Monday saw Wall Street mounted an impressive comeback on Monday, erasing the majority of a triple-digit selloff that had been fueled by another slide for the euro and reports of a massive insider-trading.
The Emerald Isle continued to dominate headlines throughout the day, as Irish government officials on Sunday finally agreed to accept an aid package from the European Union (EU) and the International Monetary Fund (IMF). Despite the prospect of a potential safety net for Ireland, traders continued to price in their concerns about fellow debt-saddled euro zone members, including Spain and Portugal.
"All the continued concerns coming out of Europe and the debt situation there is what got us started on the way down today," said Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore.
Meanwhile, on the home front, several hedge funds today were raided by the FBI in connection with a major insider-trading investigation. According to The Wall Street Journal, the probe "could eclipse the impact on the financial industry of any previous such investigation." The newspaper named Goldman Sachs (GS) as one of the FBI's targets, which helped pressure the trading titan to a daily loss of 3.4%, setting the pace for a broader rout of the U.S. financial sector. Despite early hand-wringing, though, the major market indexes spent the second half of the session whittling away at their morning losses.
The blue chips had been down nearly 150 points when the reports of hedge funds being raided piled onto earlier worries about more trouble for the euro despite Ireland accepting a bailout.
After describing the FBI raids as "the most important development of the day," Schaeffer’s Senior Technical Strategist, Ryan Detrick observed, "What really has me interested is the fact that two of the funds are linked to industry heavyweight Steve Cohen, as they are run by former employees of SAC Capital Advisors. If the government is making a case against Cohen -- and I'm not saying they are, but today's developments can't make him feel too good -- then things could get very interesting for the entire industry."
"The situation on insider trading put some more fuel on the fire for short-term trading in the afternoon," said Schrader, who added the concerns were "probably a gross over-reaction" to the insider trading probe.
“We don’t like to see our own kind investigated by the government,” said Ben Willis, a trader at Sunrise Securities. However, Willis acknowledged, “We’ve had a pretty nice recovery” from the day’s trading.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 11,178.58) finished with a loss of 24.97 points, or 0.22%.
The S&P 500 Index (SPX – 1,197.84) had a loss, on the day, of 1.89 points, or 0.16%.
The Nasdaq Composite (COMP – 2,513.82), ended the day with a gain of 13.90 points, or 0.34%.
The Russell 2000 Index of smaller companies had a gain of 3.47 points, or 0.48%, to settle at 727.83.
Only a handful of Dow stocks ended the day in positive territory, led by H-P and Boeing (BA). The index's weakest members were financial giants Bank of America (BAC) and JPMorgan Chase (JPM).
Tech stocks helped spark the comeback on Wall Street. The group was buoyed by stronger-than-expected results from Tech Data (TECD) and optimism before H-P's highly-anticipated quarterly results. H-P rallied around an upgrade from Wedbush Securities to "outperform" from "neutral."
Retailers like Macy's (M) also advanced in response to signs holiday sales may exceed the markets' expectations. MasterCard Advisors' SpendingPulse indicated most categories showed mild to sharp sales gains during the first half of November, led by strength in apparel and luxury sales.
About 7.04 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, below the year-to-date average of 8.69 billion.
Advancing stocks slightly outnumbered declining ones on the NYSE by 1,520 to 1,453, while on the Nasdaq, 1,336 stocks rose and 1,303 fell.
Notes of Interest
• The Dow Jones Industrial Average (DJIA): Chalk it up to lighter-than-usual volume on the first day of this holiday-shortened week, but the Dow experienced some head-spinning whipsaw price action today. After tumbling to an early deficit of 149 points, the Dow snapped back to finish on a much slimmer loss of about 25 points, or 0.2%.
However, the blue chip barometer's afternoon momentum was halted by its bearishly crossed 10-day and 20-day moving averages.
• The S&P 500 Index (SPX) joined the Dow in creating an intraday "V," bouncing back from an early loss of 15 points to settle for a much more palatable daily dip of 1.9 points, or 0.2%.
The SPX was stopped short by pressure from its own 10-day and 20-day trendlines.
• The Nasdaq Composite (COMP), the tech-rich index, staged the day's most dramatic comeback, erasing a morning loss of about 17 points to finish on a gain of 13.9 points, or 0.6%.
Not only did the COMP close higher, it one-upped its peers by notching a daily victory above its 10-day and 20-day moving averages for the first time since Nov. 11.
• Crude futures closed lower today, dented by strength in the U.S. dollar. The greenback powered higher against the euro in the wake of Ireland's bailout news, with ongoing concerns about European debt and new worries about the U.S. financial sector inspiring a flight to safety. By the close, crude oil for January delivery was down 24 cents, or 0.3%, at $81.74 per barrel.
