Monday morning saw U.S. stocks climb steadily higher and the Dow looked to land at fresh 2010 highs as the bulls cheered China's decision to hold interest rates at their current levels.
Investors also pushed markets higher as they mulled over a slew of corporate deals and awaited resolution on the tax-cut deal from Washington.
The Chinese decision to hold interest rates steady despite inflation fears sent commodities like copper climbing and eased concerns about the global recovery.
The early bullishness left the Nasdaq Composite on track for a ninth consecutive rally and the Dow in striking distance from its highest close since September 2008. The S&P 500 landed at fresh 2010 highs last week.
With no market-moving economic data expected Monday, some of that momentum continued into the new week as investors awaited the next steps from Washington.
However, Wall Street ended in a deadlock on Monday as a late-day slide led by technology stocks prevented the Dow from landing at a fresh 2010 closing high and put a stop to the Nasdaq Composite's eight-day win streak.
Wall Street reached the finish line at session lows as enthusiasm about China deciding to hold interest rates steady despite inflation fears faded. Earlier in the day all three major indexes posted solid gains as the Chinese decision and tumbling U.S. dollar sent commodities like copper and stocks like AK Steel (AKS) soaring.
Despite the late-day fizzle, many market participants see Wall Street's bullishness continuing through the end of the year. “I think we are seeing a continuation of the Santa Clause rally, aided of course by the Chinese not raising their interest rates. I think it’s a pretty good trend in place,” said Ben Willis, a NYSE trader at Sunrise Securities.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA) briefly broke out to a fresh two-year high this morning, peaking at 11,456.34 just before 11:00 a.m. Eastern time. An influx of merger and acquisition news, combined with some clarity out of Beijing on China's monetary policy, has inspired a buying mood on Wall Street today.
Front and center for the blue chips is General Electric Co. (GE), which announced the $1.3 billion acquisition of Wellstream Holdings PLC, and Wal-Mart Stores Inc. (WMT), which will close its Moscow representative office due to the lack of an "clear acquisition partner in the near term." At last check, the Dow was seen 35 points higher, after pulling back from its intraday peak.
The Dow Jones Industrial Average (DJIA – 11,428.56) finished with a gain of 18.24 points, or 0.16%.
The S&P 500 Index (SPX – 1,240.46) had a gain, on the day, of 0.06 points, or 0.00%.
The Nasdaq Composite (COMP – 2,624.91), ended the day with a loss of 12.63 points, or 0.48%.
The Russell 2000 Index of smaller companies had a loss of 3.92 points, or 0.50%, to settle at 772.91.
Only about half of the Dow's 30 stocks advanced, led by Caterpillar (CAT) and Chevron (CVX). The index's weakest links were Hewlett-Packard (HPQ) and Bank of America (BAC).
The Nasdaq Composite closed modestly lower, breaking its eight-day win streak and backing it away from its recently-hit late-2007 highs. The index was led lower by Adobe (ADBE) and Dell (DELL), which unveiled a $960 million cash deal to acquire Compellent Technologies (CML).
The lightly traded session came as some technical indicators suggested a near-term pullback could be in the cards. About 7.32 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, well below the year's daily average of 8.62 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 8 to 7, while on the Nasdaq, about eight stocks fell for every five that rose.
Notes of Interest
• The Dow Jones Industrial Average (DJIA): After tagging a fresh two-year peak of 11,480.03 in intraday activity, the Dow Jones Industrial Average (DJIA – 11,428.56) chipped away at its lead in the final minutes of trading, settling with a gain of 18.2 points, or 0.2%.
• The S&P 500 Index (SPX) rallied to a new multi-year acme of 1,246.73, but surrendered nearly all of its lead to end just 0.1 point higher.
Nevertheless, the broad-market barometer maintained its perch atop the 1,240 level for the second straight session – a feat not accomplished since September 2008.
• The Nasdaq Composite (COMP), the tech-rich index, fared the worst of the three, giving up 12.6 points, or 0.5%, by the bell. However, the COMP topped out at 2,645.79 during the course of the session, marking its loftiest level in almost three years.
