Tuesday saw stocks closed sharply lower after a report showing a worse-than-expected plunge in existing home sales reignited fears about an economic slowdown.
The major market indexes finished just a hair's breadth below key support levels on Monday -- and this ominous technical development proved to be a harbinger of more pain to come.
Wall Street learned this morning that existing home sales plunged 27.2% in July, marking their largest-ever monthly decline. Meanwhile, inventories of unsold homes swelled to 3.98 million in July, representing the largest stockpile in more than a decade. Bears took this negative news and ran with it, sending the Dow Jones Industrial Average (DJIA) to a triple-digit loss right out of the gate. In fact, the Dow briefly dipped below 10,000 in morning trading, marking its first foray below this key round-number region since July 7.
With fresh cause for economic concern each week, says Senior Technical Strategist Ryan Detrick, "investors continue to move toward the safety of bonds. In fact, the 10-year yield moved to its lowest level since early 2009."
"Economic reports have been close to disastrous," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "People are very concerned about the economy and everyone is talking about a double-dip [recession] at this point."
Disappointing economic news has sent investors flocking to the perceived safety of Treasurys and the Japanese yen, which hit a 15-year high against the dollar early Tuesday.
The latest wave of selling landed the Dow at its weakest level since July 7, crude oil at 11-week lows and led cash to flee to the relative safety of U.S. bonds.
“I think the psychology is pretty negative at the moment. You get the sense that people are just throwing in the towel,” stated NYSE veteran trader Ted Weisberg of Seaport Securities. "There is just nothing really positive to hang your hat on out there and I think investors are just walking away, unfortunately.”
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,040.45) finished with a major loss, again, of 133.96 points, or 1.32%.
The S&P 500 Index (SPX – 1,051.87) also had a big loss, on the day, of 15.49 points, or 1.45%.
The Nasdaq Composite (COMP – 2,123.76) also fared poorly with an even bigger loss of 35.87 points, or 1.66%.
The Russell 2000 Index of smaller companies had another loss of 7.08 points, or 1.17%, to settle at 595.59.
Most of the Dow's 30 components lost ground, led by Boeing (BA), Caterpillar (CAT) and Alcoa (AA). The index's best performers were defensive plays AT&T(T) and Kraft (KFT).
The Nasdaq Composite came under more selling pressure than the broader markets as technology stocks like SanDisk (SNDK) and Amazon.com (AMZN) slumped.
Housing-related stocks like Toll Brothers (TOL) and Home Depot (HD) took a hit in the wake of the housing data before recovering and economically-sensitive stocks like Foster Wheeler (FWLT) and U.S. Steel (X) closed sharply lower.
About 8.38 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Although volume was below last year's estimated daily average of 9.65 billion, it was the best in almost two weeks. The stronger volume on a day of losses could add to the bearish argument.
Declining stocks handily outnumbered advancing ones on the NYSE by 2,286 to 730, while on the Nasdaq, decliners beat advancers 1,965 to 670.
Notes of Interest….
• The Dow Jones Industrial Average’s (DJIA) managed to maintain a grip on the 10,000 level, ending on a loss of nearly 134 points, or 1.3%.
• The Dow Jones Industrial Average (DJIA) dipped briefly below the 10,000 level this morning, as Wall Street reacted to news of a plunge in July's existing home sales. Since this brush with psychological support, the DJIA has trended steadily higher, with the blue-chip barometer up nearly 100 points from its intraday lows. However, the Dow's rebound is losing momentum in the 10,100 region. Economic data remains at the forefront of today's heavy selling, and this morning's dismal housing data only intensified those concerns.
• The S&P 500 Index’s (SPX) is perched above potential support at the 1,050 level.
• The Nasdaq Composite (COMP), the tech-rich index, is trading just north of the 2,100 level, though, which previously provided a floor in February and July.
• Crude futures collapsed to a two-month low today, as the downbeat housing data sparked a ripple of panic that quickly spread from stocks to commodities. In fact, not even a down day for the U.S. dollar proved supportive for black gold, as the greenback beat a hasty retreat against the yen and the euro following today's dismal economic news. By the close, crude oil for October delivery gave up $1.47, or 2%, to finish at $71.63 per barrel. Crude futures have now declined in 10 of the past 11 sessions.
• Gold futures managed to capitalize on their status as a safe-haven alternative to riskier assets, such as stocks. After spending a good portion of the day wallowing in the red, gold futures clawed back to close on a slim gain of $4.90, or 0.4%, at $1,233.40 per ounce.
