Dow Headed Higher on Strong Stress Test Results


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Bulls are riding yesterday's wave of retail-sales driven and Fed-induced euphoria , with futures on all three major market indexes pointed higher this morning. Financials remain in focus, as traders digest the results of Tuesday's stress tests for the country's major banks -- with such notables as JPMorgan Chase & Co. (JPM ) and Citigroup (C ) reaching decidedly different conclusions. The results were promising for the majority of banks, with JPM showing the strength of its recession-proof resolve through a dividend hike and a $15-million buyback program. However, C is set to start the session with a 4% drop, after it was found that the financial institution's available capital is insufficient to withstand the Fed's worst-case scenario. Against this backdrop, the Dow Jones Industrial Average (DJIA) is on track to comfortably extend its lead above the 13,000 mark, while the broader S&P 500 Index (SPX) is looking at a more modest 6-point gain.

Dow, S&P and Nasdaq futures

In earnings news, Pacific Sunwear of California, Inc. (PSUN - 2.51) said its fourth-quarter loss widened to $38.1 million, or 56 cents per share, from last year's loss of $35.2 million, or 53 cents per share. Excluding items, PSUN posted a slimmer deficit of 19 cents per share. Store closing costs and weaker sales weighed heavily on the results, with net sales declining 1.4% to $234.2 million. The results fell short of the Street's expectations for a loss of 22 cents per share on sales of $245.4 million. For the current quarter, PSUN is calling for a loss of 26 cents to 34 cents per share, versus analysts' projections for a loss of 24 cents per share. PSUN is set to drop nearly 13% right out of the gate.

Medifast (MED - 16.70) banked a fourth-quarter profit of $1.2 million, or 8 cents per share, down 66% from $3.4 million, or 23 cents per share, in the comparable quarter of 2010. The company attributed the decline to expansion costs. Meanwhile, revenue rose by 10% to $69.6 million. The results came as a disappointment, with consensus expectations calling for earnings of 21 cents per share on sales of $71 million. Looking ahead, MED is forecasting a current-quarter profit of 36 cents to 38 cents per share on revenue of $86.5 million to $88.5 million. Analysts, however, are predicting earnings of 45 cents per share on $83 million in revenue. MED is down 7% in pre-market trading.

Finally, FXCM Inc. (FXCM - 10.50) reported an adjusted fourth-quarter profit of $20.7 million, or 28 cents per share, up from last year's earnings of $18.1 million, or 24 cents per share. Revenue for the quarter increased 13% to $108.8 million. Retail trading volume was up 16% to $972 billion, while institutional volume surged 126% to $429 billion. The online broker's results surpassed expectations, as analysts, on average, were looking for a profit of 17 cents per share on $104.3 million in revenue. FXCM is trading 7% higher ahead of the bell.

Earnings Preview

Today's earnings docket will also feature reports from Alliance HealthCare Services ( AIQ ), GeoResources ( GEOI ), Global Sources ( GSOL ), Sterling Construction ( STRL ), Guess ( GES ), rue21 (RUE), and Vera Bradley (VRA). Keep your browser at for more news as it breaks.

Economic Calendar

The MBA mortgage index will hit the Street today, along with import and export prices, and the regularly scheduled crude inventories report. Thursday's round-up will include weekly jobless claims, the Empire State manufacturing index, the Philadelphia Fed's manufacturing index, and the producer price index (PPI). The week wraps up on Friday with the consumer price index (CPI), industrial production and capacity utilization, and the Thomson Reuters/University of Michigan consumer sentiment index for mid-March.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,467,374 call contracts traded on Tuesday, compared to 888,293 put contracts. The resultant single-session put/call ratio arrived at 0.61, while the 21-day moving average was 0.64.

NYSE and Nasdaq summary

Volatility indices

Overseas Trading

Asian markets ended mixed today, with Hong Kong and China underperforming after some coolly received comments from Premier Wen Jiabao. In a press conference today, the premier asserted, "We must not slacken our efforts in regulating the housing sector," effectively dashing investors' hopes for any near-term easing maneuvers. Elsewhere, financial stocks were among the top gainers in Seoul and Tokyo, as traders cheered a solid performance by U.S. banks in their latest round of stress tests. By the close, China's Shanghai Composite tumbled 2.6%, Hong Kong's Hang Seng shed 0.2%, South Korea's Kospi tacked on nearly 1%, and Japan's Nikkei advanced 1.5%.

Likewise, strength in banks is propelling the major European benchmarks into the black at midday. The bulls are taking their cues from Tuesday's rally on Wall Street, as well as a clean bill of health for many U.S. financial firms, including heavyweights like Bank of America and Wells Fargo. At last look, London's FTSE 100 is up 0.3%, France's CAC 40 has added 0.7%, and Germany's DAX is 1.1% higher.

Overseas markets

Currencies and Commodities

The U.S. dollar index is trading just north of breakeven this morning, with the greenback last seen at $80.21. Crude oil, meanwhile, has pulled back, with the front-month contract down 0.08% at $107.15 per barrel. A strengthening dollar continues to weigh on gold futures, with the malleable metal 2% lower ahead of the bell at $1,659.90 an ounce.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

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This article appears in: Investing Options
Referenced Stocks: AIQ , GEOI , GES , GSOL , STRL

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