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Stock Market News Update
Monday, December 06, 2010

monday update



Monday saw U.S. stocks drift lower after Fed chairman Ben Bernanke gave a pessimistic outlook about the nation's economy.

After bouncing between minor gains and losses throughout the day, Wall Street landed on the fence, preserving virtually all of last week’s big gains.

There weren't many major economic or earnings reports for Wall Street traders to zero in on so stocks have drifted for most of the morning. The early pressure on the euro was caused by more concerns about Europe's sovereign debt crisis.

By closing mostly unchanged, Wall Street managed to shrug off early concerns about Europe's sovereign debt crisis that were sparked by weakness in the euro. Those worries faded a bit as the euro erased about half of its losses.

Precious metals like gold and silver took center stage as few investors showed a willingness to jump into the stock market fray on a day with no major economic news on tap.

Commodities -- especially energy and metals -- surged as stocks drifted. Oil prices are hovering at two-year highs, while silver hit a 30-year record high.

"Stocks and oil had been basically moving in tandem, but oil has started to get ahead of itself," said Andrew Lebow, senior vice president at MF Global. "Crude's near highs we haven't seen since the good old days”.

Results for Major Market Indexes

Mid-session Summary

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The Dow Jones Industrial Average (DJIA) is hovering just above short-term support at the 11,350 level as we head into the latter half of this Monday session of trading.

Traders are still digesting remarks by Federal Reserve Chairman Ben Bernanke, who said in a 60 Minutes interview that "it's certainly possible" that the central bank could expand its $600 billion Treasury purchase program, raising concerns about the health of the U.S. economy.

Furthermore, the specter of European sovereign debt refuses to fade away, even as financial leaders of the 16-nation euro zone meet to discuss how best to deal with the situation.

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Closing Summary

The Dow Jones Industrial Average (DJIA – 11,362.19) finished with a loss of 19.90 points, or 0.17%.

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The S&P 500 Index (SPX – 1,223.1) had a loss, on the day, of 1.59 points, or 0.13%.

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The Nasdaq Composite (COMP – 2,594.92), ended the day with a gain of 3.46 points, or 0.13%.

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The Russell 2000 Index of smaller companies had a gain of 5.07 points, or 0.67%, to settle at 761.49.

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Roughly half of the 30 blue-chip stocks closed higher, led by Cisco Systems (CSCO) and JPMorgan Chase (JPM). The worst performers on the Dow were Bank of America (BAC) and Coca-Cola (KO).

The Nasdaq Composite outperformed the broader markets amid solid gains from Apple (AAPL) and Google (GOOG).

Trading Volume:

Volume was light with about 6.27 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below the year-to-date average of 8.62 billion.

Declining stocks slightly outnumbered advancing ones on the NYSE by 1,502 to 1,464, while on the Nasdaq, advancers beat decliners by a ratio of about 4 to 3.



Notes of Interest


The Dow Jones Industrial Average (DJIA) settled for a slide of 19.9 points, or 0.2%, as 20 of its 30 components closed lower.

Despite today's dip, the Dow remains perched well above its 10-day moving average, which is docked near 11,200.

The S&P 500 Index (SPX) shed 1.6 points, or 0.1%, although the index maintained its newfound foothold above the 1,220 region.

Despite the day's dip, analysts see the S&P 500 soon breaking out of its recent range and surpassing its current intraday high for the year just above 1,227 reached on Nov. 5.

Analysts view key resistance for the benchmark index at 1,228 because it's just above the year's high and coincides with the 61.8 percent Fibonacci retracement of the 2007-2009 bear market slide.

The Nasdaq Composite (COMP), the tech-rich index, one-upped its peers by finishing in the black.

The COMP added 3.5 points, or 0.1%, after earlier rising to a new annual high of 2,599.19 -- its best price since January 2008.

Crude futures: Cold winter weather stoked gains in crude oil today, even as the U.S. dollar advanced against a few key foreign rivals. A blanket of snowy, chilly weather settled over much of the nation this past weekend, inspiring traders to price in their expectations for a blustery season of robust oil demand. Crude for January delivery settled on a slim gain of 19 cents, or 0.2%, at $89.38 per barrel -- the contract's highest close since Oct. 7, 2008.