• Bonds: The yield on the benchmark 10-year note approached a 17-month low Tuesday, falling to 2.50% from 2.6% late Monday.
Treasury yields have been holding near historic lows recently as economic jitters have boosted the appeal of so-called "safe" investments such as government-backed debt.
Stock traders are "taking their cues from the bond market," said Lawrence Glazer, a managing partner at Mayflower Advisors. "It really has been a dramatic and frightening shift" in Treasury prices, which has spooked investors and led to worries about another recession, Glazer said.
Existing Home Sales
Existing home sales fell sharply in July, declining for a third straight month, as the effects of the expired homebuyer tax credit continued to add turbulence to the housing market.
The National Association of Realtors reported that existing home sales sank 27.2% last month to a seasonally adjusted annual rate of 3.83 million units, down from the downwardly revised rate of 5.26 million in June. Sales year-over-year was down 25.2%.
Analysts surveyed by Briefing.com were looking for resale’s in July to fall to an annual rate of 4.72 million units.
The sales pace of all homes -- single-family homes, townhomes, condominiums and co-ops -- is at the lowest since NAR began tracking the figure in 1999. Sales of single-family homes, which account for a bulk of the transactions, are at the lowest level since May 1995.
"Consumers rationally jumped into the market before the deadline for the homebuyer tax credit expired," said Lawrence Yun, NAR's chief economist. "Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September."
"This number coming in lower than even the most bearish expectations just confirms the same deteriorating economic conditions we've been seeing," said Ryan Detrick, a senior technical strategist at Schaeffer's Investment Research. "The economy seems to be very quickly slowing down and not showing signs of life."
A report on new home sales is due Wednesday, and economists surveyed by Briefing.com expect a slight increase to an annual rate of 334,000 units in July from 330,000 in June.
Price and inventory: The NAR report showed that the median price of homes sold in July was $182,600, up 0.7% from a year ago. Just under a third of homes sold during the month were distressed properties.
Total housing inventory rose 2.5% to 3.98 million existing homes for sale. That represents a 12.5-month supply at the current sales pace, up from a 8.9-month supply in June. A six-month of supply is considered normal.
Sales by property and region: Sales of single-family homes sank 27.1% in July compared to the prior month, while condominium and co-op sales tanked 28.1%.
The Midwest fared the worst last month, with sales dropping 35% to an annual pace of 800,000 units in July. that's 33.3% lower than a year earlier.
Resale’s in the Northwest dropped 29.5% from the previous month to an annual pace of 620,000 units.
They fell by 25% in the West and 22.6% in the South.
Chain Store Sales
Redbook Research on Tuesday
released the following seasonally adjusted weekly data on U.S.
chain store sales:
Year-over-year: Week (w/e 08/21/10 vs year ago) +2.6 pct
Year-over-year:Month (Aug 2010 vs Aug 2009) +2.7 pct
Month-over-month: (Aug 2010 vs July 2010) +1.0 pct
The Johnson Redbook Retail Sales Index is a sales-weighted index of year-over-year same-store sales growth in a sample of large U.S. general merchandise retailers representing about 9,000 stores.
Other Political Issues
In a speech delivered in Indianapolis, Federal Reserve Bank of Chicago President Charles Evans said unemployment is now behind more housing defaults than careless lending.
Fed Chairman Ben Bernanke is scheduled to talk about the economic outlook in an address later in the week in Jackson Hole, Wyo.
On Capitol Hill, House Minority Leader John Boehner (R., Ohio) called on President Barack Obama to ask for the resignations of Treasury Secretary Timothy Geithner and Larry Summers, head of the White House's economic team.
In currencies: The dollar fell to a 15-year low against the Japanese yen in early trading, slipped against the euro, but climbed against the British pound.
"The yen is extremely strong, giving people real concern about our economy," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "And with the 10-year yield this low, it shows people are really willing to put their money into Treasurys. All of this together means the risk trade is definitely off."
European Markets finished sharply lower. The CAC 40 in France dropped 1.7%, Britain's FTSE 100 lost 1.5% and the DAX in Germany fell 1.3%.
Asian Markets: ended mixed. Japan's benchmark Nikkei index ended down 1.3% and the Hang Seng in Hong Kong fell 1.1%. But the Shanghai Composite edged up 0.4%.