• Crude futures: ended higher today, after the Organization of Petroleum Exporting Countries (OPEC) opted to keep oil output steady at almost 25 million barrels a day. In addition, black gold also benefited from China's decision to hold interest rates steady, despite escalating inflation. Against this backdrop, January-dated crude oil futures added 82 cents, or 0.9%, to settle at $88.61 per barrel.
• Gold futures: finished in the black today, after expectations for a Chinese interest-rate hike failed to materialize over the weekend. Furthermore, data showing a higher-than-anticipated increase in China's consumer price index last month bolstered gold's appeal as an inflationary hedge. Meanwhile, an ailing greenback also aided the precious metal's uptick, making it less expensive for foreign-currency holders to scoop up the dollar-denominated commodity. By the close, gold for February delivery advanced $13.10, or 1%, to end at $1,398 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury edged higher Monday, pushing the yield down to 3.29%.
But from its October low, the 10-year yield has climbed nearly 100 basis points, said Sam Stovall, chief investment strategist at S&P.
"Investors are encouraged that the U.S. government is willing to entertain extending the existing tax plan, as well as cut payroll taxes and encourage capital spending," he explained. "Bond investors, however, feel as if a lump of coal has been dropped into their stockings and have sold."
No major economic reports were scheduled to be released Monday. However, a raft of reports on unemployment, consumer prices and new home construction will be released later in the week. In addition, the Federal Reserve will release a statement Tuesday after policymakers meet.
Readings on inflation are due out over the next couple days, which McCain said will be more interesting to investors than "anything the Fed might say about what it hopes to accomplish."
Some market watchers are concerned that the Fed's moves to stimulate the economy will have a damaging effect on the value of the dollar. But McCain said higher numbers for the consumer or producer price indexes this week "could have a more profound impact."
Wall Street continues to price in the likelihood that Congress will extend the Bush tax cuts before they expire at the end of the year. The Senate is expected to pass a compromise between President Barack Obama and Republicans, and Democratic leader Steny Hoyer predicted the House will approve a tax-cut bill soon after.
Early last week, Washington appeared to be on the brink of reaching a compromise to extend Bush-era tax cuts for another two years. But House Democrats voted Thursday against consideringthe tax package. On Monday, senators were expected to open debate about the deal.
Despite resistance from House Democrats, investors still seem to be betting that the tax cuts will be extended, said Alan Lancz, president of Alan B. Lancz & Associates.
"Right now the momentum is definitely in the bull's favor," said Lancz. "It looks unlikely that a tax compromise won't go through. So unless something unexpected develops -- as far as Korea or other countries -- that would have the ability to trump all this merger-and-acquisition activity, I think the upward trend will continue as investors feel pressure to jump on the bandwagon."
The rally began overseas as China's Shanghai Composite surged nearly 3% after the People's Bank of China decided to keep interest rates unchanged despite concerns about its economy overheating. The markets had been betting China would raise rates modestly, especially considering new reports showing inflation is rising at its fastest pace in two years.
China plays an outsize role in moving the markets because of its voracious appetite for commodities. Some worry that China will be too aggressive in cooling off its red-hot economy, derailing the global recovery.
In currencies: The dollar fell against the British pound, the Japanese yen and the euro.
European Markets finished ahead. Britain's FTSE 100 ticked up 0.8%, the DAX in Germany edged up 0.3% and France's CAC 40 added 0.9%.
Asian Markets, ended higher. The Shanghai Composite surged 2.9%, the Hang Seng in Hong Kong added 0.7% and Japan's Nikkei rose 0.8%.
China's economy has been booming, fueling fears of an imminent interest rate hike. There has been wide speculation for several weeks that China's government would raise interest rates to slow economic growth. So far, a rate hike has yet to be announced.
"If they raise their rates, it slows down their economy," said Lancz. "China's really a key cog in global economic growth, so if China slows down that's going to affect everything." China's growth impacts the U.S. recovery, which is relying heavily on exports.
Separately, Chinese consumer prices rose 5.1% for the 12 months ended Nov. 30, according to government data released Saturday. That came on the heels of a 4.4% jump in October. And once again, a surge in food costs was the culprit, with prices up 11.7% during the month.
