Monday saw the U.S. stocks end a choppy session little changed as investors remained jittery ahead of the week's three big events -- the midterm elections, the Federal Reserve meeting and the October jobs report.
After soaring more than 100 points earlier in the session, the Dow Jones industrial average (INDU) ended just 6 points higher. The S&P 500 (SPX) edged up 1 point, and the Nasdaq (COMP) fell 3 points, according to early tallies.
Stocks rocketed higher from the get-go this morning, as the Street applauded encouraging manufacturing data both domestically and overseas. Thanks to accelerated infrastructure spending, China saw manufacturing growth unexpectedly increase last month, triggering a wave of investor enthusiasm ahead of the bell.
Adding fuel to the bullish fire was the latest data from the Institute for Supply Management (ISM), which reported a surprise uptick in its manufacturing index in October.
"We had a handful of positive macroeconomic data points, which contributed to the better tone in markets today, but the lack of follow-through underscores that Republican gains and an expansion of the Fed balance sheet are expected," said Barry Knapp, managing director of equity research at Barclays Capital in New York.
But the broader gains were muffled as investors turned their focus back to the upcoming election and the Fed's policy statement on Wednesday.
Expectations of additional stimulus from the Federal Reserve and bets that Tuesday's congressional elections will favor the Republicans have buoyed markets since late August. But this is a pivotal week.
"All that really matters now is the Fed coming in with a boat-load of money," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "The only reason the market has been going higher for the past two months is because of these expectations of Fed money-pumping."
With so many variables up in the air, the Dow Jones Industrial Average (DJIA) boasted both a triple-digit gain and a 56-point deficit, only to finish just a hair's breadth north of the breakeven line.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 11,124.62) finished with a small gain of 6.13 points, or 0.06%.
The S&P 500 Index (SPX – 1,184.38) also had a small gain, on the day, of 1.12 points, or 0.09%.
The Nasdaq Composite (COMP – 2,504.84), ended the day with a small loss of 2.57 points, or 0.10%.
The Russell 2000 Index of smaller companies had a loss of 5.54 points, or 0.79%, to settle at 697.81.
About half of the Dow's 30 components lost ground, led by Kraft (KFT) and Chevron (CVX). The index's best performers were tech giant Intel (INTC) and Pfizer (PFE).
The Nasdaq Composite, which has rallied in four-straight weeks, closed slightly lower amid weakness from big tech stocks like Amazon.com (AMZN), Autodesk (ADSK) and Yahoo! (YHOO).
About 7.105 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the year-to-date daily average of 8.73 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of 15 to 14, while on the Nasdaq, about 12 stocks fell for every seven that fell.
Notes of Interest
• The Dow Jones Industrial Average (DJIA): After spanning a 182-point range today, the Dow Jones Industrial Average (DJIA) eventually called it a wash, eking out a slim gain of 6.1 points, or 0.1%, by the close.
Containing the index's momentum on the upside was the 11,250 level – home to its year-to-date highs – while its 20-day moving average limited the blue chips' intraday losses.
• The S&P 500 Index (SPX) also explored both sides of breakeven today, eking out a gain of 1.1 points, or 0.1%, by the bell.
The SPX's upward trajectory was stifled in the 1,195 area – home to its own 2010 peak.
• The Nasdaq Composite (COMP), the tech-rich index, ended on a deficit of 2.6 points, or 0.1%, after earlier approaching its year-to-date acme in the 2,535 region.
• Crude futures powered into the black today, as solid manufacturing data from both the U.S. and China bolstered hopes for increasing oil demand. What's more, black gold ticked higher in defiance of the greenback's rebound, which typically has a negative impact on dollar-denominated commodities like crude. By the close, December-dated crude oil futures tacked on $1.52, or 1.9%, to settle at $82.95 per barrel.
• Gold futures: The U.S. dollar's rebound pushed gold futures into the red, erasing the malleable metal's initial run higher. In addition, the Fed's highly anticipated interest-rate statement kept jittery traders on the proverbial perimeter. Against this backdrop, gold for December delivery shed $7, or 0.5%, to finish at $1,350.60 an ounce.
