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Stock Market News Update
Monday, November 15, 2010

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Monday saw a rally on Wall Street gain momentum as the bulls cheered a weaker U.S. dollar, an unexpected jump in October retail sales and Caterpillar's big $7.6 billion buy.

The rally comes despite a number of headwinds, including continued uncertainty about Europe's sovereign debt crisis and an alarming decline in a regional manufacturing gauge. Some market participants were still concerned about last week's losses.

“It appears that we do indeed now have some type of correction taking [place] in the U.S. equity market,” Peter Kenny, managing director at Knight Capital Group, wrote in a note. “While we are seeing a lift today that is perhaps not surprising after Friday’s day of rather aggressive selling.”

Wall Street’s early gains were driven by a weaker dollar, which is seen as a bullish factor for stocks, the surprisingly strong retail sales report and enthusiasm for Caterpillar’s (CAT) $7.6 billion acquisition of mining equipment maker Bucyrus (NASDAQ:BUCY).

It marks a decent rebound from last week’s tumble, which erased 252 points from the Dow and was sparked mostly by worries about Europe’s latest financial crisis which is Ireland.

"This is a positive time of year for markets, and everything is looking better," said Harry Clark, founder and CEO of Clark Capital Management Group. "Takeovers and mergers are back in vogue, and that's always a positive for markets."

However, afternoon reports suggesting that Moody's Investors Service might cut the U.S. credit rating sent Treasury prices reeling, pushing 10-year yields to three-month highs and sparking a late-session sell-off in the equities market. Against this backdrop, the session essentially ended in a wash, with only the Dow Jones Industrial Average (DJIA) maintaining its perch atop breakeven.

“The market just couldn’t get out of the way of the dollar rallying again,” said Michael James, managing director of equity trading at Wedbush Securities. “Sellers have continued to be in control of the market short term. That could easily change if the dollar’s direction changes.”

Results for Major Market Indexes

The Dow Jones Industrial Average (DJIA – 11,201.97) finished with a gain of 9.39 points, or 0.08%.

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The S&P 500 Index (SPX – 1,197.75) had a loss, on the day, of 1.46 points, or 0.12%.

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The Nasdaq Composite (COMP – 2,513.82), ended the day with a loss of 4.39 points, or 0.17%.

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The Russell 2000 Index of smaller companies had a gain of 0.55 points, or 0.08%, to settle at 719.82.

Trading Volume:

About 6.71 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1,577 to 1,386, while on the Nasdaq, advancers beat decliners by 1,420 to 1,195.

Notes of Interest


The Dow Jones Industrial Average (DJIA) trimmed an 80-point lead in afternoon trading, ending with a much slimmer gain of 9.4 points, or 0.08%.

Only 12 of the Dow's 30 components finished in the black, led by JPMorgan Chase (JPM) and Caterpillar Inc., while Walt Disney (DIS) and Intel Corp. (INTC) paced the 17 decliners; the shares of American Express (AXP) ended right where they began.

However, while the Dow clawed its way back above the 11,200 level, the blue-chip barometer failed to reclaim its 20-day moving average, marking the Dow's second straight finish south of this trendline.

The S&P 500 Index (SPX) also reversed course in afternoon trading, finishing on a deficit of 1.5 points, or 0.1%.

Nevertheless, the broad-market index maintained its perch atop its own 20-day trendline.

If the S&P 500 holds above its 20-day moving average it could find itself in a tight range as it faces strong resistance around the 1,228 level. The Bollinger bands chart indicates the near-term target at 1,230, in the area of the 61.8 percent retracement of the slide from the 2007 historic highs to the 12-year lows of March 2009.

"That 1,220, 1,230 (level) is an important level and I don't think it's going to be easy to get through. We're going to need some sort of surprise good news to get us through there on a sustained basis," said Scott Wren, senior equity strategist at Wells Fargo Advisors in St. Louis.

The Nasdaq Composite (COMP), the tech-rich index, ended a volatile session with a loss of 4.4 points, or 0.2%, marking its first finish south of its 20-day moving average since Sept. 1.

Crude futures ended fractionally lower today, as fears over Europe's sovereign debt fueled the U.S. dollar to a six-week high. Furthermore, talk of the restart of ConocoPhillips' (COP) massive New Jersey refinery triggered a late-stage sell-off of gasoline futures, which also weighed on black gold. Against this backdrop, December-dated crude oil futures shed $0.02, or 0.02%, at $84.86 per barrel.

Gold futuresfinished modestly higher today, as lingering concerns about European debt bolstered the metal's safe-haven appeal. Furthermore, last week's steep sell-off prompted a slew of bargain hunting, which also acted as a boon for gold. However, fears over Ireland's fiscal health also lifted the greenback against the euro, limiting the dollar-denominated metal's advance. By the close, gold for December delivery added $3, or 0.2%, to end at $1,368.50 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.82% from 2.76% late Friday.

Economic Concerns

Retail Sales

Sales at U.S. retailers rose more than expected in October to post their largest gain in seven months, boosted by purchases of motor vehicles and building materials, according to a government report on Monday that was further evidence the economy was regaining strength.

