Opening View: DJIA Undermined by China Ahead of FOMC Policy Statement

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The Dow Jones Industrial Average (DJIA) rallied on Monday, as Wall Street expressed hope that the Federal Open Market Committee (FOMC) will restart its stimulus efforts in order to bolster the U.S. recovery in the wake of recent weak economic reports. However, economic data out of China has overshadowed those hopes this morning, as Chinese imports slowed significantly in the latest period due to slowing demand and tighter policy out of Beijing. As a result, futures on the DJIA and S&P 500 Index (SPX) are trading 47 points and 6.3 points below fair value, respectively. While the Dow threatened to break out above 10,700 on Monday, the blue-chip barometer remains trapped between this resistance level and support near 10,600. The DJIA has not strayed far from this trading range for the past six sessions. What's more, the SPX remains trapped in a similar range between support at its 200-day moving average and resistance near 1,130. If the market is going to make a serious move to break out of this range, it should occur near 2:15 p.m. Eastern time when the Fed makes its announcement.

In equity news, Ambac Financial Group Inc. ( ABK ) posted a second-quarter net loss of $57.6 million, or 20 cents per share, up from last year's net loss of $2.37 billion, or $8.24 per share, in the same period. Because of the poor quarter, the company said that it is preparing a bankruptcy filing. "Ambac is currently pursuing raising additional capital and is also pursuing a restructuring of its outstanding debt through a prepackaged bankruptcy proceeding," Ambac said.

ABK competitor MBIA Inc. ( MBI ) posted a second-quarter profit of $1.3 billion, or $6.32 per share, up from net income of $895 million, or $4.30 per share, last year. Adjusted pre-tax income, which excludes a $1.5 billion derivatives gain and several other items, was $14 million in the latest period.

Finally, airline traffic data is beginning to trickle in. United Airlines parent UAL Inc. ( UAUA ) said that traffic rose 2.1% to 11.39 billion revenue passenger miles in July from 11.15 billion a year ago. A revenue passenger mile equals one passenger flown one mile. July capacity at United rose 1.8% to 13.06 billion available seat miles from a year ago. Load factor increased to 87.2% from 86.9% in the year-ago period.

Earnings Preview

On the earnings front, Convergys Corp. ( CVG ), Fossil Inc. ( FOSL ), JA Solar Holdings Co., Ltd. ( JASO ), Cree Inc. ( CREE ), LDK Solar Co. Ltd. ( LDK ), SunPower Corp. ( SPWRA ), and The Walt Disney Company ( DIS ) are scheduled to release their quarterly earnings report today. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The economic calendar offers up preliminary second-quarter productivity, second-quarter unit labor costs, and June's wholesale inventories today. However, the Federal Open Market Committee's decision on U.S. monetary policy and the accompanying statement will likely be the center of attention tomorrow. The market will be graced with the weekly report on U.S. petroleum supplies on Wednesday, along with June's trade balance and July's Treasury budget. The weekly report on initial jobless claims will be released on Thursday, as will July's import/export prices. On Friday, we get a peek at the latest inflation data, with the release of the consumer price index ( CPI ) and the core CPI reading. Also on the docket are July's retail sales, August's University of Michigan consumer sentiment index, and June's business inventories index.

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 843,785 call contracts traded on Monday, compared to 483,274 put contracts. The resultant single-session put/call ratio arrived at 0.57, while the 21-day moving average held at 0.60.

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 looks sickly this morning, as none of the 10 foreign indexes that we track are in positive territory. The cumulative average return on the collective stands at a loss of 0.77%. In Asia, stocks slipped into the red, as Chinese data showed that July's trade surplus surged to $28.7 billion - its highest level since January 2009. Economists were looking for a trade surplus of $19.6 billion. Slower Chinese import growth has negative implications for China's external demand. European shares fell in early trading, with miners sliding on weaker metals prices as the dollar strengthened.

Overseas markets

Currencies and Commodities

The U.S. Dollar Index is in rally mode this morning, gaining 0.52% to trade at 81.13 ahead of this afternoon's Fed statement on monetary policy. The index set a three-month low on Friday last week, and is now challenging resistance at its 10-day moving average, which it has not closed a session above since July 21. Commodities, meanwhile, are having a hard time due to the rising greenback. For instance, gold futures are off $4.30 at $1,198.30 an ounce, as the malleable metal once again swings below the $1,200 mark. What's more, crude futures are threatening the $80 region, with the front-month contract off $1.10 to $80.30 per barrel in electronic trading.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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