Gold futures: Precious metals enjoyed a blowout session today. Not only did gold futures cruise to a new all-time high, but silver joined the party by touching a fresh 30-year peak. Global economic uncertainty seems to be the key bullish driver for precious metals, with gold completely shrugging off a solid day for the U.S. dollar. Gold for February delivery added $9.50, or 0.7%, to end at $1,415.80 per ounce, after topping out at $1,422.40 per ounce on an intraday basis.

Silver for March delivery also made strides, hitting a 30-year high of $30.05 an ounce during the trading session before easing off that high to settle at $29.74 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.96%

Economic Concerns

"60 Minutes" Interview

Wall Street had a muted reaction to the "60 Minutes" interview of Federal Reserve Chairman Ben Bernanke, who said the central bank is open to more stimulus measures if inflation remains tame and the economy needs it.

Bernanke, said it could be four or five years before the economy is back to a normal unemployment rate. He also said fears of inflation are overstated, and that the central bank could resort to another round of stimulus by buying up Treasuries.

"I don't know why people would be so surprised at that timeline," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "There is no evidence of a solid jobs recovery so far, so what do you expect?"

"The tone of his voice made me nervous. As a trader and a manager, it made me nervous," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"I think he was trying to sell the American people because he has been under pressure.”

Devil's Advocate

However, Richmond Fed President Jeffrey Lacker was on hand to play devil's advocate. Speaking in Charlotte today, Lacker asserted that the risk of deflation has actually lessened in recent months. "At some point we will need to respond by reducing the provision of liquidity to the banking system to prevent inflation from accelerating, as it often can when a recovery picks up steam," explained Lacker. As traders puzzled over these opposing viewpoints, stocks wrapped up a relatively quiet today on either side of the breakeven line.

Tax Cut Talks

Investors are also looking at talk about a deal involving the Bush-era tax cuts. The reported agreement would extend the cuts for all incomes for two years and would permit the unemployed to file for extended jobless benefits -- a program that expired last week.

"Stocks would love more Bush tax cuts, because it would add liquidity," Saluzzi said. "That's great for short-term traders, but traders in it for the long haul realize this isn't fixing any problems. It's continuing to kick the can down the road, which isn't good in the long run."

Overseas Concerns

U.S. stocks ended little changed on Monday, held in check by worries about Europe's debt crisis, which frustrated investors looking for a reason to take shares to new highs for the year.

Germany rejected a call for euro zone finance ministers to increase the size of a 750 billion euro safety net for debt-stricken members.

In currencies: Without any major economic or earnings reports on the domestic front, traders on Monday took their early cues from the currency markets. The euro slid 0.84% to $1.3266 on reports that Germany, the euro zone's most influential member, opposes increasing the size of the $1 trillion bailout fund and is against the creation of euro zone bonds. Concerns about sovereign debt were also heightened after Moody's slashed its credit rating on Hungary by two notches.

The euro has been rocked by the European sovereign debt crisis, which has already resulted in the bailouts of Greece and Ireland. A weaker euro and stronger dollar is seen as bearish for U.S. stocks because it weighs on commodities and exports.

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

Overseas Markets

European Markets ended the session slightly higher. Britain's FTSE 100 added 0.6%, while Germany's DAX and France's CAC 40 ticked up less than 0.1%.

Asian Markets, ended the session mixed. The Shanghai Composite added 0.5%, the Hang Seng in Hong Kong shaved 0.4%and Japan's Nikkei lost 0.1%.

Company Earnings Reports



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Dollar General (DG) slid 6% even after reporting a stronger-than-expected 69% rise in third-quarter profits and EPS of 39 cents. The discounter also upped its full-year EPS view to $1.78 to $1.81, compared with the Street’s view of $1.78.

Company News and Movements



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Pfizer (PFE) surprised Wall Street by saying CEO Jeffrey Kindler is resigning from the world’s largest drug maker after 4 ½ years on the job. Kindler, who cited fatigue, will be replaced by Pfizer veteran Ian Read. Pfizer plans to name a nonexecutive chairman within the next two weeks.

Wal-Mart (WMT) won a small victory when the U.S. Supreme Court said it will hear an appeal by the retailer in a multibillion dollar class lawsuit filed against it. The lawsuit is the largest sexual discrimination class-action lawsuit in U.S. history.

AOL (AOL) is considering breaking itself up through a complicated series of moves leading to a potential merger with Yahoo! (NASDAQ:YHOO) , Reuters reported. However, the plans are still in an exploratory stage and Yahoo! hasn’t been contacted, the wire service report. It would also be highly complicated with a number of moving pieces.