• Bonds: Prices on U.S. Treasuries fell Monday, pushing the yield on the benchmark 10-year note up to 2.63% from 2.61% late Friday.
• The CBOE Volatility index .VIX, the market's favorite anxiety gauge, rose for the sixth straight day, a sign investors were boosting bets on further gyrations in the near term.
U.S. Consumer Spending
U.S. consumer spending rose by less than expected in September as income fell for the first time in 14 months, while inflation remained muted, according to a government report on Monday that reinforced expectations of more monetary stimulus from the Federal Reserve this week.
The Commerce Department said spending rose 0.2% after rising by an upwardly revised 0.5% in August.
Analysts polled by Reuters had forecast spending, which accounts for about 70% of U.S. economic activity, rising 0.4% in September from a previously reported 0.4% in August.
ISM Manufacturing Index
The pace of growth in the U.S. manufacturing sector quickened unexpectedly in October, suggesting a sluggish economic recovery may be gaining some traction, according to an industry report released Monday.
The Institute for Supply Management said its index of national factory activity rose to 56.9 from 54.4 in September. That was the highest since May and well above the 54.0 median forecast of 77 economists surveyed by Reuters.
A reading above 50 indicates expansion in the sector. While manufacturing has grown every month since August 2009, the pace of growth had been slowing in recent months.
In October, the index of sector employment rose to 57.7 from 56.5 in September. The U.S. labor market has remained sluggish this year, with the jobless rate at 9.6%.
The prices paid component edged up to 71.0 from 70.5 while new orders jumped to 58.9 from 51.1.
U.S. construction spending rose unexpectedly in September as investment in public projects touched the highest level in more than a year, a government report showed on Monday.
The Commerce Department said construction spending increased 0.5 percent to an annual rate of $801.7 billion. Augusts’ construction outlays were revised down to show a 0.2 percent decline instead of the previously reported 0.4 percent gain.
Economists polled by Reuters forecast construction spending falling 0.5 percent in September.
The government reported on Friday that spending on structures increased in the third quarter for the first time since the second quarter of 2008, while residential building contracted sharply following the end of a home buyer tax.
Spending on public projects increased 1.3 percent in September to $319.7 billion, the highest level since July 2009, after rising 2.2 percent in August.
State and local government spending on construction projects increased 0.8 percent in September after rising 2.3 percent the prior month.
Investment in private construction was flat after dropping 1.6 percent in August. Spending on private home building increased 1.8 percent in September after falling 4.2 percent the prior month.
Private nonresidential spending declined 1.6 percent in September after rising 0.8 percent the previous month.
Strong manufacturing numbers out of China, the worlds second-biggest economy, provided a lift to the market and sent Chinese stocks higher overnight.
"China is seen as the growth engine for the world, so this data coming in positively adds support to the fact that their economy is continuing to grow," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
In currencies: The dollar rose against the euro, the British pound and the Japanese yen.
European Markets finished slightly higher. The CAC 40 in France closed 0.2% higher, the DAX in Germany rose less than a percent and Britain's FTSE 100 was up 0.3%.
Asian Markets, ended mixed. Japan's benchmark Nikkei index dropped 0.5%, while the Hang Seng in Hong Kong rose 2.4%. The Shanghai Composite ticked up 2.5%.
Company Earnings Reports
• Corning (GLW) missed estimates with a non-GAAP profit of 51 cents a share and an 8.3% rise in revenue to $1.6 billion. Analysts had projected EPS of 51 cents on sales of $1.61 billion.
• Loews (L) reported that its net income dropped in the third quarter to $36 million, compared to $468 million in 2009. That included a one-time charge of $328 million stemming from CNA Financial Corporation, a subsidiary. Excluding that charge, Loews reported earnings of 13 cents per share, topping analyst expectations. Shares were little changed.
• Shares of Wilmington Trust (WL) sank 42% on news of a bigger-than-expected third quarter loss. The bank also agreed to be bought by M&T (MTB).
