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Stock futures edge higher

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Stock futures are edging higher this morning as Israel's decision to pull some troops out of Palestinian occupied territories seems to be calming global markets. Israel's actions also have crude oil pulling back to the low $26/barrel level in the May Crude Oil futures.

S&P futures are trading off their best levels of the session, but currently trade higher by 1.6 points at 1,129.10. NASDAQ futures are trading up 3 points at 1,406, while Dow futures are higher by 13 points at 10,280.

Fair value for the S&P 500 today is $1.72. HL Camp & Company has their computers set for program buying at $2.45 and set for selling at $0.39. Fair value for the NASDAQ-100 today is $6.15.

The Treasury bond market is rather quiet in early morning trading. The 5-year note ($FVX.X) is seeing selling as YIELD their rises to 4.643%, while both the 10-year ($TNX.X) and 30- year ($TYX.X) see marginal selling with YIELD at 5.264% and 5.708% respectively. The shorter-term 13-week note ($IRX.X) is seeing some buying as YIELD falls to 1.70%.

Nortel trims outlook and draws down bank facility

Telecom equipment maker Nortel Networks (NYSE:NT) $3.57 said it sees a pro forma loss from continuing operations of $0.14 a share, compared to consensus estimates compiled by Multex of $0.13. The company also said it sees lower than expected revenue of approximately $2.9 billion (consensus $3.0 billion). Included in the pro forma net loss is an expected charge of approximately $200 million (pre-tax) for excess and obsolete inventory, primarily related to recently completed negotiations with all of the company's major suppliers. With the expected performance, the company said it will be in compliance with all of its credit facility covenants as of March 31st.

Nortel said it plans to fully draw down its April 2001 $1.75 billion bank facility and plans to exercise it one year term loan option to obtain an additional year of liquidity under the facility. The company said it does not have an immediate need for these funds. "However, by taking this action, we have taken advantage of the favorable terms in our current facilities rather than seeing this source of liquidity eliminated."

Japanese Yen may catch a bid. Sony could too

Last night I was looking for clues to try and figure out whey Treasury bond's didn't find more buying yesterday after IBM's (NYSE:IBM) "fearful" news that it was not going to meet quarterly earnings estimates.

While stocks traded lower at the open, I noted in yesterday's Market Monitor (09:54:53 AM EST) on OptionInvestor.com that we were not seeing a "rush to safety" as bond YIELDS showed the longer-term 30-year YIELD actually trading fractionally higher (some selling in that bond) and the benchmark 10-year YIELD ($TNX.X) trading near unchanged levels. By session's end, both the 30-year and the 10-year YIELDS finished marginally higher.

While the higher YIELDS in both of these bonds don't give a green light for equity bulls that all is clear and cash is plentiful to flow into any and every stock, one past/present "belief" in the marketplace is that the Japanese year-end was March 31st.

The recent action in the June 2002 Japanese Yen futures (jy02m) gives hint that some currency traders may have tried to "front run" a potential flow of cash back to the U.S. Treasury bond market that may have come just after the March 31st year-end for Japan. However, in the past four sessions, we've started to see the Yen start to creep higher against the U.S. $. Should the Yen continue to strengthen against the U.S. $, then this could set up another bullish move in previously commented on Sony Corporation (NYSE:SNE) $52.35, which trades as an American Depository Receipt "ADR" on the NYSE.

Sony Corp. and Yen comparison Charts - Daily Intervals

Yesterday I would have thought for sure that investors would have scrambled back into Treasuries after "Big Blue" warned on earnings, but while I "believed that" my observations by session's end didn't confirm that "belief."

This had me snooping around at late hours of the evening and I see the Japanese Yen futures (jy02m) creeping higher in the last four sessions. To me, this doesn't make a lot of sense. In March, we mentioned that the sharp and sudden rise in the Yen may have been caused by Japanese banks "repatriating" their currency (converting U.S. assets back into Yen), which may have been freed up from the sale of U.S. Treasuries.

In the past four sessions, we have seen the 10-year Treasury ($TNX.X) yield move lower, almost as if some money has been moved back into that bond, but is doesn't look like it came from the Japanese Yen. The above chart (lower 1/2) of the Yen shows the Yen creeping higher and gaining strength against the U.S. Dollar.

This may be important for bullish traders near-term in shares of Japan-based Sony Corporation (NYSE:SNE) $52.35. With the Japanese Yen futures ticking higher and MACD just crossing above the "signal" on that timeframe, a move may be underway that strengthens the Yen versus the U.S.$ near-term.

I've tried to line up both the Yen futures (jy02m) and chart of Sony (SNE) to reflect how both of these securities have tended to move together in recent months. What is rather interesting is while the Yen has come close to retesting its lows versus the U.S.$, shares of Sony (SNE) haven't come close to testing their lows and look to have found support right at their 38.2% retracement level near $50. This may hint that money may indeed be sticking with the underlying stock on a longer-term basis.

While I continue to like shares of Sony (SNE) as a longer-term trade and have profiled the SNE Oct. $50 calls (SNEJJ) as bullish along with a bullish play in the underlying stock as profiled on premierinvestor.net, short-term traders that are looking to perhaps correlate further bullishness in the Yen versus the U.S.$ may want to keep shares of Sony in mind.

Since shares of Sony (SNE) currently trade BELOW their bearish resistance trend on the point and figure chart, I'm advising that investors/trader only establish partial positions. The longer- term vertical count is bullish to $90.

Please note, the "stop" on the above chart of Sony (SNE) is to reflect how a trader may manage his/her risk based on the technicals shown. The premierinvestor.net play list profiles the stock as bullish, but with a stop at $47.99, which represents an approximate 10% stop loss from profiled of $53.01.

Jeff Bailey
Senior Market Technician
Option Investor

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