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Opening View: DJIA Futures Sink After Apple's Weak Guidance

By: Schaeffer's Investment Research
Posted: 10/19/2010 8:06:00 AM
Referenced Stocks: AAPL;BAC;IBM;JNJ;KO

The Dow Jones Industrial Average (DJIA) rallied more than 80 points on Monday, as traders prepared for today's earnings barrage. However, it doesn't look like the bulls will be able to retain any of yesterday's gains, as futures on the DJIA and the S&P 500 Index (SPX) are trading roughly 72 points and 10 points below fair value, respectively. Apple Inc.'s ( AAPL ) conservative outlook set the tone after the close last night, stealing much of Wall Street's thunder heading into the open this morning. What's more, the Dow must digest earnings reports from components IBM Corp. ( IBM ), Bank of America Corp. ( BAC ), Johnson & Johnson ( JNJ ), and Coca-Cola Co. ( KO ). And if that wasn't enough, September housing starts and building permits are also on tap today. Look for the DJIA to hold near 11,000, with additional support manifesting at 10,900, which is home to the Dow's 20-day moving average. The SPX, meanwhile, should find a floor near 1,170.

Ahead of the open, Bank of America Corp. posted a third-quarter net loss of $7.3 billion, or 77 cents per share. The bank saw a net loss applicable to common shareholders of $7.6 billion. Excluding a goodwill impairment charge of $10.4 billion, the banking giant said it earned $3.1 billion, or 27 cents per share in the quarter. Analysts were looking for earnings of 18 cents per share.

After the close last night, Apple Inc. reported net income of $4.31 billion, or $4.64 per share, as revenue jumped 67% to $20.34 billion. Analysts were expecting earnings of $4.10 per share on revenue of $18.9 billion. Looking ahead, Apple forecast fourth-quarter earnings of $4.80 per share on revenue of $23 billion, compared to Wall Street's expectations for earnings of $5.03 per share on revenue of $22.35 billion. iPad sales were also weaker than expected, with Apple selling nearly 4.2 million iPads, compared to forecasts for sales of about 4.8 million.

IBM Corp. said that its third-quarter net income rose to $3.6 billion, or $2.82 per share, as revenue rose 3% to $24.3 billion. Analysts had expected IBM to report third-quarter earnings of $2.76 per share on $24.2 billion in revenue.

VMware Inc. (VMW) reported a third-quarter profit of $84.6 million, or 20 cents per share, on revenue of $714.2 million. Adjusted income was 39 cents per share. Analysts had expected earnings of 35 cents per share, on revenue of $699 million.

Earnings Preview

On the earnings front, EMC Corp. (EMC), Goldman Sachs Group Inc. (GS), Harley-Davidson Inc. (HOG), The New York Times Co. (NYT), UnitedHealth Group Inc. (UNH), Boston Scientific Corp. (BSX), Juniper Networks Inc. (JNPR), SLM Corp. (SLM), and Yahoo! Inc. (YHOO) will release their quarterly reports today. Keep your browser at for more news as it breaks.

Economic Calendar

The Commerce Department offers up September housing starts and building permits today, while tomorrow sports the usual weekly report on U.S. petroleum supplies and the Fed's Beige Book for October. Thursday bring the Labor Department's weekly new jobless claims figures, while the Conference Board will report on September leading indicators, and the Philadelphia Fed will provide a look at manufacturing data. We end the week on a quiet note, as there are no major economic reports scheduled for Friday.

Market Statistics

Equity option activity on the CBOE saw 1,548,036 call contracts traded on Monday, compared to 873,513 put contracts. The resultant single-session put/call ratio arrived at 0.56, while the 21-day moving average held at 0.58.

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 is divided this morning, as half of the 10 foreign indexes that we track are in positive territory. The cumulative average return on the collective stands at a gain of 0.23%. In Asian trading, regional indexes finished mostly higher, as banks garnered strength from Citigroup Inc.'s (C) better-than-expected report. In China, the People's Bank of China lifted its deposit and lending rates by a quarter point, according to the official Xinhua news agency. Turning to Europe, the banking sector is also front and center, with traders focusing heavily on earnings reports from Citigroup and Bank of America Corp. However, despite lift from banks, regional indexes are trading mostly lower.

Overseas markets

Currencies and Commodities

A continued rally in the U.S. dollar is taking its toll on commodities this morning. The U.S. Dollar Index has added 0.7% to trade at 77.47, placing the index firmly above its 10-day moving average. Crude futures are taking the greenback's rally pretty hard, with the front-month contract falling nearly 1% to $82.97 per barrel. Gold futures are also retreating in the face of the dollar's rebound. The December gold contract was last seen lower by $4.70 at $1,367.40 an ounce in London.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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