Company Earnings Reports and News
Barnes & Noble Inc (BKS)
Barnes & Noble Inc (BKS) reported a larger-than-expected quarterly loss on declining sales at its namesake brick-and-mortar stores and costs to develop its Nook electronic book reader.
Shares of the largest U.S. bookstore chain fell nearly 3 percent. Barnes & Noble reported a net loss of $62.5 million, or $1.12 per share, for the first quarter ended July 31, compared with a year-earlier profit of $12.3 million, or 21 cents per share.
Excluding one-time items, the loss was $1.02 per share, deeper than the 80 cents Wall Street analysts expected, according to Thomson Reuters.
Sales, which reflect last September's purchase of College Booksellers, rose 20.8 percent to $1.4 billion.
Online sales, including the Nook e-reader device launched in October and e-books, rose 42 percent to $145 million.
Sales at namesake bookstores open at least a year fell 0.9 percent, and the company said it expected a decline of 1 percent to 3 percent in the current quarter. For the full year, it still expects those same-store sales to be flat to up 3 percent.
Barnes & Noble, which earlier this month put itself up for sale, is in the midst of a proxy war, being waged by its two largest shareholders.
The bookseller said legal and other costs surrounding the contest would hurt results, and it lowered its full-year forecast by 25 cents per share to a loss of 25 cents to 65 cents.
The company's shares were down 2.7 percent at $14.60 in premarket trading.
Burger King Holdings Inc (BKC)
Burger King Holdings Inc (BKC) reported higher-than-expected quarterly profit as it kept a tight rein on expenses, sending shares up 1.7 percent.
Yet the fast-food chain, known as home of the Whopper, said its business would remain under pressure in the new year because of lingering unemployment and government austerity programs in several European countries.
Burger King is more vulnerable to a weak job market than rivals McDonald's Corp (MCD) and Wendy's/Arby's Group Inc (WEN) because a larger share of its customers are young males, a group that has suffered massive job losses in industries like construction and manufacturing. "As we enter fiscal 2011, we anticipate that the challenging consumer environment will continue due to high unemployment and underemployment levels and weak consumer confidence," said Chief Executive Officer John Chidsey in a statement.
The second-biggest U.S. hamburger chain after McDonald's had net income of $49 million, or 36 cents a share, in the fiscal fourth quarter ended June 30, down from $58.9 million, or 44 cents a share, a year earlier.
Analysts on average were expecting earnings of 34 cents per share, according to Thomson Reuters.
Burger King said foreign currency exchange rates reduced fourth-quarter earnings by 1 cent per share.
Revenue slipped 1 percent to $623 million, falling short of analysts' expectation for revenue of $635 million.
Worldwide sales at restaurants open at least 13 months were down 0.7 percent, driven by a 1.5 percent drop in the United States and Canada.
General and administrative expenses decreased by $6.5 million, due to ongoing cost-cutting initiatives.
McDonald's global same-restaurant sales were up 4.8 percent for the June quarter, while Wendy's reported a 1.7 percent fall in system wide sales at established North America restaurants for the latest quarter.
Burger King shares rose to $16.90 in premarket trade, from their close at $16.62 on Monday on the New York Stock Exchange.
VeriFone Systems Inc (PAY)
Credit card swipe machine maker VeriFone Systems Inc (PAY) posted better-than-expected quarterly results, helped by growth in its domestic and Latin American markets, and raised its fiscal 2010 outlook.
The San Jose, California-based company, which competes with France's Ingenico (INGC.PA) and Hypercom Corp (HYC.N), expects fiscal 2010 adjusted profit of $1.26-$1.27 per share, above its prior forecast of $1.12-$1.15 per share.
Revenue for the year is expected to be $984-$989 million, compared with $960-$970 million the company forecast earlier.
For the May-July quarter, net income was $18.5 million, or 21 cents a share, compared with $16.5 million, or 20 cents a share, a year ago. Excluding items, earnings were 36 cents a share for the latest quarter.
Revenue at the company -- whose customers are primarily financial institutions, payment processors, petroleum companies and retailers -- rose 24 percent to $261.5 million.
Revenue from United States and Canada rose 39 percent, while revenue from Latin America jumped 73 percent.
Analysts on average were expecting earnings of 30 cents a share, excluding items, on revenue of $248.8 million, according to Thomson Reuters.
