Stocks are mostly lower this Monday but investors were quick to buy this dip. The major indices have pared their losses and the NASDAQ is back in positive territory. Bullish economic data and DELL's M&A news helped set a more positive tone. I'm somewhat surprised the market isn't weaker given the bounce in the U.S. dollar, which is weighing heavily on commodities.
Most of the foreign markets continued to see profit taking. All the major European bourses were lower led by financials and commodity-related stocks. The English FTSE snapped a six-day winning streak with a 0.5% decline. The French CAC-40 lost 0.4%. The German DAX fell 0.6%. In Asia the Hong Kong Hang Seng continued to slide from its one-year highs set last Thursday with a 0.7% drop. The Chinese Shanghai index was up 0.15%. The Japanese markets are closed and will remain closed through September 23rd for holiday. Investors may want take a look at any of the gambling stocks that have exposure to Macau. A Reuters article mentioned that the Chinese government had "quietly begun relaxing restrictions" for traveling to Macau, a major casino destination.
The last few days have been rather slow news days. The trend continues with just a few stories out this morning. The major headline for Monday was DELL's acquisition of Perot Systems Corp. (PER). DELL is still chasing after Hewlett Packard (HPQ) who bought EDS for almost $14 billion back in May 2008. The PER deal will cost DELL about $3.9 billion in cash, which values PER at $30 per share. Last week PER had rallied toward significant resistance near $18.00. This morning it gapped up to $29.60. There was a highly unusual surge in call option volume late last week, which suggests the news of an impending deal had been leaked.
The next earnings season doesn't start for a few more weeks but we got an early report from Lennar Corp. (LEN), the country's third largest homebuilder. Analysts were expecting LEN to report a loss of 46 cents a share. The company announced this morning that its third quarter results were a loss of 97 cents on revenue of $720.7 million. Gross margins on homes plunged from 14.8% a year ago to 7.8%. However, the cancellation rate has fallen from 27% a year ago to 19% and LEN's backlog was up almost 20%. Management claims LEN will return to profitability in 2010. The stock is down 3.3% to $16.00. Shares have rallied sharply from $8.00 in early July to about 17.50 last week.
The economic data out today came from the Conference Board and their index of leading economic indicators (LEI). Economists were expecting the LEI index to rise 0.7%. The August reading came in just under expectations with a 0.6% gain and it marked the fifth rise in a row. The LEI is supposed to forecast business activity three to six months in advance and August's 0.6% gain lifts the six-month change to +4.4%.
News should start to pick up tomorrow. The Federal Reserve begins its two-day meeting on Tuesday. No change is expected when they announce their decision on interest rates Wednesday afternoon but the market will dissect the FOMC's comments for hints at future monetary policy. On Thursday the U.S. will host the Group of 20 economic summit in Pittsburgh. Throughout the week the U.S. Treasury department will hold another three bond auctions.
Traders will want to keep an eye on the U.S. dollar. The dollar shot higher this morning and while it has trimmed its gains it's still pushing commodities lower. Gold is down more than $7.00 to $1,003 an ounce. Crude oil is taking a beating with a 4% decline towards $69.00 a barrel. Copper has been able to shake off the dollar's move with a bounce from the bottom of its trading range.
Currently the S&P 500 index is down less than four points near 1065 and off its lows of the session at 1057.50. The NASDAQ composite is up almost five points at 2137 and hovering around last week's highs for the year. The Dow Industrials are down about 36 points but off its lows of the day. The small cap Russell 2000 is down about two points at 615.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
The markets aren't moving much so I'm not seeing a lot of action on the OptionInvesetor.com play list. ACL is hitting new highs over $140 this afternoon. CF is contracting and testing short-term support near $88.00. Weakness in oil has pushed the USO oil ETF down 3.6% and the USO is now testing technical support at its rising 100-dma and its long-term trendline of higher lows. A breakdown from here would be bearish. Traders might want to consider a neutral strangle play given this pivotal moment.