Google’s (GOOG) $6 billion quest to acquire local deals site Groupon has collapsed, The Wall Street Journal reported. The two sides broke off talks as Groupon’s board was divided on whether to accept the bid. The deal would have easily been Google’s largest acquisition ever.

Massey Energy (MEE) CEO Don Blankenship surprised shareholders by announcing plans to retire at the end of the year, making a sale of the embattled coal company more likely, the Journal reported. Blankenship had been seen as opposing the proposed sale of Massey to rival Alpha Natural Resources (ANR) .

Kellogg (K) CEO David Mackay announced plans to resign at the end of the year. The cereal maker said John Bryant, the chief operating officer, will replace Mackay. Kellogg also reaffirmed its 2010 and 2011 financial guidance.

• A key shareholder of Borders (BGP), hedge fund manager William Ackman of Pershing Square Capital Management, said he is ready to finance a takeover bid for Barnes & Noble (B) for $16 per share, according to a regulatory filing. The news sent shares of Borders up 25%, while Barnes and Noble's stock gained 16%.

Lender Processing Services (LPS) slumped 6% after Reuters reported the foreclosure kingpin prepared questionable foreclosure documents on a much wider scale than previously disclosed. Pending investigations and lawsuits pose a bigger threat to Lender Processing than the company's CEO has let on, the wire service reported.

• Shares of Sprint (S) jumped 7.4% after the company said it will start phasing out the Nextel part of its network, known for its push-to-talk phones, in 2013.

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Options Movement

Novellus Systems (NVLS)

Novellus Systems (NVLS) has slipped this morning after Stifel Nicolaus downgraded the shares from "buy" to "hold" on valuation. The security isn't exactly a favorite on Wall Street. Prior to today's downgrade, Zacks reported that the stock had earned six "buy" ratings, seven "holds," and two "sells." Any additional downgrades from this group could pressure the security even lower.

What's more, the average 12-month price target for NVLS comes in at $28.79, according to Thomson Reuters. This estimate implies that analysts are looking for the shares to drop 10.6% from Friday's closing price of $32.21.

Technically speaking, the shares of NVLS are down nearly 2% in trading today, eating into the stock's year-to-date gain of more than 38%. However, the stock is holding above support at its rising 10-day and 20-day moving averages. These trendlines have guided the shares higher since mid-September.

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Short sellers are adding to their bearish bets. During the past month, the number of NVLS shares sold short increased by 11% to 7 million. This accumulation of pessimistic positions accounts for more than 8% of the company's total float. Should the stock manage to bounce off support at its short-term trendlines, it could force these bears into buying back their pessimistic positions.

Options players also have some doubts about the stock. The put/call open interest ratio (SOIR) for NVLS comes in at 1.18, as put open interest outnumbers call open interest. This ratio is also higher than 67% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only one-third of the time.

Cisco Systems, Inc. (CSCO)

This morning, Oppenheimer boosted Cisco Systems, Inc. (CSCO) to "outperform" from "perform" and set a $23 price target on the stock. The brokerage firm said that CSCO "looks compelling" given its performance since last month's poorly received earnings report.

In fact, analysts are generally quite upbeat when it comes to CSCO, with Zacks reporting that 24 out of 35 brokerage firms call the blue chip a "buy" or better -- 20 of which are "strong buys." Meanwhile, the equity' s consensus 12-month price target is perched at $24.82, according to Thomson Reuters, representing a 30% premium to CSCO's close of $19.07 on Friday.

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Technically speaking, CSCO has been in a slump since its disastrous first-quarter earnings report on Nov. 10, with the shares trading well beneath the round-number $20 level, as well as their 20-day and 50-day moving averages. This short-term duo recently completely a bearish cross, suggesting that CSCO's downtrend could continue.

Nevertheless, it seems that option players have recently ramped up their bullish exposure to the stock, as evidenced by CSCO's 10-day International Securities Exchange (ISE) call/put volume ratio of 3.5, which ranks above 88.3% of all other readings taken during the past year. In other words, speculators on the ISE have seldom initiated bullish bets on CSCO at a faster-than-usual clip lately.

In the same vein, following a recent drop in short interest, these bearish bets now account for just 0.7% of the stock's total available float -- an alarmingly slim stockpile of sideline cash. Should CSCO continue to sink beneath the weight of heavy technical resistance, it may cause bullish traders -- and brokerage firms -- to reevaluate their positions on the stock, exacerbating this struggling Dow component's troubles on the charts.

