Monday saw U.S. stocks retreat, with the Dow Jones industrial average dropping below 11,000 earlier in the day, as investors focused on increased tensions overseas and shrugged off indications of strong holiday retail sales.
A combination of downbeat news gave investors little to be thankful over the weekend, as renewed fears about Europe's debt crisis, feuding South and North Korea, and a WikiLeaks release of controversial diplomatic files all weighed on markets.
"The situation in Korea is hot and fluid," economist Robert Brusca of FAO Economics said in a research note. "The WikiLeaks data is very damaging to the U.S. and to many of its important allies."
After tumbling earlier, stocks bounced back to end the session still down, but much closer to breakeven. A valiant late-session bull run helped keep the Dow Jones Industrial Average (DJIA) north of the psychologically critical 11,000 level, the bears ultimately prevailed, with all three major market indexes settling south of breakeven.
"I think this is a trader's market. It was a little bit sleepy this morning, but now stocks are going to come back the other way," said Rich Ilczyszyn, a market strategist with futures-broker Lind Waldock.
Ilczyszyn expects stocks to be stuck in a tight range for the last few days of the month, as traders look to close out their bets, with as much profit as possible.
Results for Major Market Indexes
Earlier in the day, the Dow Jones Industrial Average (DJIA) had shed more than 120 points heading into the latter half of the trading session, with the blue chip barometer breaching psychological support at the 11,000 level. Driving the Dow below this key benchmark was growing concerns that the $113 billion Irish bailout will do little to quell the burgeoning euro zone debt crisis. In fact, the uncertainty overshadowed what could have been a stronger-than-expected holiday shopping season, given early reports on Black Friday's turnout.
The Dow Jones Industrial Average (DJIA – 11,052.49) finished with a loss of 39.51 points, or 0.36%.
The S&P 500 Index (SPX – 1,187.76) had a loss, on the day, of 1.64 points, or 0.14%.
The Nasdaq Composite (COMP – 2,525.22), ended the day with a loss of 9.34 points, or 0.37%.
The Russell 2000 Index of smaller companies had a gain of 0.48 points, or 0.07%, to settle at 732.25.
There didn't appear to be any single catalyst that sparked the turnaround, but it's clear Wall Street benefited from a big rally for financials like American Express (AXP) and Wells Fargo (WFC) as well as from oil's strong performance. Some chalked it up to delayed relief that Ireland, Europe's current problem child, finally received a $115 billion bailout from the European Union.
"You’ve got a market that isn’t necessarily shrugging off Ireland but breathing a sigh of relief, at least in the form of the financials," said Art Hogan, chief market strategist at Jefferies & Co.
While all 30 Dow stocks opened in the red, nearly half of them landed in the green by the closing bell. The index's best performers were financial giants Bank of America (BAC) and AmEx. The index's worst performers were Home Depot (HD) and Hewlett-Packard (HPQ).
Notes of Interest
• The Dow Jones Industrial Average (DJIA) spent a healthy part of the session with a triple-digit deficit, but pared its losses as the session progressed, ending on a loss of 39.5 points, or 0.4%.
• The S&P 500 Index (SPX) settled with a loss of 1.6 points, or 0.1%. The broad-market barometer was the lone index to explore positive territory, but ran into a wall at its 10-day moving average.
• The Nasdaq Composite (COMP), the tech-rich index,
also pared its deficit in the final hours of trading, giving up 9.3 points, or 0.4%, by the close. Nevertheless, the index maintained its perch atop its own 10-day trendline.
• Crude futures rallied to a two-week peak today, defying a stronger dollar thanks to a surge in gasoline futures. In addition, a Wikileaks revelation of secret U.S. diplomatic cables, as well as heightened geopolitical tensions between North Korea and South Korea, also acted as boons for black gold. Against this backdrop, crude oil for January delivery tacked on $1.97, or 2.35%, to settle at $85.37 per barrel.
• Gold futures shrugged off a strengthening dollar to finish a volatile session in the black today. Bolstering the malleable metal were lingering concerns about European debt, which increased gold's appeal as a safe-haven investment. Against this backdrop, February-dated gold futures added $3.20, or 0.2%, to end at $1,367.50 an ounce.
• Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.84% from 2.87% on Friday.
• Underscoring the better mood on Wall Street, the VIX, or the market's so-called "fear gauge," slumped more than 2%.
"I didn’t sense there were a lot of real sellers to drive the market down" in the first place, said Michael James, managing director of equity trading at Miller Tabak.
Freeze on Wages
President Obama on Monday proposed a 2-year freeze of federal workers' wages. The freeze is a way to save $2 billion for the remainder of the fiscal year 2011, and $28 billion over the next 5 years.