Company News and Movements
• Ambac Financial (ABK) plummeted 50% after the bond insurer warned it is considering filing a prepackaged bankruptcy. Ambac said it is skipping an interest payment. If it can't reach a prepackaged bankruptcy, Ambac said it will have to file for Chapter 11 bankruptcy by the end of the year.
• McKesson (MCK) inked a deal to scoop up privately held US Oncology for $2.16 billion. McKesson said it sees the deal closing by the end of 2010 and being neutral to its fiscal 2011 adjusted earnings. The acquisition is expected to modestly add to McKesson’s bottom line beginning in fiscal 2012.
• JPMorgan Chase (JPM) shares slipped 1% amid reports that the Securities and Exchange Commission is investigating the bank's $1.1 billion deal with hedge fund Magnetar.
• Shares of Exco Resources Inc.surged 30% after the company's chairman offered to buy the company in a $4.4 billion deal. • Cablevision Systems Corp. announced over the weekend that it has reached an agreement with News Corp. to return Fox programming to Cablevision. That sent shares of Cablevision (CVC) up 1% and News Corp. (NWSA) nearly 1% higher.
• AIG (AIG) said early Monday that it has raised nearly $37 billion by selling off one insurance subsidiary, and the initial public offering of a second, AIA Group Ltd. AIG's stock edged down slightly.
• General Motors is expected to file its IPO terms on Tuesday and begin a road show on Wednesday, Reuters reported. The bailed-out auto maker is expected to sell 365 million common shares for $26 to $29 a piece. GM is also expected to sell $3 billion in preferred shares and the U.S. would cut its stake from 60.8% to 43.3%.
IntercontinentalExchange Inc. (ICE)
IntercontinentalExchange Inc. (ICE) announced before the open this morning that its profit shot 15% higher, beating expectations, as strong commodities trading helped the futures exchange operator notch its fifth straight quarter of growth. Earnings rolled in at $99.9 million, or $1.29 per share, in the third quarter, up from $86.9 million, or $1.18 per share, a year earlier. Revenue increased 12% to $287.1 million, in line with expectations.
On an adjusted basis, ICE earned $1.42 per share, beating the Street estimate of $1.36. However, the company said revenue from its nascent credit-clearing operation would fall, overshadowing the stronger-than-expected profit figures.
Heading into the earnings report, options players showed a preference for puts on the stock. The International Securities Exchange (ISE) 10-day put/call volume ratio came in at 0.93, which is higher than 62% of all those taken during the past year.
What's more, the ISE and Chicago Board Options Exchange (CBOE) 10-day put/call volume ratio came in at 0.81, which is higher than 68% of all those taken during the past 12 months, pointing to a rising pessimism.
However, the put/call open interest ratio (SOIR) comes in at 0.69, which is lower than 84% of all those taken during the past 52 weeks. In other words, short-term options players have been more optimistically aligned toward the shares only 16% of the time during the past year -- meaning there is still some lingering optimism on the shares.
Wall Street also has a bullish outlook when it comes to ICE. According to Zacks, the stock has earned 15 "strong buys," five "holds," and one "sell." There is still plenty of room for potential downgrades stemming from the stock's post-earnings slide.
Meanwhile, short sellers had been adding to their bearish bets. During the most recent reporting period, the number of ICE shares sold short increased by 25% to 3.3 million. This accumulation of pessimistic positions accounts for 4.6% of the company's float, and is 4.2 times the stock's average daily trading volume.
Technically speaking, the shares of ICE are up a mild 2.3% since the start of 2010. After a weak start to the session, the security remains trapped between its 10-day and 20-day moving averages. Since hitting support at the 94 level in late August, the shares of ICE have climbed along the support of their 10-day and 20-day moving averages.
Corning Incorporated (GLW)
Corning Incorporated (GLW) marched into the earnings confessional this morning to reveal that its third-quarter profit increased 22% amid higher sales and margins -- but results still missed analysts' expectations.