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The following companies also had some impressive options movements :-

Chipotle Mexican Grill, Inc. (CMG)

Option traders were craving Chipotle Mexican Grill, Inc. (CMG) on Friday, with volume of 28,000 contracts crossing the tape -- triple the stock's expected single-session option volume.

CMG's December 230 put was the day's most heavily traded option, with 2,477 contracts changing hands. The majority of these puts crossed the tape at the ask price, indicating they were likely purchased, and open interest increased substantially over the weekend. By buying to open CMG's December 230, these option traders could be betting on CMG to backpedal beneath the $230 level over the next two weeks.

Technically speaking, CMG has been on fire lately, with the shares rallying steadily since the beginning of September. During this time, the stock's ascent has been underlined by strong support from its 10-week moving average, located around $220. However, after recently tagging a series of all-time highs, CMG pulled back slightly last week, and is now hovering right around $240. As its 10-week trendline meets up with the shares, it could ignite the next leg of CMG's uptrend.

In light of the stock's recent pullback, Friday's activity at the 230-strike put may not be as bearish as it would initially appear. In fact, it's possible that a portion of these out-of-the-money puts were simply purchased as protection by nervous shareholders.

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IntercontinentalExchange, Inc. (ICE)

Puts were the options of choice on ICE last Friday, with volume accelerating to seven times the expected level. A total of 4,282 puts were exchanged during the course of the session, compared to just 2,412 calls.

On the International Securities Exchange (ISE) alone, speculators on Friday bought to open 1,792 puts on ICE, along with only 166 calls. The equity's single-day ISE put/call volume ratio of 10.80 reveals that bearish bets were nearly 11 times more popular than their bullish counterparts.

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The day's most popular strike was ICE's December 110 put, where 2,592 contracts crossed the tape. About 70% of these puts traded at the ask price, indicating they were purchased, and open interest rose over the weekend by 2,477 contracts. In other words, it's safe to assume that new pessimistic positions were added here on Friday.

However, the day's skew toward puts over calls simply continued a recent trend for ICE. The equity's 10-day ISE put/call volume ratio arrives at 3.53, which ranks higher than 99.6% of other such readings taken during the previous 52 weeks. This elevated percentile rank confirms that speculators have rarely purchased puts over calls at a faster clip.

Elsewhere on Wall Street, short sellers have been unloading their bearish bets. Short interest on ICE declined by 13.4% during the past month, but still accounts for a relatively healthy 4% of the equity's float.

From a technical perspective, ICE has recently shuffled higher along the support of its 50-day moving average. However, the stock's progress has been capped by resistance in the $118-$120 neighborhood, which has acted as a technical ceiling since late October.

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Other Options News

• Bullish flow detected in Manitowoc (MTW), with 2247 calls trading, or 3x the recent average daily call volume in the name.

• Bullish flow detected in MolyCorp (MCP) , with 7873 calls trading, or 2x the recent average daily call volume in the name.

• Bullish flow detected in Blue Coat System (BCSI) , with 4699 calls trading, or 3x the recent average daily call volume in the name.

• Increasing volume is also being seen in Sprint (S), Micron Tech (MU) , and Visa (V) .

Conclusion

Last week the Dow surged nearly 300 points and ended at three-week highs amid mostly stronger-than-expected economic headlines and calmer European markets.

Joseph Saluzzi, co-head of equity trading at Themis Trading, said Friday's performance was "a perfect example of why stocks are so off," with indexes ending more than 2% higher despite a report showing U.S. job growth in November was much slower than expected.

"When you look at the numbers, that jobs report was really bad," Saluzzi said. "They missed expectations and a lot of the gains were temp jobs. There's no valid reason for stocks to move higher on something like that -- it's a momentum-fueled rally."

Underscoring how directionless U.S. markets were on Monday, the Dow moved in a very tight range of just 41 points and on very thin volume. Last week the benchmark index surged nearly 300 points and ended at three-week highs amid mostly stronger-than-expected economic headlines and calmer European markets.

However, looking ahead in equities, Goldman Sachs Asset Management Chairman Jim O'Neill, speaking at the Reuters 2011 Investment Outlook Summit in New York, gave a bullish view on stocks, saying global equity markets are likely to see gains of up to 20 percent through 2011.


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