Shares of the company were up about 2 percent at $22.95 in after-market trade. The stock, which has more than doubled in value in the last 52 weeks, closed at $22.42 Tuesday on the New York Stock Exchange.
Company News and Movements:
• Massey Energy Company (MEE), the coal company whose Upper Big Branch Mine was the site of a fatal explosion earlier this year, has been cited by federal officials for improper storage of explosives. After finding a box labeled "explosives" contaminated with moisture, officials with the U.S. Mine Safety and Health Administration (MSHA) accused Massey of exposing "all miners who work underground to the hazards associated with handling deteriorated explosives." However, Massey says the enforcement order is not related to the April 5 explosion that claimed the lives of 29 workers.
• Dell (DELL) retreated another 3% to a 52-week low as Bloomberg News reported the technology company is preparing a sweetened bid for data-storage provider 3Par (PAR). It's not clear how much Dell is willing to offer but it would likely have to top Hewlett-Packard's (HPQ) $24-a-share bid that was a 33.3% premium to Dell's original offer.
• Rio Tinto (RTP) is mulling a joint bid for fertilizer maker Potash (POT) with a Chinese partner that would rival BHP Billiton's (BHP) $130-a-share offer that Potash already rejected as inadequate, Toronto's The Globe and Mail reported. Likewise, Mosaic (MOS), Agrium (AGU), Monsanto (MON) and Cargill may also be contemplating an offer, the paper reported.
• Bank of Montreal (BMO) slumped 6.5% after reporting weaker-than-expected EPS of C$1.13, compared with estimates for C$1.21. Profits at its brokerage wing tumbled 58% to C$130 million.
• American Apparel (APP) said in a regulatory filing it may face a delisting from the New York Stock Exchange and it is delaying filing its 10-Q quarterly filing as late as November 15. Last week the struggling retailer warned there is “substantial doubt” it can continue as a going concern, accounting-speak for staying in business.
OpenTable (OPEN) is down nearly 6% this morning after Stifel downgraded the shares from "buy" to "hold." According to Thomson Reuters, the stock had earned two "strong buys," seven "holds," and one "strong sell," prior to today's action.
According to Hoover's, OPEN provides online reservations at about 12,000 upscale restaurants in the U.S. (all 50 states), as well as select markets outside of the U.S. (including Canada, Germany, Japan, Mexico, and the U.K.). The service is free to diners, but the firm charges participating restaurants an installation and monthly license fee for OpenTable's computerized reservation system (which includes training and customer support), and an additional fee for each restaurant guest seated through online reservations. Since its founding in 1998, the company has seated more than 130 million diners.
Meanwhile, call trading is on the rise toward the shares. The International Securities Exchange (ISE) reports that its 10-day call/put volume ratio comes in at 0.65, which is higher than 82.8% of all those taken during the past year.
However, traders could be using these calls to hedge against their existing bearish bets. During the past month, the number of OPEN shares sold short increased by 6% to nearly 4 million. This accumulation of bearish bets accounts for 26% of the company's total float.
Technically speaking, the shares of OPEN are down roughly 5%, eating into the security's year-to-date gain of more than 110%. The equity has stage a stellar rally along the support of its 10-week and 20-week moving averages since February.
Duke Energy (DUK)
Duke Energy (DUK) is hovering near breakeven this morning after Citigroup downgraded the shares from "buy" to "hold" on the risk that Ohio customers could switch to competitors to avoid higher costs brought on by regulation. The firm stated that expected EPA environmental capex requirements will be baked into DUK's new rate plan, and uncertainly remains about whether retail customers will be able switch to a competitor to avoid DUK's plan. These environment remediation costs mean it is "possible Duke may not fully recover its environmental costs in Ohio, in our view," Citigroup stated. The brokerage firm also slashed its price target from $19 to $18.
Prior to today's downgrade, Wall Street was skeptical of the shares. According to Zacks, the stock has earned three "buy" ratings, 17 "holds," and three "sells." This configuration leaves ample room for more downgrades to "hold" to "sell."
Meanwhile, the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have reported a 50-day put/call volume ratio of 0.81, which is higher than 96% of all those taken during the past 12 months, pointing to a rising skepticism.
Burger King Holdings Inc. (BKC)
Burger King Holdings Inc. (BKC) announced a lower profit and offered only modest guidance in its quarterly report issued before the open this morning. BKC reported net income of $49 million, or 36 cents per share, for the fiscal fourth quarter ended June 30, down from $58.9 million, or 44 cents per share, a year earlier. Revenue slipped 1% to $623 million.