"Getting this deficit under control is going to require some broad sacrifices, and that sacrifice must be shared by employees of the federal government," Obama said.
While no major economic reports were scheduled Monday, investors will take in data on housing, manufacturing and consumer confidence on Tuesday. On Friday, the government will issue its closely watched monthly jobs report.
Europe is also on investors' minds: On Sunday, European officials announced an €85 billion bailout for Ireland and its banks. They also detailed a new protocol for similar rescues of European nations in the future.
The announcement didn't come as much of a surprise, after various media outlets speculated about the size and timing of the bailout over the last few weeks. But it still managed to rattle investors as it thrust Europe's debt crisis back into the spotlight, said Michael Crowley, senior economist with the Bank of Ireland.
"The market is focusing on Portugal and Spain, and wondering whether problems could spread to those countries," Crowley said. "There's an indication that the markets are kind of jittery and concerned about what and who will be next."
Underscoring the contagion worries, the price of Spanish and Portuguese bonds tumbled and the cost to insure Portugal's debt is nearing levels if Ireland. Spain's Banco Santander (STD) sank 2% amid the concerns. The EU would face considerably more trouble if it needs to bail out Spain, which has a much bigger economy than Ireland or Greece.
“We simply cannot ignore the fact that contagion remains a very strong force and so we see little chance that Portugal can avoid it,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a note.
Wall Street was led lower by the euro as the currency plunged 1.41% to $1.3096 amid fears the European Union’s $115 billion bailout of Ireland will not prevent the crisis from spreading to Portugal or even Spain. The Irish bailout includes immediate financial payments, future guarantees and support for Ireland's banks like Bank of Ireland (IRE), which soared 18%.
The weaker euro/stronger U.S. dollar is seen as a bearish signal for Wall Street because it weighs on commodities and U.S. exports.
European Markets tumbled. Britain's FTSE 100 slipped 1.8%, the DAX in Germany dropped 1.9% and France's CAC 40 lost 1.8%.
Asian Markets, ended mixed. The Shanghai Composite lost 0.2%, while the Hang Seng in Hong Kong gained 1.3% and Japan's Nikkei rose 0.9%.
Company Earnings Reports
Company News and Movements
• Wal-Mart (WMT) formally announced a $2.3 billion all-cash bid to acquire a 51% stake in South African retailer Massmart. The offer represents a 19.2% premium on the 30-day weighted average price before the potential deal was announced.
• Kraft (KFT) said it has begun arbitration proceedings against Starbucks (SBUX) following the coffee giant's attempt to end the two companies' retail coffee business arrangement. Kraft is seeking to get fair market value for its exit from the retail coffee business.
• Boeing (BA) had its 2011 EPS projection cut by 30 cents to $4.35 by JPMorgan analysts due to estimates for a six-month delay on its 787 Dreamliner program.
• FedEx (FDX) bucked the S&P 500's downward trend, rising nearly 2.8%, after analysts from Credit Suisse raised their rating and price target for the company.
• Amazon (AMZN) stock rose to an all-time high, boosted by Cyber Monday. Its shares were up 0.8% in afternoon trading, after trading up more than 2% to $181.84 earlier in the session.
• BP (BP) announced Sunday it would sell its interests in Pan American Energy to Bridas Corporation for $7.06 billion in cash. The move is part of BP's plan to sell $30 billion in assets by the end of 2011, in order to raise funds in the wake of the Gulf oil spill. BP shares fell 1.8%.
• A Dutch court ordered U.S.-based Johnson & Johnson (JNJ) to pay a $130 million fine to pharmaceutical maker Basilea for a licensing agreement breach, Basilea said in a release.
Meanwhile, the Food and Drug Administration posted a report on its website that cites a variety of problems with a McNeil manufacturing facility in Puerto Rico. McNeil is a subsidiary of Johnson & Johnson, and was the source of this year's Tylenol recalls. Shares of Johnson & Johnson fell 1.2% in afternoon trading.
FedEx Corporation (FDX)
FedEx Corporation (FDX) has defied the broad-market trend into the red this morning, thanks to some analyst affection from Credit Suisse. More specifically, the brokerage firm upgraded its rating on the delivery diva to "outperform" from "neutral," tipping the scales even more in the bulls' favor. According to Zacks, FDX already boasts 14 "strong buys" and one "buy" rating, compared to seven "holds" and not a single "sell."
Already options speculators have rushed to bet bullishly on the stock, with front-month calls flying off the shelves. So far, the stock has seen roughly 5,500 calls cross the tape – about five times the number of FDX puts exchanged. Nearly all of the action has centered on the out-of-the-money December 90 call, which has seen about 4,100 contracts traded – 69% of which changed hands at the ask price, suggesting they were bought.
