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Market Wrap

A Little Overdue

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     10-08-2003            High     Low     Volume Advance/Decline
DJIA     9630.90 - 23.71  9672.02  9595.28 1.51 bln   1213/1582
NASDAQ   1893.78 - 14.07  1914.33  1888.53 1.78 bln   1257/1839
S&P 100   516.54 -  3.10   520.02   515.03   Totals   2470/3421
S&P 500  1033.78 -  5.47  1040.06  1030.96
RUS 2000  515.68 -  5.09   521.05   514.56
DJ TRANS 2791.62 -  8.76  2803.04  2782.62
VIX        19.18 -  0.23    19.61    19.08
VXN        29.16 -  0.14    29.46    28.94
Total Volume 3,606M
Total UpVol  1,503M
Total DnVol  2,058M
52wk Highs     752
52wk Lows       18
TRIN          1.34
PUT/CALL      0.81

A Little Overdue
By James Brown

U.S. markets closed in the red for the first time this October ending a five-day winning streak for the bulls. The general mood on Wall Street was nonchalant since stocks were over due for some profit taking. The NASDAQ composite managed to tag a fresh 52- week high near the opening bell before slipping back and the Dow Industrials traded in a narrow 80-point range all day. Contributing to the market's weakness was a one-two punch for telecom stocks but overall the session was a patchwork of individual news.

Overseas markets were mixed. The British FTSE dropped less than four points while the German DAX added almost 40. Hong Kong's Hang Seng index inched down 3 points but the Japanese NIKKEI index posted its first loss in six days and it was a big one. The NIKKEI dropped 278 points or 2.57% to 10,542 as the dollar continued to weaken against the yen. We keep hearing about the new "line in the sand" where the Bank of Japan is going to defend the yen. First it was 111, then it was 110. The U.S. dollar slipped to 109.58 against the yen, just barely above its three- year low at 109.38. Some currency traders are expecting the BoJ to intervene soon despite the G7's statement two weeks about arguing against currency manipulations. A stronger yen makes Japanese exports more expensive overseas and impacts corporate profits. The dollar also happens to be trading near all-time lows against the euro.

Fortunately, the profit taking here at home was much more mild. The DJIA only lost 23 points closing at 9630. The NASDAQ Composite fell 14 points to 1893 and the S&P 500 dropped just over 5 points to close at 1033. Market internals were negative. Declining stocks outnumbered advancing issues almost 16 to 12 on the NYSE and 18 to 12 on the NASDAQ. Down volume outpaced up volume on both exchanges but overall volume remained modest.

Chart of the DJIA:

Chart of the NASDAQ:

Telecom Weakness

U.S. telecom companies Verizon Communications (VZ), SBC communications (SBC) and BellSouth Corp (BLS) joined wireless companies AT&T Wireless (AWE), Nextel Communications (NXTL) and Sprint PCS Group (PCS) in contributing to the S&P 500 weakness. Local-telephone companies lost ground after the FTC won an appeals court decision in the national "do not call" list debate. The national "do not call" list has ballooned to more than 51 million consumers and the vast majority of telemarketers would be barred from calling consumers on the list. The appeals court win late Tuesday means the FTC can begin to enforce the list immediately. This could certainly put a dent in telephone traffic for the larger networks. Meanwhile, wireless companies now have to deal with the new FCC rule effective Nov. 24th that will allow customers to keep their mobile phone numbers when they change carriers. If wireless service wasn't a commodity business already it just took a big step that direction today as everything begins to boil down to price. This is going to increase customer turnover, which raises expenses for these wireless companies.

Software Stronger

Swimming up stream today was the GSO software index. It marked a fresh 52-week high on positive news from SAP. Shares of SAP soared 14 percent to $38.55 after the German-based software developer pre-announced stronger than expected earnings. The company is expected to report on October 16th but SAP told Wall Street that Q3 sales should come in around $1.95 billion(US), stronger than the consensus estimates of $1.8 billion. SAP said it was enjoying a stronger contract closure rate in the U.S. This news also boosted rival software developer Oracle (ORCL).

News Worthy

Making headlines today was news that General Electric (GE) had finally reached an agreement with Vivendi (V) to merge GE's NBC unit with V's Universal Entertainment division. GE will fork out $3.8 billion to own 80 percent of the joint venture creating a combination movie studio-television network giant. The new GE division will be named NBC Universal. Investors are also watching GE because the behemoth announces earnings on Friday and estimates are for 40 cents a share.

Unfortunately, not all the earnings news was good today. Big Lots (BLI) doesn't announce earnings until next month but the stock was hit for a 7 percent loss on negative guidance. The latest guidance put BLI's Q3 numbers in the -3 cents to +1 cent per share range. This morning's press release said comparable store sales were actually up more than 5 percent but earnings would be near the low end of forecasts due to an unexpected slow down in higher-margin items.

Another retailer feeling the heat was Winn-Dixie Stores (WIN). The company reported earnings that beat estimates by a penny but shares lost almost six percent. WIN reported a 96% drop in profits for its fiscal Q1 for 2004 blaming increased promotional costs. Also falling flat were shares of Papa John's Intl. Inc (PZZA), which lost 7.6% after warning that earnings would be much worse than expected. The news actually came out late yesterday. PZZA said comparable same store sales dropped 6.7% in September. The company is expected to report at the end of October and estimates had been for $2.19 a share. Now PZZA expects earnings to fall between $1.75 and $1.65 a share.

YHOO Beats!

Thankfully, earnings news from BLI, WIN and PZZA just don't carry a lot of weight and the markets will likely over look them as company-specific potholes. But high-flyers of yesteryear like Yahoo! Inc (YHOO) capture the imagination of bulls and bears alike. The company reported earnings after the bell this evening and the numbers were good. YHOO turned in its eighth profitable quarter and beat estimates by a penny with 10 cents a share. More importantly, revenues were up strongly from $249 million last year to $356 million in the third quarter, passing estimates of $337.8 million. The stock was trading up in the after hours session and is likely to fuel positive moves for fellow Internet stocks Amazon.com (AMZN) and Ebay (EBAY).


Assuming there aren't any pre-market earnings implosions then the YHOO news could certainly power a surge in the tech sector. Fortunately, the bond market is holding steady after today's $16 billion auction of 5-year notes and we'll see another $9 billion sold in 10-year notes tomorrow. In the last two days we've heard from three Federal Reserve speakers and the message has been a positive one. Now if we can get another good weekly jobless claims report and some stronger same store sales data tomorrow morning then bulls might continue their October stampede.


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