Meanwhile, worldwide sales at restaurants open at least 13 months were down 0.7%, driven by a 1.5% drop in the United States and Canada. The restaurant operator says it was hurt by declining sales worldwide and unfavorable foreign exchange rates.
BKC warned that worldwide comparable sales are expected to remain under pressure in its fiscal year 2011 because of lingering unemployment and government austerity programs in several European countries.
Heading into the earnings report, options players had high hopes for the security. The International Securities Exchange (ISE) reports 18.5 calls purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 73% of all those taken during the past year, pointing to a rising optimism.
Meanwhile, the ISE/Chicago Board Options Exchange (CBOE) 50-day call/put volume ratio comes in at 22.95, which is higher than 89% of all those taken during the past 12 months.
Short sellers are unloading their bearish bets. During the past month, the number of BKC shares sold short dropped by 20% to 4.3 million. This accumulation of bearish bets accounts for 4% of the company's float, offering up only modest short-covering support.
Finally, we find that Wall Street is giving the stock the cold shoulder. According to Zacks, the stock has earned four "strong buys" and 14 "holds." However, there is still room for downgrades considering the company's lackluster outlook.
Technically speaking, the shares of BKC are down more than 11% since the beginning of the year. The equity has declined under its 10-week moving average since reaching a near-term peak in the 22 region in April.
Wal-Mart Stores, Inc. (WMT)
Traders should keep an eye on the 16.50 level as the shares test support in this region. The equity could bounce off this level into resistance at its 10-week trendline at the 17 level.
Recall mania continues today, with blue-chip bigwig Wal-Mart Stores, Inc. (WMT) currently in the spotlight for potentially tainted meat. One of Tyson Foods, Inc.'s (TSN) subsidiaries sold contaminated deli meats to WMT, which in turn used the product in its "Marketside Grab and Go" sandwiches.
Traders seem to be bracing for a pullback from WMT, with a whopping 26,000 puts crossing the tape so far today -- already four times the retailer's expected single-session put volume of just 5,424 contracts.
However, today's heavy put volume is nothing out of the ordinary for WMT. In the past two weeks, traders on the International Securities Exchange (ISE) have bought to open 1.2 puts for every call purchased. This ratio ranks above 96% of all other readings taken during the past 12 months, revealing that speculators on the ISE have seldom initiated bearish bets on WMT at a faster pace.
But back to today's activity, where the September 50 put has been the star of the show. Nearly 22,000 contracts have changed hands on this strike -- 76% at the ask price, revealing they were likely bought. With today's volume exceeding open interest at this strike, it seems at least a portion of these puts are fresh positions. By buying to open the September 50 put, bearish traders are counting on WMT to backpedal beneath this round number over the next few weeks.
For the record, peak put open interest for the September series can be found at the 47.50 strike, with 20,473 contracts in residence. However, with just 300 contracts separating the 47.50 put from the 50 put, this configuration could soon change. Meanwhile, peak call open interest of nearly 36,000 contracts can be found at the September 52.50 strike.
Technically speaking, WMT has put in a pretty unimpressive performance on the charts lately. Aside from a brief foray beneath the $50 level in July, the shares have been confined between the $50 and $52 levels for the past few months.
This trading range is currently being reinforced by support from WMT's 10-week moving average and heavy put open interest at the 50 strike on the downside, and peak call open interest at the $52.50 level on the upside. Going forward, this trading range could continue to confine WMT's technical progress -- unless, of course, today's recall proves to be just the tip of the iceberg, in which case, a massive exodus by the remaining bulls could pressure the shares beneath round-number support.
The following companies also had some impressive options movements:-
CBS Corp. (CBS)
Options trading was brisk on CBS Corp. (CBS) on Monday, as more than 18,300 contracts crossed the tape. This surge in volume was more than six times the stock's average daily trading volume of 2,924 contracts, according to data from WhatsTrading.com. In addition, traders favored calls, as 60% of the volume changed hands on the call side.
Despite Monday's preference for calls, the International Securities Exchange (ISE) has seen a slight increase in put trading. The 10-day put/call volume ratio comes in at 0.56, which is higher than 61% of all those taken during the past year.
In addition, the put/call open interest ratio (SOIR) for CBS comes in at 0.99, as put open interest nearly equals call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 72% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 28% of the time during the past 12 months.