Earnings rolled in at $785 million, or 50 cents a share, up from $643 million, or 41 cents a share, a year earlier. Excluding items such as an asbestos liability-related charge and debt buybacks, earnings rose to 51 cents from 42 cents as revenue increased 8.3% to $1.6 billion. Analysts had predicted earnings of 52 cents on $1.61 billion in revenue.
Gross margin widened to 45.2% from 40.5% amid lower production costs. Telecommunications rose 3.1%, while the specialty materials segment had a 77% surge amid strong sales of Gorilla Glass and advanced optics products.
Looking ahead, Corning said that it expects glass prices to fall by single digits in the fourth quarter, more than previous quarters due to ample supply. Somewhat of a glut has developed for glass used in liquid crystal displays for TVs, computers, and other electronics.
Sentiment was mixed heading into the company's earnings report. The International Securities Exchange (ISE) reported that nine calls were purchased to open for every one put purchased to open during the past 10 trading sessions, indicating a spike in call trading during the short term.
On the other hand, the put/call open interest ratio (SOIR) for GLW comes in at 0.78, which is higher than 99% of all those taken during the past 12 months. In other words, short-term options players have been more pessimistically aligned toward the shares only 1% of the time during the past 52 weeks.
Meanwhile, Wall Street analysts are still lining up in the bears' camp. According to Zacks, the stock has earned 11 "strong buys," three "buys," and three "holds." This configuration leaves ample room for potential downgrades following the company's lackluster earnings report and outlook.
Technically speaking, the shares of GLW are down more than 5% since the beginning of the year. Meanwhile, traders seem to have shaken off the company's poor earnings report, as the shares are up roughly 1.4% today. The security is hovering around former support at its 10-day and 20-day moving averages, but remains below short-term resistance at the 19 level.
The following companies also had some impressive options movements :-
Options players jumped on the shares of Alcoa Inc. (AA) on Friday, as more than 126,000 contracts crossed the tape. This surge in volume was more than double the stock's average daily trading volume of 59,596 contracts, according to data from WhatsTrading.com. In addition, traders were feeling optimistic, as 85% of the volume changed hands on the call side.
Overall, however, put trading has been on the rise toward the shares. The International Securities Exchange (ISE) has reported 1.6 puts purchased to open for every one call purchased to open during the past 52 weeks. This ratio of puts to calls is higher than 98.8% of all those taken during the past 52 weeks.
What's more, the put/call open interest ratio (SOIR) for AA comes in at 0.76, which is higher than 97% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 3% of the time during the past 52 weeks.
Short sellers are also skeptical of the shares. During the past month, the number of AA shares sold short increased by 9.7% to 70 million. This accumulation of bearish bets accounts for nearly 7% of the company's total float.
Meanwhile, Wall Street is somewhat mixed in its outlook. According to Zacks, the stock has earned nine "buy" ratings, six "holds," and one "strong sell."
Technically speaking, the shares of AA are down more than 18% since the beginning of 2010. The stock recently bounced off long-term support at the 10 level, and climbed above its 10-week and 20-week moving averages in an attempt to break out of its downtrend.
Avanir Pharmaceuticals (AVNR)
Avanir Pharmaceuticals Inc. (AVNR) announced Friday that the Food and Drug Administration (FDA) approved its Nuedexta drug as the first treatment for pseudobulbar affect, which is marked by episodes of uncontrollable laughing or crying. The drug developer said it expects Nuedexta to be available by prescription in the first quarter.
Ahead of the news, traders jumped on the stock's options, as more than 80,600 contracts changed hands. This surge in volume was more than seven times the stock's average daily trading volume of 10,393 contracts, according to data from WhatsTrading.com. Furthermore, roughly 61% of the volume changed hands on the call side.
Sentiment data on the shares is rather light. The SOIR for AVNR comes in at 0.46, as call open interest doubles put open interest among options slated to expire in less than three months.
Meanwhile, short sellers have increased their bearish bets. During the past month, the number of AVNR shares sold short has jumped more than 15% to 12 million. This accumulation of bearish bets accounts for more than 19% of the company's float, and is four times the stock's average daily trading volume.
