Stock Market News Update
Monday, July 19, 2010



monday update

Monday saw stocks open higher but struggled to gain momentum for most of the day as investors weighed an upbeat earnings report from Halliburton (HAL) against discouraging data from the housing sector.

More specifically, the National Association of Home Builders said its confidence index plunged to 14 in July – the lowest level since March 2009 – which wreaked havoc on construction concerns like Toll Brothers (TOL) and The Ryland Group (RYL), and loomed ominously ahead of additional housing data slated for release later this week.

Meanwhile, Moody's Investors Service downgraded Ireland's credit rating after warning the country’s economic recovery could be slow, which also limited stocks' early rebound attempts.

Nevertheless, while the Street eventually opted for the glass-half-full approach, Schaeffer's Senior Technical Strategist Ryan Detrick issued this note of caution: "Considering how ugly Friday was, today wasn't a bad start to the week. However, we have a ton of earnings reports coming out later this week – so the bulls shouldn't get too excited just yet."

“I think the market is hanging its hat on the idea that IBM can succeed because of its global diversification,” said NYSE trader Ben Willis of Sunrise Securities. “We are going to look for whether there is continued growth -- maybe slower than we had hoped for last quarter -- but still continued growth coming from a global format like IBM. IBM is a bellwether for an industry and the market is very hopeful for what they are going to say.”

But the major indexes rallied in the afternoon as investors geared up for key corporate results due this week, including reports from blue chips such as Microsoft (MSFT), AT&T (T), Coca-Cola (COKE) and American Express (AXP).

The rally represents a mediocre rebound from Friday's 262-point plunge on the Dow that wiped out the entire week’s big gains. That selloff was fueled by economic fears that resurfaced in the wake of ugly reports on consumer sentiment.

Results for Major Market Indexes



DJIA-july19,2010

The Dow Jones Industrial Average (DJIA – 10,154.43) finished with a reasonable gain of 56.53 points, or 0.56%.



SP500-july19,2010

The S&P 500 Index (SPX – 1,071.25) had small gain, on the day, of 6.37 points, or 0.60%.



COMP-july19,2010

The Nasdaq Composite (COMP – 2,198.23) also had a gain of 19.18 points, or 0.88%.



The Russell 2000 Index of smaller companies had a small gain of 2.69 points, or 0.44%, to settle at 613.08.

Most of the Dow's 30 stocks closed in the green on Monday, led by tech giant Intel (INTC) and Boeing (BA) . The worst performers were Bank of America (BAC) and Wal-Mart (WMT) .

Trading volume:

About 7.16 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.

Gainers outnumbered losers by 2 to 1 on the New York Stock Exchange. Volume was light, amounting to 74% of its 30-day average, according to FactSet Research, which can help exaggerate price moves. More than 954 million shares changed hands.

Notes of Interest….

The Dow Jones Industrial Average’s (DJIA) climbed back atop the 10,100 level, its 10-day moving average halted the blue-chip barometer's upward trajectory.

The S&P 500 Index’s (SPX) upward momentum was stifled by its 10-day trendline.

The Nasdaq Composite (COMP), the tech-rich index, couldn't muster enough energy to reclaim the round-number 2,200 level.

Crude futures finished higher for the first time in four sessions today, with help from an encouraging earnings report from commodities concern Halliburton (HAL). Nevertheless, a bout of downbeat housing stats kept oil's momentum limited, with August-dated crude ending with a gain of 53 cents, or 0.7%, at $76.54 per barrel.

Gold futures extended last week's retreat today, after Moody's downgrade of Ireland's credit rating revived concerns about the fiscal health of Europe. Plus, weak housing sentiment weighed on gold's appeal as an inflationary hedge, while an afternoon rally in the equities market muted the metal's safe-haven allure. By the close, gold for August delivery shed $6.30, or 0.5%, to end at $1,181.90 an ounce – its lowest closing price since May 21

Bonds: Treasury prices fell, pushing the yield on the 10-year note up to 2.96% from 2.93% late Friday.

Economic Concerns

Housing

The National Association of Home Builders said its index of builder confidence in the market for new single-family homes fell in July to the lowest level since April 2009.

The Housing Market Index fell two points from a downwardly revised number in the previous month to 14 for July, according to NAHB.

NAHB chairman Bob Jones said in a statement that the decline in builder confidence reflects the expiration of a popular tax credit, tight credit conditions and persistently high unemployment.

Shares of Hovnainian (HOV), Toll Brothers (TOL) and KB Home (KBH) were all lower.

"With growth slumping again, and unemployment hovering near the double digits, we simply don't have the necessary ingredients for a sustainable recovery in housing," said Mike Larson, an analyst at Weiss Research Inc.

The Energy Sector

BP:

BP (BP) fell 6% after comments from a U.S. official raised question about pressure levels in the ruptured well in the Gulf of Mexico.