From a broader sentiment standpoint, today's affinity for FDX calls merely echoes the growing trend on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). During the past 10 sessions, FDX has racked up a call/put volume ratio of 2.45, in the 80th annual percentile. In other words, during the past couple of weeks, speculators on the ISE and CBOE have bought to open FDX calls over puts at a much faster clip than usual.
At last check, the shares of FDX have tacked on 1.7% to hover just shy of the $89 level.
Amazon.com, Inc. (AMZN)
Amazon.com, Inc. (AMZN) recently broke out to a series of all-time highs. Last week, the shares bounced off their 10-week moving average, and rallied past round-number resistance at the $170 level. Going forward, this intermediate-term trendline could continue to guide the shares higher -- in fact, today, AMZN touched a brand-new acme of $181.84.
Despite its recent technical tear, option traders remain skeptical of the Kindle king, as evidenced by AMZN's put/call open interest ratio (SOIR) of 1.32, which reveals that puts easily outnumber calls among options set to expire in the front three months. What's more, this ratio ranks above 82% of all other readings taken during the past year, pointing to a distinct bearish bias among near-term speculators.
This pessimism is further evidenced by AMZN's December open interest configuration; with the 160 strike housing peak put open interest of nearly 10,000 contracts. In fact, during the past two weeks, this front-month strike has seen the largest increase in open interest, with over 8,000 contracts added. With AMZN trading around $180, these 160-strike puts are significantly out of the money.
Even Wall Street remains skeptical of AMZN, with Zacks reporting that 12 of the 33 brokerage firms following the stock still deem it a "hold" or worse. Furthermore, Thomson Reuters pegs the equity's 12-month price target at $172.04 -- a discount to the stock's current price. Going forward, a capitulation by bearish traders and analysts could help stoke the stock's technical fire.
The following companies also had some impressive options movements :-
Schlumberger Limited (SLB)
Schlumberger Limited (SLB) was the center of some serious attention by options traders on Friday, as more than 78,300 contracts changed hands. This surge in volume was more than double the stock's average daily trading volume of 30,496 contracts, according to data from WhatsTrading.com. In addition, traders were feeling quite optimistic, as 92% of the volume changed hands on the call side.
Despite Friday's preference for calls, traders have recently expressed a more bearish attitude toward SLB. The stock's 10-day ISE/CBOE put/call volume ratio comes in at 0.86, which is higher than 93% of all those taken during the past year. On the ISE alone, the security's 10-day put/call volume ratio rests at 1.66, which is in the 97th percentile, pointing toward rising pessimism.
Meanwhile, the SOIR for SLB comes in at 1.06, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 73% of all those taken during the past 52 weeks.
Short sellers have also started to pay attention. During the past month the number of SLB shares sold short increased by 46% to 20.7 million. However, this accumulation of bearish bets accounts for only 1.5% of the company's float, meaning there is still ample room for pessimism to grow.
Nonetheless, Wall Street remains optimistic. According to Zacks, the stock has earned 24 "buy" ratings and four "holds."
From a technical standpoint, the downbeat attitude among options traders is hard to explain. SLB has gained more than 16% since the beginning of the year, recently rallying along the support of its 10-day and 20-day moving averages.
Other Options News
• Bearish activity detected in Santander (STD) , with 8724 puts trading, or 3x the recent avg daily put volume in the name.
• Bullish flow detected in Tenaris (TS) , 2253 calls trading, or 2x the recent avg daily call volume in the name.
• Bullish flow detected in Rubicon Minerals (RBY) , with 3625 calls trading, or 9x the recent avg daily call volume in the name.
• Increasing volume is also being seen in Nokia (NOK), Coca Cola (KO) , and Walgreen (WAG) .
The weakness in the market, comes on the heels of a selloff on Friday that left U.S. markets solidly in the red last week. Wall Street has faced a number of global headwinds, including tensions in Asia and the spreading sovereign debt crisis in Europe despite a $115 billion bailout of Ireland.
“Any hope that the dotting of the I's and crossing of the T's for Ireland would calm nerves has been quickly dashed,” Peter Boockvar, equity strategist at Miller Tabak, wrote in a note.
Meanwhile, Wall Street is analyzing the initial results on Black Friday, which retailers like Macy's (M) and Saks (SKS) rely on to make profits. The early reports were mixed as BigResearch said about 212 million people shopped over the weekend, up from last year's 195 million. The group also said the average shopper spent 6.4% more than last year. However, ShopperTrak said Black Friday sales increased just 0.3% to $10.69 billion. Sales were up 0.5% a year ago on Black Friday.
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