Finally, the stock has largely been ignored by Wall Street. According to Zacks, all three of the analysts following the company rate it a "strong buy," leaving ample room for more brokerage firms to jump on the stock's bandwagon.
From a technical perspective, the shares of AVNR are up more than 27% since the beginning of the year, and have more than doubled this morning. The stock has steadily climbed along the support of its 10-month and 20-month moving averages since April 2009.
Research In Motion Limited (RIMM)
Research In Motion Limited (RIMM) on Friday said its talks with the Indian government continue to be constructive and that it remains optimistic about reaching a "positive and final" resolution. India, which wants access to RIMM communications for what it calls national security reasons, has threatened to ban all BlackBerry use in the country. India gave a 60-day reprieve to the company at the end of August after being offered access to some BlackBerry data, a move yet to be confirmed by the Canadian firm.
RIMM has been the center of some brisk options trading, as more than 181,800 contracts changed hands on Friday. This jump in volume was more than double the stock's average daily trading volume of 80,978 contracts, according to data from WhatsTrading.com. What's more, roughly 65% of the volume changed hands on the put side.
Friday's put trading runs counter to the recent trend seen on the ISE. During the past two trading weeks, 2.25 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 88% of all those taken during the past 10 trading sessions, pointing to rising optimism.
However, sentiment is far from an optimistic extreme. The SOIR for RIMM comes in at 0.90, 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 87% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 13% of the time during the past 12 months.
Short interest is also on the rise. During the past month, the number of RIMM shares sold short increased by 17% to 32.3 million. This accumulation of bearish bets accounts for nearly 7% of the company's total float.
From a technical perspective, the shares of RIMM are up about 0.6% this morning. The stock has recently climbed back above its 10-week and 20-week moving averages – trendlines that have guided the shares lower since April 2010.
**Bearish activity detected in St Joe (JOE), with 8442 puts trading, or 2x the recent average daily put volume in the name.
**Bullish flow detected in Medcohealth Solutions (MHS), with 10747 calls trading, or 4x the recent average daily call volume in the name.
**Bearish activity detected in Talisman Energy (TLM), with 8963 puts trading, or 11x the recent average daily put volume in the name.
**Increasing options action is also being seen in Sirius Satellite (SIRI), Target (TGT), and Marvell Tech (MRVL).
The see-saw trading session marked a disappointing start to a crucial week on Wall Street that will determine whether the markets' hopes for more gridlock in Washington and new stimulus from the Federal Reserve will come true.
Initially buoyed by a pair of stronger-than-expected reports on U.S. and Chinese manufacturing, the Dow soared 125 points in early trading and nearly broke through its highest level of the year. There didn't appear to be a specific catalyst for the markets fizzling, but market watchers blamed the stronger dollar and stocks' inability to set new highs.
“The strength in the dollar took some of the wind out of the equity market. We’re kind of gliding into the elections,” said Peter Kenny, managing director at Knight Capital Group.
The turbulent day comes after Wall Street flat lined on Friday to cap off its strongest October in seven years.
Aside from the tech trouble, the markets were hurt by a sharply stronger U.S. dollar. Wall Street tends to have an inverse relationship with the greenback. The euro sank 0.57% to $1.3885.
Most of the focus was on Tuesday's midterm election, which is expected to result in Republicans retaking the House of Representatives and perhaps even the Senate. The markets have been betting on these results and hoping Election Day will produce more balance in Washington and more pro-business initiatives.
At the same time, the Fed is expected to unleash a second round of quantitative easing on Wednesday to help stimulate the economy. However, The Wall Street Journal reported last week the price tag on QE2 may be less than Wall Street had been hoping for. Similarly, Bloomberg News released a survey showing most economists believe QE2 will total $500 billion, well below the Fed's shock-and-awe plan of $1.7 trillion during the crisis.
"If things don't come out as expected, there could be significant downside because there's so little liquidity in the markets," said Mike Holland, who oversees more than $4 billion as chairman of Holland & Co in New York. "Investors have priced in certain expected benefits from the Fed and elections, and what markets are squaring away now are any possible surprises."
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