The Commerce Department said total retail sales increased 1.2%, the biggest rise since March, after advancing by an upwardly revised 0.7% in September.

The fourth monthly increase in retail sales was the latest in a series of data implying the economy's recovery from worst recession since the 1930s was regaining momentum after hitting a soft patch in the summer.

September sales had been previously reported to have increased 0.6%. Analysts polled by Reuters had forecast retail sales rising 0.7% last month. Compared to October last year, sales were 7.3% higher.

Motor vehicle and parts purchases surged 5.0%, also the largest increase since March, after rising 1.5% in September. Excluding autos, sales rose 0.4% last month after a 0.5% increase the prior month. Markets had expected sales excluding autos to rise 0.4% in October.

Building materials and garden equipment sales rose 1.9% last month, the largest gain since April, after increasing 1.3% in September.

October's retail sales report showed gains across most categories, offering hope that consumers will support the economy, despite a 9.6% unemployment rate. Data so far for October, including nonfarm payrolls and manufacturing, have pointed to a pick-up in the the growth pace.

Retail sales in October were also lifted by receipts at gasoline stations, which rose 0.8% after increasing 1.2% in September. Clothing and clothing accessories sales gained 0.75, while receipts at sporting goods, hobby and book stores rose 1.0%, the largest increase since March.

Core retail sales, which exclude autos, gasoline and building materials, rose 0.2% after a 0.4% increase in September. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report. Spending, which accounts for 70% of U.S. economic activity, increased at a 2.6% annual rate in the third quarter.

However, purchases at electronics and appliance stores fell 0.7% in October. Furniture sales also fell 0.7% last month.

New York Fed's Empire State Manufacturing Survey

Business conditions in the New York area deteriorated in November, as the New York Fed's Empire State manufacturing survey plummeted 27 points to -11.1, driven by a sharp drop in new orders. The release was far worse than economist expectations for a +15 reading and marks the first negative reading since July 2009. The shipments index also fell below zero.

Overseas Concerns

Meanwhile, Ireland is reportedly resisting accepting a bailout aimed at ending its sovereign debt crisis. Ireland has strongly denied it is in bailout discussions. According to The Wall Street Journal, Ireland is resisting pressure to tap a bailout fund because it could lead to more criticism and embarrassment.

In currencies: Despite that report, the euro gained ground against the dollar, helping stocks and commodities. A weaker greenback tends to help exports. After suffering its worst week since mid August, the euro was up 0.57% to $1.3630. The dollar strengthened against the euro, the Japanese yen and the British pound.

The dollar index (DXY) was recently at 78.607, up from 78.106 late Friday.

“We saw the dollar rally last week on China’s comments that they’re going to raise interest rates. But we need it to get above 80 before we can say the trend has changed; at least then, the downtrend we’ve seen for much of this year will have been broken, strictly from a technical basis,” said Paul Nolte, managing director at Dearborn Partners.

Overseas Markets

European Markets opened the week mixed. Britain's FTSE 100 rose 0.4%, the DAX in Germany gained 0.8% and France's CAC 40 fell 0.1%.

Asian Markets, ended the session mixed. The Shanghai Composite gained 1.0% and Japan's Nikkei rose 1.1%, while the Hang Seng in Hong Kong lost 0.8%.

Company Earnings Reports



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Lowe’s (LOW) reported a stronger-than-expected 17% jump in the third-quarter profits and had a non-GAAP EPS of 31 cents. However, revenue inched up just $11.59 billion, trailing the Street’s view of $11.75 billion. Lowe’s also lowered its 2010 EPS and sales guidance.

Company News and Movements



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General Motors is expected to price its shares above the original $26-to-$29 range it originally forecasted due to strong demand, The Wall Street Journal reported. The IPO, likely one of the largest of the past decade, is expected to price in a range of $31 to $33.

Potash (POT) slumped 1% after BHP Billiton (BHP) formally withdrew its $38.6 billion bid for the fertilizer maker amid resistance from the Canadian government.

Goldman Sachs's (GS) plan to pay back a $5 billion investment from Warren Buffett's Berkshire Hathaway is being delayed by the Federal Reserve, which has to approve the plan, the Journal reported. Before approving the repayment, the Fed reportedly wants to finalize new guidelines on when big banks will be allowed to raise their dividends.

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Options Movement

Micron Technology Inc. (MU)

Micron Technology Inc. (MU) had been rallying along with the market since early September, but has sank nearly 2% today following a downgrade from "buy" to "hold" at Lazard Capital. Overall, Wall Street remains optimistic toward the shares. According to Zacks, the stock has earned 12 "strong buy" ratings and one "buy," compared to seven "hold" ratings and just one "strong sell."

Meanwhile, the average 12-month price target for MU comes in at $11.78, according to Thomson Reuters. This estimate implies that analysts are expecting the shares to rally more than 52% during the next 12 months from Friday's closing price of $7.72.

Elsewhere, we find that options players have also adopted a very optimistic outlook toward MU. The International Securities Exchange (ISE) has reported 14.5 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 93.8% of all those taken during the past 52 weeks, indicating that optimism is on the rise.

