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Market Wrap

Stocks Retreat, Oil Prices Continue To Fall

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Buyers showed little interest in equities Wednesday and some arms had to be twisted to buy a commodity as continued credit woes had investors and traders cautious ahead of Friday's option expiration.

Volumes at both exchanges were light with the big board churning just shy of 6.5 billion shares compared to its 5-day average run rate of 8.3 billion and 10-day average of 8.0 billion shares.

Market breadth was weak from the opening bell, and while Treasuries did find some selling at the open (resulting in higher yields), a more defensive posture developed into the mid-point of the session.

After a spat of short covering on Monday, the benchmark S&P 500 Index (SPX.X) 907.84 -9.03% holds just more than a 7-point gain from Friday's close, while Nymex October Crude Oil futures (cl08x) settled down $4.09, or -5.20% at $74.54 on demand fears.

Due to Monday's holiday, the EIA delayed their weekly inventory report until tomorrow (Thursday) at 11:00 AM EDT. Current forecasts among industry analysts are for crude oil inventories to show a build of 1.9M barrels.

Number two (2) and three (3) Dow Industrial component heavyweights saw shares of ExxonMobil (NYSE:XOM) $62.35 -13.95% and Chevron (NYSE:CVX) $59.98 -12.48% pacing declines as "peak oil" takes on a new meaning in recent months. ExxonMobil and Chevron are, or were, respective #1 and #8 most heavily weighted S&P 500 components at this morning's cash open.

Brazil-based Petroleo Brasileiro (NYSE:PBR) $25.07 -23.07% was also slammed lower to close at its lowest level since May 10, 2007. No, PBR hasn't split its shares 3:1 since closing at $75.19 on May 21, 2008 either.

Earnings season gets into full swing and it was shares of Dow component and S&P500 heavyweight Coca-Cola (NYSE:KO) $44.21 +1.09% bucking negative breadth of 29:1 in the blue chip index. Coca-Cola executives said strength in international markets helped the soft drink maker report better-than-expected Q3 profits of $0.81/share.

Pepsico (NYSE:PEP) $51.25 -5.79% remained weak after its recent quarterly report, closing at a new multi-year low.

Banking giant JP Morgan (NYSE:JPM) $38.49 -5.45% said its Q3 net fell to $527 million, or $0.11 a share, amid $3.6 billion in write-downs plus losses from its Washington Mutual buy, but profits tripled at the investment banking unit.

Super regional Wells Fargo (NYSE:WFC) $33.35 -0.50% posted net income of $1.6 billion, or $0.49 a share, down 23% from the prior year. The bottom-line figure beat analysts' forecasts of $0.41/share. The banker said earnings were hurt by troubled investments in Fannie Mae, Freddie Mac and Lehman Brothers.

After the closing bell, eBay (NASDAQ:EBAY) $15.33 -13.58% said swing back to a net profit of $492.2 million, or $0.38/share, but warned it expects 4Q earnings excluding items of $0.39 to $0.41/share on revenue of $2.02 billion-$2.17 billion. Analysts were expecting earnings of $0.47/share on revenue of $2.44 billion. The online retailer said it sees full-year EPS excluding items of $1.69 to $1.71. Shares were marked lower at $14.58 in this evenings extended session.

Wednesday's Global Economic Calendar

Economic reports released prior to this morning's opening tick did little to improve sentiment.

U.S. retail sales saw the sharpest drop in three years, falling by 1.2% last month, as consumers sharply cut spending on economic fears. Core sales (excludes autos) fell 0.6%

The Labor Department says the producer price index fell 0.4% in September, helped in part by lower energy prices. Core prices at the manufacturing level (excludes food and energy) rose 0.4%.

Regional data had the Federal Reserve Bank of New York saying that New York manufacturers saw conditions worsening markedly in October. Business conditions dropped 17 points to a record low -24.6.

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A quick browse of October's survey had 22% of respondents indicating that their borrowing needs had increased over the past year, but an even larger proportion - 31% - indicated that their needs had decreased. When asked about changes since July, roughly 20% reported higher borrowing needs and almost the same percentage reported lower needs. The most widely cited reasons for declines in borrowing needs since July were management of existing debt, an increase in revenue, and a reduced need to replace or expand capital equipment.

