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Believe it or not, the market managed to hold its own for the week despite a continuing string of bad news. Going into Friday morning, the market looked poised to end the week on a sour note as Congress rejected the proposed auto bailout. As the week dragged on, it was becoming more apparent that the bailout was losing steam.
The news left General Motors (GM, $3.94, down $0.18) scrambling in search of legal counsel regarding a potential bankruptcy filing. Although we can still expect Congress to help to some degree, funds from the Troubled Asset Relief Program (TARP) will most likely be used to stabilize Detroit’s Big Three.
There were also a number of companies that issued earnings warnings. Electronic Arts (ERTS, $17.01, unchanged), FedEx (FDX, $61.34, up $2.73), Kroger (KR, $25.56, down $0.58), Nucor (NUE, $44.04, up $0.95), Texas Instruments (TXN, $15.59, up $0.45) and 3M (MMM, $56.04, up $0.90) all fessed up to Wall Street that current quarters will miss expectations.
All-in-all, the Dow should have taken the week off despite the continuing day-to-day volatility, as the index finished the week nearly flat — down just 6 points to close at 8,629. The S&P 500 should have packed its bags as well, as it only gained about 4 points overall and settled at 879. The Nasdaq however, showed some sign of life as it advanced 2% for the week, or 30 points, and finished at 1,540.
Looking ahead to this week, Best Buy (BBY, $24.42, up $0.32) and Goldman Sachs (GS, $67.74, down $1.97) report earnings Tuesday. Morgan Stanley (MS, $13.85, up $0.11), Nike (NKE, $49.37, up $0.64) and Take-Two Interactive Software (TTWO, 12.35, up $0.58) announce results Wednesday. FedEx and Research In Motion (RIMM, $38.82, up $1.36) will post numbers Thursday while CarMax (KMX, $8.31, down $0.28) and Darden Restaurants (DRI, $22.00, $1.99) round out the week.
Oh yeah, we also get the FOMC meeting on Tuesday, OPEC is meeting on Wednesday, and Friday is “Triple Witching” as quarterly options expire.
You can expect some major moves in the aforementioned stocks and events but as a whole, the market continues to bounce in a trading range and appears to be taking the bad news in stride. The good news for the bulls is that the trading range looks to be narrowing but that can change in a a New York minute. However, the wild volatility we’ve seen over the past few months has eased to a degree which is bringing buyers back into the market.
The Dow did manage to break through 9,000 to start the week and only hit a low of 8,272. The prior week, the Dow stayed above 8,000 as well. That basically means the Dow is starting to form a bullish pattern of higher lows and higher highs.
Thursday’s slight sell-off on the Dow of 200 points could have set the stage for a pretty bad Friday given the turmoil before the opening bell. However, we got a rebound and another rally to start this week could push the Dow back to 9,000. As I’ve mentioned numerous times though, there is strong resistance at these levels and it will imperative that the Dow breaks and holds above these levels before any substantial rally can be considered.
And here’s one from left field that I thought I’d leave you with…yields on the 1-month and 3-month treasury bills both went negative briefly last week. That means we were paying the government to hold our cash. Not the other way around…
Rick Rouse
Rick@OptionsMentoring.com
M&A News Doesn’t Excite Market
Monday, August 30th, 2010
12:45pm (EST)
It’s been a slow day of trading although the bears took an early stab at stocks and pushed the market lower at the open. The bulls have battled back somewhat but they didn’t seem too inspired despite a flurry of merger and acquisition (M&A) news today. The lack of follow-through from Friday’s big push isn’t a good sign to start the week and the bulls will face major resistance levels if they do mount a rally today.
In corporate news, Intel (INTC, $18.07, down $0.30) said it was buying Infineon Technologies AG’s wireless-solutions business for nearly $1.4 billion in cash. This wasn’t a huge deal for Intel, which warned of lower revenue growth for the current quarter, but it was a smart one. The deal with Infineon will bolster Intel’s internet business and allow the company to offer a full range of wireless options, including 3G, Wi-Fi and Wi-Max.
3M (MMM, $80.29, down $0.71) stepped-up to the plate and offered Cogent (COGT, $10.72, up $1.81) $10.50 a share to do a deal. Shares are up 20% and Wall Street is valuing the marriage at $1 billion. 3M is in love with Cogent’s toys which capture electronic fingerprint and palm print images that can then be used to encode prints into searchable files. This allow cross-referencing and companies or agencies can then compare a set of prints to a database.
And finally, in a deal that looks like the ante may have to be raised, Genzyme (GENZ, $70.10, up $2.48) is up 4% after rejecting Sanofi-Aventis (SNY, $29.03, up $0.11) proposal to acquire them for $69 a share in cash. Genzyme has an impressive drug in its pipeline and could be holding out for $80-$85 a share. They think they have something special with Campath, a multiple sclerosis drug that is in the experimental stages, and Genzyme wants a bigger premium to account for potential sales.
As we head to press, the Dow is down 68 points, or 0.7%, and is at 10,082. We mentioned in our Weekly Wrap that resistance would come in at 10,200 and the low for the day has been 10,071.
The S&P is lower by 7 points, or 0.7%, and is at 1,057. The index continues to have trouble with the 1,070 level and a break below 1,040 will not be good for the bulls. The S&P has traded to a low of 1,056 today.
The Nasdaq is once again leading the way to the downside as the index is off by 16 points, or 0.8%, to 2,137. Tech has traded to a high of 2,154 and the 2,150 level continues to act as strong resistance. Support is at 2,100 and then 2,050.
We have updated all of our current trades and we have spent much of the morning looking for new trades this week. There are a few we like, but we want to do more research before adding them to our Watch List which is already exploding with possible plays were are eyeballing. Subscribers, check the Members Area for the updates.
Tags: 3M, GENZ, INTC, option picks, SNY, stock options trading
Posted in Market Commentary, Mergers and Acquisitions | Comments Off