BP (BP) gave the energy sector a boost late on Monday by telling Reuters that scientists have concluded the seepage near its ruptured Macondo well in the Gulf of Mexico is natural and not related to the massive oil leak.

Overseas Concerns

Ireland and Hungary

Moody's Investors Service cut Ireland's government bond ratings to Aa2 from Aa1 on Monday, citing weakening growth prospects and mounting debt.

The downgrade was "primarily driven by the Irish government's gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability," said Dietmar Hornung, Moody's lead analyst for Ireland.

Meanwhile, talks between Hungary and the International Monetary Fund reached an impasse over a $25 billion aid package the country accepted in 2008 from the IMF and European Union.

In currencies, the euro was up 0.40% to $1.2944 as U.S. markets closed.

Overseas Markets

European Markets: gave up an early rally. The DAX in Germany, France's CAC 40 and Britain's FTSE 100 all fell between 0.2% and 0.5%.

Asian Markets: The Hang Seng in Hong Kong lost 0.8%, while the Shanghai Composite added 2%. Japanese markets were closed on Monday.

Company Earnings Reports



QE-july19,2010



IBM (IBM)

After the market closed Monday, IBM reported (IBM) earnings per share that beat analysts' expectations, but second-quarter revenue fell short of the mark. Shares of the tech giant sank 5% in extended trading.

While IBM's results reflected worries that the strong profits reported so far are due mostly to cost cuttings and not sales growth, the tone of the second-quarter reporting period has been relatively upbeat.

Halliburton (HAL)

Shares of Halliburton (HAL) rose more than 6% after the company posted an 83% jump in second-quarter profit.

Delta (DAL)

Delta (DAL) reported adjusted earnings per share for the most recent quarter that beat analysts' expectations. But shares of the airline fell 3% as investors responded to weaker-than-expected sales growth in the quarter.

Hasbro’s (HAS)

Hasbro’s (HAS) net income jumped 11% and it posted EPS of 26 cents, beating estimates for 24 cents. However, the maker of Monopoly and Transformers said its sales slid by 7% to $737.8 million, missing the Street’s view of $748.3 million. Hasbro said it still sees higher revenue and earnings per share during the second half of the year.

Company News and Movements:



aotm-july19,2010


nah-july19,2010


nal-july19,2010



Shares of Boeing (BA) gained 2% after the company received an $9.1 billion order from Dubai-based airline Emirates for 30 of its 777-300ER aircrafts.

Alan Gayle, senior investment strategist for RidgeWorth Investments, said Monday's market moves were in part a response to the announcement of better-than-expected orders for Boeing Co. at the Farnborough International Airshow in Britain. The aircraft maker announced orders at the Farnborough show, including a deal with Dubai-based airline Emirates worth $3.6 billion. Boeing also said GE Capital Aviation Services placed a $3 billion order.

However, Boeing's stock joined other stocks in falling in after-hours trading in response to IBM's revenue report.

Motorola (MOT) climbed 5.6% after Nokia (NOK) Siemens Networks said it plans to buy the majority of Motorola's wireless network division for $1.2 billion in cash.

American International Group (AIG) named Mark Tucker, the former CEO of Prudential, as head of it its Asian life insurance business.

• Wireless networking chipmaker Atheros Communications Inc (ATHR), which counts Apple (AAPL) and Nintendo (7974.OS) among its customers, jumped 4.1 percent to $30.46 after a brokerage upgrade and helped the PHLX semiconductor index .SOXX rise 2.5 percent.

Entergy Corp (ETR) forecast second-quarter profit above market estimates and backed its full-year earnings outlook. The power company's shares rose 2.2 percent to $77.64.

Options Movement

The following companies had some impressive options movements:-

F5 Networks, Inc. (FFIV) is expected to confess its fiscal third-quarter figures after the closing bell on Wednesday, July 21. Historically speaking, the firm has bested the Street's per-share earnings predictions in each of the past four quarters, according to Thomson Reuters. Nevertheless, it appears the options crowd is positioning for a less-than-stellar earnings reaction for the communications technology concern.

International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open more FFIV puts than calls, as indicated by the stock's 10-day put/call volume ratio of 1.33. What's more, this reading ranks in the 65th annual percentile, implying that traders on the ISE and CBOE have initiated bearish bets over bullish at a faster clip than usual lately.

FFIV on Friday saw more than 6,500 puts change hands – more than doubling its expected daily volume of fewer than 3,200 puts. The August 80 put accounted for nearly all of the volume, with 3,503 contracts exchanged – most of which traded at the ask price, suggesting they were bought. Plus, put open interest at the newly front-month strike swelled by about 2,800 contracts over the weekend, pointing to freshly purchased bearish bets and making the round-number 80 strike home to peak put open interest in the August series of options.