• Gold futures capitalized on the malleable metal's status as a safe-haven asset. However, thanks to strength in the dollar, gold's gains were relatively muted. The most active December contract tacked on $5.50, or 0.4%, to finish at $1,357.80 per ounce.
• Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.83% from 2.88% late Friday.
Wall Street managed to mostly shrug off fears caused by a report in The Wall Street Journal saying the U.S. is in the midst of a widespread insider-trading probe that could be the biggest ever and is likely to rock the industry. Shares of Goldman Sachs (GS) fell sharply as the paper said investigators are looking into whether or not Goldman bankers leaked info on deals that could benefit certain investors.
Sources said that the Justice Department’s probe is likely to take down as many as a dozen hedge funds and is part of an effort to fundamentally alter the massive hedge fund business.
“It’s painting a very negative picture on the financial sector,” said Nick Kalivas, vice president of financial research at MF Global.
The choppy day reflects Wall Street's continued focus on the relationship between the U.S. dollar and the euro and concerns that the Irish rescue won't solve all of Europe's sovereign debt issues.
“It seems that the honeymoon for the periphery may end up even shorter than it was after the Greece package back in May, as markets are already turning their focus elsewhere, especially Portugal and Spain,” Win Thin, global head of emerging markets strategy at Brown Brothers Harriman, wrote in a note.
In currencies: Wall Street was held back by another selloff for the euro, which lost ground even after Ireland finally agreed to be rescued by its European Union partners. While the terms weren't disclosed, reports indicate debt-ridden Ireland will receive a loan package of about $110 billion, following in the footsteps of Greece earlier this year.
The markets seem to be coming to the realization that the Irish bailout may not fix the similar debt problems in larger economies like Portugal and Spain. Underscoring those worries, the euro slid 0.66% to $1.3624. A stronger dollar is seen as bearish because it can make it tougher for companies to sell their products overseas.
Dollar-traded commodities were also under pressure from the currency fluctuations.
European Markets ended lower. Britain's FTSE 100 dropped 0.9%, the DAX in Germany lost 0.3% and France's CAC 40 fell 1.1%.
Asian Markets, finished mixed. The Shanghai Composite fell 0.2% and the Hang Seng in Hong Kong lost 0.4%, while the Japan's Nikkei gained 0.9%. China's economic planning body said Monday it would work to keep domestic prices stable. To achieve that goal, they'll increase subsidies for the low-income bracket in accordance with price hikes.
Company Earnings Reports
Tyson Foods (TSN) solidly beat the Street with a non-GAAP profit of 64 cents a share. Analysts had called for EPS of just 56 cents. However, the largest American meat producer said its revenue increased by just 3.2% to $7.44 billion, trailing calls for $7.75 billion.
• Novell (NOVL) inked a $2.2 billion deal to be acquired by a consortium called Attachmate Corp. The $6.10-a-share purchase price places a 9.3% premium on the Friday share price of the enterprise software maker. It also represents a 28% premium on a rejected takeover bid from Elliott Associates in March.
• Netflix (NFLX) soared almost 9% to 52-week highs after the movie rental service unveiled a U.S. streaming only-plan and raised the price of its DVD/unlimited streaming plan by $1. The move should allow Netflix to continue shifting away from its DVD mail business.
• Green Mountain Coffee (GMCR) surged nearly 18% after the company said its financial reporting probe will result in a loss of just 4-5-cents a share cumulatively. Green Mountain also said the investigation did not implicate misconduct, raising hopes a separate Securities Exchange Commission probe will end favorably. Bank of America upped the stock to “buy” from “underperform” in response.
• ExxonMobil (XOM) inked a deal to unload nine of its Gulf of Mexico fields to Energy XXI (EXXI) for $1.1 billion. The purchase of the shallow-water oil and natural gas fields will make Energy XXI the third-largest oil producer in the Gulf’s shallow waters.
Abbott Laboratories (ABT)
ABT was targeted by put players on Friday, with bearishly oriented option volume rising to 1.28 times the norm. During the course of the session, 8,321 puts changed hands on the equity, compared to just 5,507 calls.
On the International Securities Exchange (ISE) alone, traders on Friday bought to open 1,351 puts on ABT, along with only 66 calls. The stock's single-day ISE put/call volume ratio of 20.47 confirms a strong preference for bearish bets over bullish.
In fact, ABT now sports a 10-day ISE put/call volume ratio of 1.22, as traders have purchased more puts than calls during the past two weeks. This ratio ranks higher than 90% of other such readings taken during the previous year, suggesting that traders have purchased puts over calls at a faster pace just 10% of the time.
