Monday or Tuesday, Reuters reported. The auto maker, which was rescued by the U.S. and filed for bankruptcy last year, is expected to raise $15 billion to $20 billion in the IPO.
• Research in Motion (RIMM) saw its stock slide 4.8% as Reuters reported the BlackBerry maker has assured Indian officials of limited access to its Messenger services by Sept. 1 and plans to discuss giving them access to enterprise mail. India has imposed an Aug. 31 deadline to give it access to email and instant messages amid security concerns.
• Medco Health Solutions (MHS) inked a $730 million deal to buy out privately held drug researcher United BioSource in an effort to accelerate its pharmaceutical knowledge. Medco said it expects the acquisition to slightly add to its earnings in 2011 and closing later in the third quarter. The move is aimed at boosting Medco’s capabilities in “data analytics and research to further accelerate its pharmaceutical knowledge.”
• Dell (DELL) unveiled a $1.15 billion transaction to acquire data storage company 3PAR. The deal translates to $18 a share, or a hefty 87% premium over 3PAR’s Friday close.
• Sysco (SYY) posted a 7.1% rise in fiscal fourth-quarter profits and EPS of 57 cents. Revenue jumped 14% to $10.35 billion, missing the Street's view for $9.96 billion.
• Watson Pharmaceuticals (WPI) was given approval by the Food and Drug Administration to begin marketing its "ella" morning-after contraception pill on Friday, marking the first major morning-after pill since the release of Plan B.
Deere & Company (DE)
On Wednesday, Deere & Company (DE) will report on its third-quarter earnings, with analysts looking for a profit of $1.22 per share. Historically speaking, the company has beaten the consensus estimate three times and fallen short of analysts' expectations once.
Technically speaking, DE has put in an impressive performance in 2010, adding nearly 20% year-to-date. In fact, since May 2009, DE has enjoyed strong support from its 10-month moving average, which has neatly contained all of the stock's pullbacks during that time.
Despite the stock's technical strength, option players showed an acute preference for puts on Friday. Roughly 11,000 of these bearish bets changed hands during the course of the session -- nearly double the stock's expected single-session put volume of fewer than 6,000 contracts.
The August 65 put was most popular on Friday, with 5,857 contracts traded -- the majority of which changed hands at the ask price, indicating they were most likely purchased. Over the weekend, open interest increased by 1,729 contracts, confirming that fresh bearish positions were added here. By buying to open the August 65 put, traders are expecting DE to slip beneath the $65 level over the next few days. For the record, all August-dated options expire after the close this Friday, Aug. 20. At last check, DE had added 1.5%, to trade at $65.86.
Capital One Financial Corp. (COF)
This morning, Macquarie cut its price target on Capital One Financial Corp. (COF) from $49 to $42. This price-target cut comes after COF reported that its U.S. credit-card defaults declined for the fourth straight month, to 4.66% in July.
All in all, analysts are highly skeptical of COF. According to Zacks, of the 23 brokerage firms following the equity, 16 rate COF a "hold" or worse.
Option activity has been brisk on the financial firm today, with 11,000 contracts changing hands so far -- nearly double COF's usual daily volume of around 6,000 contracts.
The August 39 put has attracted traders' attention today, with 2,214 contracts changing hands -- the majority of which traded at the bid price, revealing they were likely sold. With today's volume outnumbering open interest at this strike, it seems that at least a portion of these puts are fresh contracts. By selling to open the August 39 put, traders are counting on COF to remain right at, or above, the $39 level until August expiration, which happens after the close this Friday.
In fact, COF is currently hovering right around $39. Technically speaking, the $39 level has provided support for the shares in 2010, acting as a technical floor during the past several months.
Apollo Group (APOL)
The shares of APOL attracted some heavy options trading on Friday, as more than 38,600 contracts crossed the tape. This surge in volume was more than three times the stock's average daily trading volume of 11,585 contracts, according to data from WhatsTrading.com. In addition, approximately 75% of the volume changed hands on the put side, indicating an increase in skepticism.
Traders have focused on the stock's puts recently, as the International Securities Exchange (ISE) has reported 2.8 puts purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 96% of all those taken during the past 12 months.
