Opening View: Are DJIA, SPX Finally Emerging from Correction? Or was Tuesday a Head Fake?

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Both the Dow Jones Industrial Average ( DJIA ) and the S&P 500 Index ( SPX ) vaulted above their respective 200-day moving averages yesterday, giving market technicians something to crow about. For the SPX, the 200-day trendline is often considered a demarcation point between bull and bear markets. As such, continued strength above this trendline by the SPX could be a sign that we are nearing the end of a bull market correction. Such strength remains to be seen, however, as early trading is hinting that yesterday's rally may have been a bit overdone, with futures on the DJIA and SPX trading roughly 45 and 6 points below fair value, respectively. Look for the Dow to find short-term support near 10,300, or 10,200 on a steeper sell-off, while the SPX could find a floor near 1,110, or 1,090 should the decline gain momentum. Finally, the CBOE Market Volatility Index ( VIX ) has plunged more than 30% since setting a near-term peak of 37.38 on Tuesday last week. The so-called fear index has pulled back to within striking distance of support in the 25 region, a level the VIX has not closed below since May 5.

In earnings news, FedEx Corp. ( FDX ) reported fourth-quarter earnings of $1.33 per share on revenue of $9.43 billion. Analysts were looking for earnings of $1.32 per share on sales of $9.04 billion. Looking ahead, the company said it sees first-quarter earnings of 85 cents to $1.05 per share, and fiscal 2011 earnings of $4.40 to $5 per share. Investors are not happy with the report, however, and FDX shares have dipped more than 3% in pre-market trading.

Elsewhere, merger and acquisition activity from Covidien Plc ( COV ) stole early headlines. Specifically, the medical equipment firm said that it is buying Somanetics Corp. ( SMTS ) for $250 million, or $25 per share. Covidien said the acquisition would broaden its product offerings and create earnings growth. The deal values Somanetics at a premium of $6.10, or 32%, over its closing price of $18.90 per share on Tuesday.

Earnings Preview

On the earnings front, Canadian Solar Inc. ( CSIQ )is slated to report its quarterly figures today. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The economic calendar brings the release of weekly crude inventories today, as well as May housing starts, the May Producer Price Index ( PPI ) and core PPI, and May industrial production data. Thursday will be chock full of economic data. Traders will get a look at initial jobless claims, the May Consumer Price Index ( CPI ) and core CPI, the Conference Board's leading indicators index for May, and the Philadelphia Fed Index for June. Friday closes with no major economic reports.

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 1,234,698 call contracts traded on Tuesday, compared to 690,993 put contracts. The resultant single-session put/call ratio arrived at 0.56, while the 21-day moving average slipped to 0.66.

Volatility indices

NYSE and Nasdaq summary

**The volume data shown above is from the Nasdaq and NYSE exchanges only. It does not include regional volume activity, which means that other daily volume quotes you see may be higher.**

Dow, S&P and Nasdaq futures

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Overseas Trading

Overseas trading has a positive bias this morning, as seven of the 10 foreign indexes that we track are in positive territory. The cumulative average return on the collective stands at a gain of 0.28%. In Asia, stocks climbed after a number of successful European bond auctions eased investor concerns about the euro zone's solvency crisis. European shares edged up, extending their rally to six days. Overseas market information comes to you courtesy of Schaeffer's Daily Bulletin .

Overseas markets

Currencies and Commodities

Sour economic news out of Europe and a little buyers' remorse following yesterday's rally is providing a bit of a safe-haven bid for the U.S. dollar this morning. What's more, news that jobless claims rose more than expected in the U.K. is weighing on the euro and the pound, providing extra lift for the greenback. Against this backdrop, the U.S. Dollar Index has risen 0.3% to 86.24 in pre-market trading. Meanwhile, gold futures are tentatively higher, gaining $1.50 to trade at $1,235.90 an ounce in London. Finally, crude futures are retreating this morning, dropping 0.37% to $77.62 per barrel on European economic concerns ahead of today's report on U.S. petroleum supplies.

Currencies and commodities

Unusual Put and Call Activity:

For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations .

Unusual options activity - puts

Unusual options activity - calls

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This article appears in: Investing , Options


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