In the same skeptical vein, ABT's put/call open interest ratio (SOIR) arrives at 1.20, with puts outnumbering calls among options slated to expire within three months. This ratio rests in the 90th percentile of its annual range, as short-term options players have been more pessimistically aligned only 10% of the time during the past year.
Elsewhere on Wall Street, short sellers are generally avoiding ABT. Despite a 6.8% increase during the past month, short interest accounts for just 0.6% of the stock's float.
After checking out the charts, it seems that put players are trying to capitalize on a recent bout of weakness for ABT. The stock has swallowed a year-to-date drop of nearly 12%, and ABT has plummeted steadily lower since late October under pressure from its 10-day and 20-day moving averages.
Under Armour, Inc. (UA)
Athletic apparel issue UA -- the official brand of New England Patriots quarterback Tom Brady -- racked up a heavy dose of call volume last Friday. A total of 8,441 calls were exchanged during the course of the session, representing about seven times the equity's average daily call volume. Meanwhile, fewer than 1,000 puts changed hands.
Checking in with data from the ISE, traders on this exchange last Friday bought to open 2,004 calls on UA, along with only 58 puts. The stock's single-day ISE call/put volume ratio of 34.55 confirms a strong preference toward optimistically oriented options.
Indeed, UA's 10-day ISE call/put volume ratio of 14.44 arrives in the 95th percentile of its annual range. This lofty percentile rank reveals that traders have shown a greater appetite for calls over puts only 5% of the time during the past year.
Taking a closer look at Friday's volume, much of the activity was linked to a modestly bullish spread strategy. One trader built a diagonal spread by simultaneously buying the December 55 call, and selling the January 2011 60-strike call. With UA docked just shy of $54 at the time of these transactions, the speculator is banking on modest near-term gains for the equity.
However, it's worth noting that short interest accounts for a hefty 15.9% of UA's float. This accumulation of pessimistic positions translates to more than seven days' worth of pent-up buying pressure, at UA's average daily volume. With so many bears betting against the stock, it's possible that speculators have been buying calls in order to hedge their shorted shares.
If the shorts are feeling anxious, they certainly have just cause. UA has rallied 90.5% in 2010, guided by the solid support of its 10-week and 20-week moving averages. Earlier today, the stock tagged a new three-year peak of $55.
The following companies also had some impressive options movements :-
Netflix, Inc. (NFLX)
Crocs, Inc. (CROX) and Caterpillar Inc. (CAT) aren't the only stocks rallying to new highs today, as DVD diva Netflix, Inc. (NFLX) also managed to tag a fresh all-time high of $187.80. Today's technical feat is nothing new for NFLX, though, as the shares have been hitting a series of new highs since August. During this time, the stock's ascent has been underlined by strong support from its 10-week and 20-week moving averages.
Option players have flocked to high-flying NFLX today, with roughly 89,000 contracts crossing the tape so far -- more than double the equity's expected daily volume of around 32,000 contracts. Calls have comprised the bulk of today's volume, with some 56,000 of these bullishly oriented options changing hands.
NFLX's December 190 call has attracted quite a bit of attention, with over 3,700 contracts changing hands on this strike -- the majority of which traded at the ask price, indicating that they were likely purchased. With today's volume exceeding open interest at this strike, it appears that fresh bullish positions are being added here. By buying to open the December 190 call, option players are counting on NFLX to muscle above the $190 level over the next four weeks.
Despite its technical prowess, option players maintain a skeptical attitude toward NFLX, as the stock's put/call open interest ratio (SOIR) of 1.27 reveals that puts comfortably outnumber calls among options in the front three months. What's more, this ratio ranks in the bearish 64th annual percentile. As NFLX continues its record-setting rally, a capitulation by these remaining skeptics could add fresh buying pressure to the shares.
Other Options News
• Bullish flow detected in RadioShack (RSH), with 2958 calls trading, or 2x the recent average daily call volume in the name.
• Bullish flow detected in Red Hat (RHT), with 7656 calls trading, or 4x the recent average daily call volume in the name.
• Bullish flow detected in Analog Devices (ADI), with 4569 calls trading, or 4x the recent average daily call volume in the name.
• Increasing volume is also being seen in United Healthcare (UNH), Massey Energy (MEE), and H-P (HPQ).
Investors were in "a holding pattern" Monday with no economic news on tap, said Alan Lancz, president of Alan B. Lancz & Associates. But the rest of the week brings a full plate of economic indicators: a revised reading on U.S. economic growth, housing data and durable goods orders, as well as personal income and spending figures.
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