Company News and Movements
Merger And Acquisition Activity
• Sanofi-Aventis SA (SNY) announced that it is extending its $18.5 billion offer for Genzyme Corp. (GENZ) until Jan. 21, 2011. SNY has added 0.24%, while GENZ was last seen higher by 0.75%.
• Dell Inc. (DELL) announced this morning that it will purchase Compellant Technologies Inc. (CML) for $27.75 per share. The deal was foreshadowed on Thursday last week, when Dell announced that it was in advanced buyout talks with CML. DELL and CML have both plunged more than 3% on the news.
• General Electric (GE) unveiled a bid to acquire U.K. oil pipemaker Wellstream for $1.3 billion in an effort to capitalize on fast growth in deepwater drilling and emerging markets. The deal, which is expected to be completed in the first quarter of 2011, would give Wellstream shareholders 780 pence in cash and a special dividend of 6 pence in cash per share.
• Thermo Fisher Scientific (TMO) announced plans to acquire chemical analysis company Dionex (NASDAQ:DNEX) for $2.1 billion. The $118.50-a-share bid represents a 21% premium on Dionex’s Friday close.
Other Company Activity
• The shares of Research In Motion Limited (RIMM) have slipped roughly 1% this morning, after Exane BNP Paribas issued a bearish research note on the company. Specifically, the brokerage firm downgraded RIMM from "outperform" to "neutral," citing the concern that the smartphone maker has nothing in the product pipeline until the launch of its PlayBook tablet in the first quarter of 2011. BNP Paribas also reiterated its 12-month price target of $60 per share for RIMM.
• Google Inc. (GOOG) has advanced roughly 1.5% after being upgraded to "outperform" from "neutral" at Wedbush this morning. The brokerage also lifted its price target to $750 from $575 per share. The firm told clients in a research note that while Facebook could present headwinds down the road, Google should benefit from the fact that current mobile and social trends are increasing global searches.
• FedEx (FDX) said it expects its drivers to pick up almost 16 million shipments worldwide on Monday, making it the busiest day in the shipping giant’s history. FedEx said the volume is double its average day and represents an increase of nearly 13% over 2009’s busiest day.
• Wal-Mart (WMT) said it will shut down its Moscow field office as it plans to enter the Russian retail market through acquisitions instead of organic store openings. In the mean time, the retail giant does not see a suitable acquisition target in the near term.
Best Buy Co., Inc. (BBY)
Big box retailer Best Buy Co., Inc. (BBY) is scheduled to report its third-quarter earnings ahead of the open on Tuesday, Dec. 14. For the quarter, analysts are predicting the retailer to post a profit of 61 cents per share. Historically speaking, BBY has posted better-than-expected profits in three of the last four quarters.
Ahead of earnings, call players have ramped up their exposure to BBY. In the past two weeks, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 2.9 calls for every put purchased, a ratio which ranks above 88% of all other readings taken during the past 12 months. In other words, traders on the ISE and CBOE have been initiating bullish bets on BBY at a faster-than-usual pace lately.
This trend continued on Friday, with 22,000 BBY calls changing hands -- more than double the equity's expected single-session call volume of just 8,521 contracts.
BBY's January 2011 42 call was quite popular on Friday, with 2,382 contracts exchanged -- the majority of which crossed at the ask price, suggesting that they were likely purchased. What's more, open interest increased significantly over the weekend, indicating that new bullish positions were added here.
With BBY currently trading around $42.39, these 42-strike calls are right at the money.
The following companies also had some impressive options movements :-
Options players jumped on the shares of SanDisk Corp. (SNDK) on Friday, as more than 72,400 contracts changed hands. This surge in volume was more than double the stock's average daily trading volume of 35,181 contracts, according to data from WhatsTrading.com. Furthermore, it appears that 67% of the volume changed hands on the call side.
Friday's preference for calls runs counter to the recent trend seen on the ISE, where puts have been a favorite. During the past 10 trading sessions, 1.2 puts have been purchased to open for every one call purchased to open. This ratio of puts to calls is higher than 85% of all those taken during the past 52 weeks.