Sirius XM Radio Inc. - Calls were the options of choice on SIRI last Friday, with nearly 7,900 of these bullishly oriented contracts crossing the tape. By contrast, only 2,589 puts were exchanged on SIRI during the course of the session.

Data from the ISE confirms this optimistic bias. On Friday, traders on the ISE bought to open 1,597 calls on SIRI, compared to just 168 puts. The stock's single-day ISE call/put volume ratio of 9.51 reveals a distinct preference for bullish bets.

Visa Inc. - Calls were also the options of choice on V last Friday, with approximately 19,000 contracts changing hands. On the ISE alone, traders bought to open 1,292 calls on V, compared to just 140 puts. In other words, 9.23 times more bullish bets than bearish were bought to open.

Chesapeake Energy Corporation (CHK) - On Friday, Goldman Sachs cut its view on the U.S. exploration and production sector (E&P) from "attractive" to "neutral." In addition, the brokerage firm cut its price target on Chesapeake Energy Corporation (CHK) from $29 to $25.

Option activity was brisk on CHK on Friday, with 4,250 contracts changing hands on the August 22 put -- most of which traded closer to the ask price, revealing these puts were likely purchased. Overnight, open interest increased by over 2,000 contracts, indicating that fresh bearish positions were added at this strike.

Starbucks Corporation (SBUX) will confess its fiscal third-quarter figures after the closing bell tomorrow. Historically speaking, the java giant has exceeded analysts' per-share profit predictions in each of the past four quarters, according to Thomson Reuters. Nevertheless, option traders today are loading up on the stock's short-term puts.

So far today, SBUX has seen roughly 6,700 puts cross the tape, more than doubling its predicted single-session volume of about 2,500 puts. The equity's near-the-money August 24 and 25 strikes have been most popular, with around 1,300 and 4,300 puts exchanged, respectively. Plus, with today's volume exceeding put open interest at both strikes, we can assume that a healthy portion of today's action will translate into newly opened positions.

Cell Therapeutics, Inc. (CTIC) - Option volume is unusually heavy on Cell Therapeutics, Inc. (CTIC) today, with activity surging to roughly eight times the expected level. So far, 2,259 calls and 820 puts have changed hands on the equity, compared to CTIC's predicted volume of just 253 calls and 113 puts.

The most active strike is CTIC's September 1 call, where 2,240 contracts have changed hands. All of these calls have traded at the bid price, revealing they were most likely sold.

Conclusion

Of the companies that have reported so far, about 75% have beaten earnings expectations and 71% have topped revenue forecasts. Including those that reported Monday, a total of 122 companies are slated to post results this week.

Meanwhile, investors are also bracing for key economic data on the calendar this week, including reports on housing starts and building permits Tuesday morning. A report on existing home sales comes out later in the week.

Traders said the market has been pulled between ongoing fears that the U.S. economy could fall back into recession later this year and optimism about corporate profits in the second quarter.

"There doesn't seem to be a specific trend developing within this enormous volatility," said Hugh Johnson, chairman of Johnson Illington Advisors. "There is a very strong argument to be made on both sides."

"The market is caught up by this fear factor over how much the economy has slowed and what does it mean in terms of future earnings growth," Peter Cardillo, chief market economist for Avalon Partners in New York, said before the market closed.

Last week, a drop in consumer sentiment, along with weak earnings from financial firms Bank of America (BAC) and Citigroup (C), pressured stocks at the end of the week and dragged the Dow down by 261 points on Friday.

Wall Street rallied in anticipation of IBM's key earnings report but the actual results may end up pressuring the markets on Tuesday morning. After the markets closed, the tech bellwether said it earned $2.61 a share, beating the Street's view by 3 cents, but its revenue rose by a weaker-than-expected 2% to $23.7 billion. It's clear why the markets set the bar high as IBM had beaten estimates from analysts in 12 consecutive quarters.

Analysts have predicted that stock trading would be erratic throughout earnings season. Recent economic data has been disappointing, and investors are having a hard time trusting upbeat forecasts.

Hundreds of companies are still to report earnings in the next few weeks. On Tuesday, companies from a variety of industries are reporting their results, including Yahoo Inc., Apple Inc., Johnson & Johnson and PepsiCo. Inc. Goldman Sachs Group Inc., which last week settled civil fraud charges with the government, will also report its earnings.

Further readings on the housing market are due out later in the week. They too are expected to show the market is weak and that there are few signs that business will pick up anytime soon. Economists predict reports on housing starts, building permits and sales of previously occupied homes will show declines for June.

The building permits data is likely to be particularly discouraging because it is used as a gauge for future construction. Investors have become more concerned with forecasts for the future rather than past reports, so anything that indicates weakness in the coming months and quarters is being met with disappointment.



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