According to Zacks, the stock has earned 11 "strong buys" and nine "holds." Any downgrades from this optimistic bunch could weigh negatively on the shares.
Technically speaking, the shares of APOL are down more than 35% since the start of 2010. The equity has stair-stepped lower since reaching a peak in January 2009 and is now testing former support at the 38 level.
Options trading was brisk on NetApp Inc. (NTAP) on Friday, as more than 48,700 contracts changed hands. This surge in volume was more than four times the stock's average daily trading volume of 10,484 contracts, according to data from WhatsTrading.com. Furthermore, roughly 78% of the volume crossed the tape on the call side.
The ISE and Chicago Board Options Exchange (CBOE) have seen a slight increase in call trading recently. During the past 10 trading sessions, 2.4 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 58% of all those taken during the past 12 months.
Furthermore, the SOIR for NTAP comes in at 0.70, which is lower than 77% of all those taken during the past 52 weeks. In other words, short-term options players have been more optimistically aligned toward the shares only 23% of the time during the past 12 months.
From a technical perspective, the shares of NTAP are up more than 11%. The equity has recently pulled back, falling below its 10-week moving average. However, the security has found support at its rising 20-week trendlines. These intermediate-term moving averages have guided the shares higher since March 2009.
PulteGroup Inc. (PHM) was the center of some brisk options trading on Friday, as more than 33,100 contracts changed hands. This surge in volume was nearly nine times the stock's average daily trading volume of 3,830 contracts, according to data from WhatsTrading.com. In addition, 72% of the volume changed hands on the put side.
Friday's jump in put trading runs counter to the recent trend seen on the ISE. During the past two trading weeks, 2.6 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 78% of all those taken during the past 12 months.
Furthermore, the SOIR for PHM comes in at 0.49, as call open interest more than doubles put open interest among options slated to expire in less than three months. This ratio of puts to calls is lower than 93% of all those taken during the past 12 months. In other words, short-term options players have been more optimistically aligned toward the shares only 7% of the time during the past 52 weeks.
However, a number of these calls could be hedges against existing short positions. During the past month, the number of PHM shares sold short increased by 9% to 40.7 million. This accumulation of pessimistic positions accounts for 12% of the company's total float. A call position matched with shorted shares would protect these bearish bets from an unexpected rally in the security.
Technically speaking, the shares of PHM are down 19% since the beginning of the year. The equity has steadily declined under its 10-week moving average since the beginning of May and is now resting on support at the 8 level.
The Coca-Cola Company (KO)
The Coca-Cola Company (KO) was hit with a heavy dose of put buying last Friday. During the course of the session, speculators on the International Securities Exchange (ISE) bought to open 2,022 puts on KO, compared to just 5 calls -- resulting in a seriously lopsided single-day put/call volume ratio of 404.40.
The day's most popular strike was KO's August 55 put, where 2,380 contracts crossed the tape. About 73% of these puts traded at the ask price, confirming they were purchased, and open interest rose over the weekend by 701 contracts.
Friday's flood of put buying was nothing new for KO, with the ISE reporting a 10-day put/call volume ratio of 1.37. This ratio resides in the 78th annual percentile, revealing that traders have purchased puts over calls at a faster pace than usual in recent weeks.
Despite the rising tide of negativity on Wall Street, the Dow component is actually in the midst of an impressive rebound on the charts. KO has cruised higher since bottoming near $50 in early July, with the stock catching a lift from its rising 20-day moving average.
In fact, the recent affinity for put options could actually be a boon for KO during the short term -- the stock's aforementioned August 55 strike is home to peak put open interest of 22,852 contracts, which could provide an options-related floor as expiration approaches.
The following companies also had some impressive options movements:-
Barclays PLC (BCS)
Puts are in heavy rotation on BCS, with volume rising to 15 times the norm so far. Roughly 5,831 puts have changed hands on the banking issue, compared to just 191 calls. The day's most active strike is BCS' September 17.50 put, where 5,607 contracts have traded. Implied volatility on this option has climbed 1.7 percentage points as a result of the increased activity.