Meanwhile, Wall Street is split in its outlook for the shares. According to Zacks, the stock has earned 11 "buy" ratings and 11 "holds." There is ample room for potential downgrades should the shares continue their recent technical breakdown.
Technically speaking, the shares of CBS are down nearly 5% since the start of 2010. The equity has recently settled into a sideways channel between support at the 13 level and resistance in the 17 region. The stock has been trapped between these two areas since October 2009. In addition, the equity has slipped below support at its 10-week and 20-week moving averages.
Tenet Healthcare (THC)
Tenet Healthcare Corp. (THC) was the center of some heavy options trading on Monday, as more than 16,900 contracts changed hands. This jump in volume was more than eight times the security's average daily trading volume of 2,113 contracts, according to data from WhatsTrading.com. Furthermore, options players were feeling bearish, as 93% of the volume crossed the tape on the put side.
What's more, the SOIR for THC comes in at 0.57, which is higher than 61% of all those taken during the past year, pointing to a growing skepticism toward the shares.
Meanwhile, Wall Street has yet to shed its optimistic outlook for the shares. According to Zacks, the stock has earned 10 "strong buys," six "holds," and one "strong sell." This bullish configuration leaves ample room for potential downgrades.
Elsewhere, we find that short sellers are starting to unload their bearish bets. During the past month, the number of THC shares sold short dropped by 8.5% to 23.3 million. However, this accumulation of bearish bets still accounts for 4.8% of the company's total float.
From a technical perspective, the shares of THC are down more than 23% since the beginning of the year. The security has steadily declined under its 10-week moving average since May 2010 and is now approaching potential support at the 4 level.
Peabody Energy Corporation (BTU)
Call volume soared to double the norm on Peabody Energy Corporation (BTU) on Monday, with roughly 14,000 of these bullish bets crossing the tape. The September 47 call was most popular, with 4,293 contracts changing hands. Upon further review, it seems that a portion of these calls were part of a spread.
Late Monday afternoon, 2,700 September 47 calls and 2,700 September 43 puts, both marked "spread," changed hands at their respective ask prices. Open interest at each strike increased substantially overnight, pointing to the initiation of a long strangle on BTU.
In a long strangle, the trader buys an equal amount of calls and puts, with the call options generally above the stock price, and the puts usually below the stock price. The speculator is expecting the stock to make a major move either above the call strike, or below the put strike, by expiration. In this scenario, our long strangle strategist is looking for BTU to climb above $47, or backpedal below $43, over the next few weeks. BTU is currently poised at $43.59.
Technically speaking, BTU has been trending downward during the past few weeks. The stock this week slipped beneath its 10-week moving average, located around $44, which had provided support to the shares since June. Going forward, this intermediate-term trendline could switch roles to act as resistance.
United Technologies (UTX)
Options players flocked to United Technologies Corp. (UTX) on Monday, as more than 20,200 contracts changed hands. This surge in volume was more than three times the equity's average daily trading volume of 6,456 contracts, according to data from WhatsTrading.com. In addition, approximately 55% of the volume changed hands on the put side.
Puts have been the option of choice on the ISE. During the past two trading weeks, 1.4 puts have been purchased to open for every one call purchased to open. This ratio of puts to calls is higher than 65% of all those taken during the past 12 months, pointing to a rising pessimism.
Meanwhile, the SOIR for UTX comes in at 1.15, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 74% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 26% of the time during the past 12 months.
On the other hand, Wall Street is smitten with the shares. According to Zacks, the stock has earned 15 "strong buys" and four "holds." Any downgrades from this optimistic bunch could spell trouble.
Technically speaking, the shares of UTX are down more than 3% since the beginning of the year. The equity staged a nice rally along its 10-week and 20-week moving averages from March 2009 through April 2010. However, the security has since encountered some choppy trading and is now below these key support levels as well as round-number support at the 70 level. The next layer of support lies in the 64 region.
Best Buy Co., Inc. (BBY)
Best Buy Co., Inc. (BBY) today named Aura Oslapas senior vice president and chief design officer, effective Sept. 15. In her new role, Oslapas will head BBY's worldwide design and brand identity team.
Coincidentally, BBY touched a new 52-week low of $31.38 today, continuing its recent trend. Since April the stock has fallen steadily lower under its declining 10-week and 20-week moving averages. In fact, in the past 60 sessions alone, BBY has underperformed the broader S&P 500 Index (SPX) by roughly 23%, on a relative-strength basis.