Furthermore, the put/call open interest ratio for MU comes in at 0.46, as call open interest doubles put open interest among options slated to expire in less than three months. This ratio of puts to calls is lower than 73% 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 27% of the time during the past 52 weeks.

Short sellers have started to unload their bearish bets as well. During the past month, the number of MU shares sold short dropped by 23% to 83.8 million. This accumulation of bearish bets still accounts for 9.8% of the company's total float.

Technically speaking, this morning's weakness is just adding to MU's year-to-date loss of more than 26%. The stock's recent rally has come to a crashing halt, as the equity has pulled back below resistance at its 10-week and 20-week moving averages. The security now looks poised to revisit former support at the 6.50 level.

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With optimism prevailing among analysts and options players, a drop below MU's intermediate-term trendlines could shake loose some of these bulls, creating a fresh wave of selling pressure.

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The following companies also had some impressive options movements :-

Ford Motor Company (F)

Option players have driven up call volume on Ford Motor Company (F) today, with roughly 132,000 of these bullishly oriented options changing hands -- more than double the automaker's expected single-session call volume of around 59,000 contracts.

In fact, calls have been increasingly popular on F lately, as evidenced by the stock's 10-day International Securities Exchange (ISE) call/put volume ratio of 3.26. This ratio reveals that calls bought to open have more than tripled puts purchased during the past two weeks, and also ranks above 65.2% of all other readings taken during the past year.

F's November 17 call has been the star of the show today, with over 40,000 contracts changing hands on this strike -- the bulk of which traded at the ask price, indicating they were likely purchased. However, with just over 45,700 contracts open at this strike, it's difficult to determine whether fresh contracts are, in fact, being added here today.

With F trading around $17.17, these November 17 calls are right at the money. Since the start of September, F has been rallying steadily along the support of its 10-week and 20-week moving averages, which have led the automaker to a series of higher highs during that time. In fact, just today, F tagged a fresh annual acme at $17.20 -- a significant feat for F, which has not surmounted the $17 level since 2004.

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Mosaic Company (MOS)

The Mosaic Company (MOS) was the center of some brisk options trading on Friday, as more than 51,300 contracts crossed the tape. This surge in volume was more than double the stock's average daily trading volume, according to data from WhatsTrading.com. In addition, approximately 59% of the volume changed hands on the put side.

Again, this is another instance where Friday's volume runs counter to the recent trend seen on the ISE. During the past two trading weeks, 4.7 MOS calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 93% of all those taken during the past 12 months, indicating a rising optimism.

However, the SOIR for MOS indicates that near-term speculators are still in the bears' camp. More specifically, the stock's SOIR comes in at 0.84, which is higher than 95% of all those taken during the past 52 weeks. In other words, short-term options players have been more pessimistically aligned toward the shares only 5% of the time during the past 12 months.

Elsewhere, we find that Wall Street is somewhat split in its outlook. According to Zacks, the stock has earned six "strong buys," four "buys," eight "holds," and one "strong sell."

From a technical perspective, the shares of MOS are up more than 16% since the beginning of the year. Since putting in a short-term bottom in the 40 area in July, the stock has climbed along the support of its 10-week trendline.

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**Bearish activity detected in Sara Lee (SLE), with 4103 puts trading, or 3x the recent average daily put volume in the name.

**Bullish flow detected in Overseas Shipholding Group (OSG), with 2088 calls trading, or 4x the recent average daily call volume in the name.

**Bullish flow detected in Integrated Device Technology (IDTI), with 7260 calls trading, or 3x the recent average daily call volume in the name.

**Increasing volume is also being seen in Marvell Technology (MRVL), Mastercard (MA), Williams Companies (WMB), and MELA.

Conclusion

Stocks ended on a sour note last week, as concerns about the global economy took center stage. All three major indexes closed with their worst weekly declines in three months.

Worries about a sovereign debt crisis in Europe were revived last week, and investors are fearful that China is moving toward a tighter stance on monetary policy.

Irish debt continues to be a sore point, even as the country's government insists that it will not need a bailout.

Part of the concern is that Irish debt trouble will spill over to Europe according to Marc Chandler, chief foreign exchange strategist at Brown Brothers Harriman.

With a full plate of economic reports on the calendar this week, the focus could shift back toward the outlook for growth in the U.S. economy.

Tax policy is also likely to be on investors' minds as Congress reconvenes for a lame-duck session. Lawmakers have yet to decide the fate of key tax breaks that are due to expire at the end of 2010.

"There's been concern that the quantitative easing is going to be scaled back. There is certainly the skepticism and uncertainty over QE 2 out there," said John Canally, an investment strategist and economist at LPL Financial in Boston.

Analysts said they expect M&A deals down the line will see buyers focusing on gaining access to international markets, a potential driver of growth for companies as the U.S. economy recovers slowly.

“Investors are feeling mildly comforted that Christmas might not be a total disaster,” said Paul Nolte, managing director at Dearborn Partners, of the better-than-expected retail-sales data ahead of the holiday shopping season.


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