This flurry of put trading coincides with a 1.2% climb in the shares, with the stock shrugging off a Wall Street Journal report that Barclays could swallow additional losses on its investment in BlackRock. BCS is now trading just shy of $20 -- placing those 17.50-strike puts out of the money. However, the stock hasn't yet mustered enough positive momentum to tackle its looming 32-month moving average, which hasn't been conquered on a monthly closing basis since October 2007.
GT Solar International, Inc. (SOLR)
SOLR’s call volume has surged to 23 times the expected level, with more than 2,000 contracts changing hands. Most of the activity has been centered on SOLR's December 10 call, where 1,211 contracts have crossed the tape -- 59% at the ask price, revealing a bias toward buying activity. With just 357 contracts in open interest at this strike, it's a safe bet that new calls are being opened here today.
No news in particular seems to have sparked SOLR's flood of call activity, but the shares tagged a new annual high of $8.58 earlier today. The stock is up more than 6% this afternoon, which could have shorts scrambling to cover -- no less than 14.5% of SOLR's float has been sold short. In fact, today's uptick in call buying could be related to increased hedging activity by anxious bears.
Bullish flow detected in General Mills (GIS) , with 31522 calls trading, or 8x the recent average daily call volume in the name.
Bullish flow detected in GT Solar International (SOLR) , with 2051 calls trading, or 9x the recent average daily call volume in the name.
Bullish flow detected in Northern Trust (NTRS) , with 7162 calls trading, or 2x the recent average daily call volume in the name.
Increasing options volume is also being seen in Devry (DV), Corinthian Colleges (COCO) , and McDermott (MDR) .
The global economy is clearly cooling. But is this just a minor hiccup on the path to a sustained recovery or a slide back to the dark days of 2008 and early 2009?
Unfortunately, bond investors appear to be betting on the latter. The yield on the benchmark 10-year Treasury note fell to about 2.57% early Monday afternoon. That's the lowest level since March 2009.
The 10-Year Treasury yield has taken a steep tumble this year and some believe rates could fall below the levels they hit during the peak of the 2008 financial crisis.
Falling rates are often a sign of a weak economy. Earlier this year, when many experts thought that the worst was truly over in the United States and that a fairly healthy rebound was possible, the yield on the 10-year traded as high as 4.01%.
"A lot of people thought rates would be much higher than they are right now. Clearly, the recovery is much weaker than people anticipated," said Mario De Rose, fixed income strategist with Edward Jones in St. Louis. "It could be a year or two before rates go much higher than here and that's what disconcerting."
The swift drop in long-term rates is undoubtedly a cause for concern. It may remind some investors of the scary economic conditions immediately following the collapse of Lehman Brothers nearly two years ago. The 10-year yield eventually fell to a low of 2.04% in late December 2008.
"Right now investors are pretty much trying to dodge bullets as we get towards the end of the summer," stated NYSE trader Jonathan Corpina of Meridian Equity Partners. After earnings season, it seems like we went from everything being so rosy, to not having earnings season to keep our markets above key technical levels,”
The back-and-forth day on Wall Street extended the losses from last week, which erased nearly 400 points from the Dow.
“By any measure, the bounce brought on by the government-induced reflex rally in the economy has largely fallen limp. Whether it is housing, employment, manufacturing, retail sales, trade, or virtually any other macroeconomic gauge, there has been a reset lower in economic activity,” Peter Kenny, managing director at Knight Capital Group, wrote in a note. “The trend remains lower. Tone is quite negative and the only upticks in volume that we find are on days where distribution is the theme.”
"Investors are continuing to react to the onslaught of marginally negative news regarding the pace of the global economic recovery," said Fred Dickson, chief investment strategist at Davidson Cos.
"There is no catalyst for the (stock) market as economic indicators only pile up on the negative side," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
Wall Street staged an early retreat after a regional manufacturing report came in short of estimates and Japan joined the list of countries with slowing economic growth.
Yet the week's more important economic reports are still to come, Dickson said. On Tuesday, the government is slated to release July statistics on producer prices, housing starts and industrial production, while data on weekly jobless claims are in store for Thursday.
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