Meanwhile, option players have been scooping up puts at a rapid-fire rate lately. In the past two weeks, traders on the International Securities Exchange (ISE) have bought to open 3.8 puts for every call purchased, a ratio which ranks above 98% of all other readings taken during the past year. In other words, speculators on the ISE have seldom initiated bearish bets on BBY at a faster pace.
This trend has continued today, with 11,000 puts crossing the tape -- triple the stock's expected single-session put volume of around 3,600 contracts.
The September 25 put has seen volume of 5,810 contracts traded -- the bulk of which changed hands at the ask price, implying they were purchased. If these puts were bought to open, then traders could either be placing very bearish bets, or alternatively, nervous shareholders could be purchasing put protection in the event that BBY's downtrend continues.
Focus Media Holding (FMCN), with 8811 calls trading, or 11x the recent average daily call volume in the name.
Bearish activity detected in Starbucks (SBUX), with 5746 puts trading, or 3x the recent average daily put volume in the name.
Bearish activity detected in Saks (SKS), with 6833 puts trading, or 5x the recent average daily put volume in the name.
Increasing options action is also being seen in Medtronic (MDT), Halliburton (HAL), and Nokia (NOK).
Major Market Indexes
The major market indexes remain about 1% lower across the board, as we head into the latter half of the trading day. At last check, the Dow Jones Industrial Average (DJIA) was down about 86 points at 10,088.4, with resistance in the 10,100 region gaining strength. In sector activity, the Morgan Stanley Cyclical Index (CYC) has plunged nearly 2%, as investors jump ship on companies sensitive to economic turmoil, such as United States Steel Corp. (X), Dow Chemical Co. (DOW), and Johnson Controls Inc. (JCI).
Freeport McMoRan Copper & Gold Inc. (FCX) is leading the CYC lower, with the stock plunging more than 4% to test support at its 50-day moving average in the $67.50 region. Adding to the stock's decline, HSBC downgraded its rating on FCX to "neutral" from "overweight" ahead of the open this morning. FCX is in danger of receiving additional downgrades, as Zacks reports that the stock has acquired 13 "buys," four "holds," and no "sells."
On the upside, oil-service sector stocks are in rally mode, despite a 1.75% drop in the front month crude contract.
Specifically, the Oil Service HOLDRS Trust (OIH) has rallied roughly 1%, and is pushing to reclaim the psychologically significant 100 mark. Leading the group higher has been Transocean Ltd. (RIG), even as company executives testify in the ongoing federal investigation into the Deepwater Horizon Incident, or Gulf oil spill. RIG is rebounding off support in the round-number 50 region, which is also home to its rising 50-day moving average. Sentiment is bullish, however, with the stock's SOIR of 0.58 arriving in the 20th percentile of it annual range. There is room for potential upgrades, though, as 13 of the 30 analysts following the shares rate them a "hold" or worse.
While Tuesday marked another ugly session on Wall Street, it could have been worse as the Dow was down 183 points at one point and even briefly breached the psychologically-important 10000 level before bargain-hunters came in to minimize the losses. The VIX, or the markets' so-called "fear gauge," jumped more than 10% Tuesday morning before retreating.
“It’s a very jittery market here and a market where the psychology is migrating away from risky assets,” said Craig Peckham, equity trading strategist at Jefferies & Co. “We’ve got a pretty uniform decay in most of the macro indicators that are available.”
"What's really driving us is the sense that the economic outlook is unraveling a bit," said Bernie McSherry, senior vice president at Cuttone & Co in New York.
With housing a linchpin of the U.S. consumer economy, the latest data cast doubt on the pace of recovery and added fuel to investors' recent search for safety.
A report that at least seven of the 17 top Federal Reserve officials at the U.S. central bank's August policy meeting had reservations about the decision to buy more Treasuries also rattled investors.
Some bargain hunting helped the indexes ease off lows. The S&P approached short-term oversold levels, dropping below 35 on the 14-day relative strength index. A level of 30 indicates the index could be oversold. The S&P also fell below its lower Bollinger band at around 1,053.
"The calendar is getting away from me as a bull," said Linda Duessel, equity strategist at Federated Investors. But Duessel dismissed the notion of a double-dip recession. "I'm still in the camp that believes we're in a soft patch," she said.
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