Meanwhile, the SOIR for SNDK comes in at 0.97, which is higher than 88% of other such readings taken during the past year. In other words, short-term options speculators have been more skeptically aligned toward the shares only 12% of the time during the past 12 months.
Only Wall Street remains somewhat optimistic toward the shares. According to Zacks, the stock has earned 10 "buy" ratings, seven "holds," and two "strong sells."
Technically speaking, the shares of SNDK are up more than 71% since the beginning of the year. The equity has marched higher along the steadfast support of its 10-month moving average.
General Electric (GE)
General Electric Co. (GE) has been lighting up the news ticker the last several days.
GE on Friday raised its dividend payment for the second time this year, lifting its quarterly payout to 14 cents a share from 12 cents, a 17% increase. That followed a 2-cent boost in July.
Then this morning, GE announced that it will buy Wellstream Holdings PLC for $1.3 billion. GE is offering 780 pence in cash and a special dividend of 6 pence in cash per Wellstream share. Wellstream's board intends to unanimously recommend shareholders accept the deal, which is expected to close in the first quarter of 2011, according to a statement from GE.
The security was the center of some heavy options trading on Friday, as more than 453,300 contracts changed hands. This surge in volume was more than four times the stock's average daily trading volume of 104,158 contracts, according to data from WhatsTrading.com. Meanwhile, 77% of the volume changed hands on the call side.
Options players have shown a preference for GE's calls on the ISE and Chicago Board Options Exchange (CBOE). During the past 10 trading sessions, 5.5 calls have been purchased to open for every one put purchased. This ratio of calls to puts is higher than 97% of all those taken during the past 52 weeks.
Furthermore, the SOIR for GE comes in at 0.91, which is lower than 73% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 27% of the time during the past 12 months.
Elsewhere, we find that Wall Street is still smitten with the shares. According to Zacks, the security has earned nine "buy" ratings and seven "holds."
From a technical perspective, the equity has added more than 17% since the beginning of 2010. After bouncing off its March 2009 lows, the stock has struggled with resistance at its 10-month and 20-month moving averages. However, GE recently climbed above both of these trendlines and is facing long-term resistance at the 20 level.
Other Options News
• Electronics retailer Best Buy Co. Inc. (BBY) has seen a spike in call buying on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) recently. The heightened attention to long calls comes ahead of the company's third-quarter earnings report, which is slated for release ahead of the open tomorrow morning. For the quarter, analysts are predicting the retailer to post a profit of 61 cents per share. Historically speaking, BBY has posted better-than-expected profits in three of the last four quarters.
• Bullish flow detected in Taseko Mines (TGB) , with 3950 calls trading, or 2x the recent avg daily call volume in the name.
• Bullish flow detected in Avon Products (AVP) , with 4023 calls trading, or 2x the recent avg daily call volume in the name.
• Bullish flow detected in Ishares MSCI Taiwan Index Fund (EWT) , with 11309 calls trading, or 5x the recent avg daily call volume in the name.
• Increasing volume is also being seen in EMC, Best Buy (BBY) , and Clorox (CLX) .
Markets churned higher last week, with the S&P 500 reaching its highest level in two years on Friday, amid upbeat economic news and a dividend hike by General Electric.
The earlier rally began overseas as China's Shanghai Composite surged nearly 3% after the People's Bank of China decided to keep interest rates unchanged in the face of worries about its economy overheating. China plays an outsize role in moving the markets because of its voracious appetite for commodities. Some worry that China will be too aggressive in cooling off its red-hot economy, derailing the global recovery.
Wall Street had a slightly positive reaction to a U.S. judge ruling against President Barack Obama’s health-care law in a challenge brought by Virginia. However, analysts believe the matter will ultimately be decided by the Supreme Court. The Morgan Stanley health-care payor index spiked, but then pared its gains after the ruling. Shares of Aetna (AET) and WellPoint (WLP) closed off session highs.
Meanwhile, Wall Street continues to price in the likelihood that Congress will extend the Bush tax cuts before they expire at the end of the year. The Senate is expected to pass a compromise between Obama and Republicans, and Democratic leader Steny Hoyer predicted on Monday the House will approve a tax-cut bill soon after.
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