At 10:00 AM EDT the Census Bureau released its manufacturing and trade inventories and sales figures for August. Inventories rose 0.3% to $1.5 trillion. Sales were estimated to have fallen 1.8% to $1.2 trillion. That had August's inventory/sales ratio at 1.27.

U.S. Market Watch -

My U.S. Market Watch was red across all equity-based indices and sectors for the entire session.

I take that back.

The S&P Banks Index (BIX.X) 154.34 -2.52% was actually in the green for the better part of the day and the Airline Index (XAL.X) 17.88 -3.35% had its moments.

In the last hour of trade however, even the well-nourished lady seemed to have had enough and quit singing "You Are The Wind Beneath My Wings."

The Semiconductor HOLDRs (SMH) $19.10 -6.82%, AMEX Gold Bugs ($HUI.X) 231.32 -10.40% and DowJones Home Construction (DJUSHB) 219.90 -9.10% CLOSED at new 52-week lows today.

American Airlines (NYSE:AMR) $8.78 -0.11% held above its 150-day SMA ($8.57) after the carrier said it earned a profit of $45 million in the recent quarter, helped largely from a $432 million gain from the sale of its investment business, American Beacon Advisors. Without the sale and other one-time items, AMR said it would have lost $360 million, or $1.39/share, which was close to analysts' forecast for a loss of $1.40/share.

American Airlines said it spent $2.72 billion on jet fuel in the recently completed third-quarter, 56.1% more than the $1.74 billion spent a year earlier.

Delta Airlines (NYSE:DAL) $7.44 +1.22% edged up $0.09, but still battles its 150-day SMA ($7.55). For the July-September quarter, the carrier said it lost $50 million, or $0.13/share. Excluding special items, Delta said it would have lost $26 million, or $0.07/share.

Delta said it spent $1.95 billion on jet fuel and related taxes in Q3, which was 54% more than the $1.27 billion it spent a year earlier.

US Oil Fund (USO) - Daily Intervals

Crude oil futures and the U.S. Oil Fund (USO) $60.73 -6.61% settled/closed below a very important near-term level of support today and continues to look vulnerable, especially into Tuesday's November futures contract termination. Open interest in the November contract isn't particularly heavy at 106,920 contracts, but today's 210,193 was and would suggest hesitancy to take delivery.

No price/earnings, no debt/equity ratios here and if the USO's WKLY S2 $57.17 doesn't find buyers, $45-ish looks in play.

Major Global Indexes, Currencies, USO, GLD, HUI, OIX and XLF

Asian markets were showing some sign of "stability" until tonight, and I wanted to monitor Japan's Nikkei-225 at its Thursday open. We weren't expecting a very positive open as the iShares Japan (EWJ) $8.35 -10.40% closed at another multi-year low today, which suggested the $NIKK was going to get hit.

As I type, the $NIKK trades down 921 points, or -9.65% at 8,626.

If we're to see any type of bounce in the U.S. tomorrow, Japan's $NIKK would need to see a MINIMUM decline of 4% at this point.

Then yen as depicted by the CurrencyShares Yen (FXY) $99.47 +1.80% has the yen trading near par ($/y $100 would be par) with the dollar, and the strong yen is NOT positive for Japanese exports, thus their economic outlook.

Japan is the world's 2nd largest economy (ranged by GDP).

S&P 500 Index (SPX.X) - Daily Intervals

Last Wednesday, I "drug it down" and this Wednesday, I'm "dragging it down" again!

Today's intra-day action seemed rather "orderly" and no real sign of panic, but the last 30-minutes sure had the look at buyers (bulls or short-covering bears) simply gave up.

Even as I "drag it down" there's still the "tie" way up at 1,208 and the July lows. That is NOT bullish considering the decline from last Wednesday's wrap.

If I were to "drag down" the now 839.80 low to 770, we'd still see a "tie" at what is now the 61.8% retracement at 1,295.

Today's last 30-minutes suggest buyers willing to "give up" and another break to a new low leaves vulnerability to 770 and 700.

Should NEW LOWS at the big board (NYSE) build back above 650 or so, that would also be some sign that the bottom is once again about to give way.

NASDAQ new lows greater than 450 also a negative sign.
 

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