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Opening View: DJIA Headed Cautiously Higher, Despite S&P Warning

By: Schaeffer's Investment Research
Posted: 12/6/2011 8:23:00 AM
Referenced Stocks: AVAV;BMO;CASY;EU;TOL

U.S. stocks are pointed cautiously higher today, as Wall Street wraps its head around a continental warning from Standard & Poor's. Specifically, the agency late yesterday put 15 of the 17 euro-zone nations -- including AAA-rated Germany and France -- on review for possible ratings cuts , which took the some of the wind out of the bulls' sails. The move put even more emphasis on an upcoming summit of European Union ( EU ) leaders, where the group is expected to weigh in on a new fiscally frugal treaty drafted by German Chancellor Angela Merkel and French President Nicolas Sarkozy. With all eyes on Europe, the Dow Jones Industrial Average (DJIA) and S&P 500 Index (SPX) are headed for modest gains out of the gate.

Dow, S&P and Nasdaq futures

Ahead of the firm's investor day, 3M Company (MMM - 80.93) reiterated its current-year earnings target of $5.85 to $5.95 per share, in line with analysts' estimate for a per-share profit of $5.91. Furthermore, the blue chip forecast fiscal 2012 earnings of $6.25 to $6.50 per share on sales of $30.2 billion to $31.5 billion. The projections topped expectations, with Wall Street calling for earnings of $6.28 per share on $30.6 billion in revenue. In pre-market trading, MMM is fractionally higher.

In earnings news, AutoZone (AZO - 39.94) said its fiscal first-quarter profit rose 11% to $191.1 million, or $4.68 per share, from $172.1 million, or $3.77 per share, in the year-ago period. Meanwhile, revenue jumped 7.4% to $1.92 billion. The results topped Wall Street's consensus forecast for earnings of $4.44 per share on sales of $1.9 billion. Ahead of the bell, AZO is poised for a 1.5% gain.

Finally, Pep Boys (PBY - 11.86) reported a third-quarter profit of $7 million, or 13 cents per share, up from $5.7 million, or 11 cents per share, in the year-ago period. Meanwhile, revenue rose by 5.2% to $522.2 million, though same-store sales dropped by 0.4%. Although PBY's bottom-line figures matched analysts' predictions, its top line fell just short of Wall Street's expectations for sales of $523 million. "Our 'surround sound' marketing effort coupled with lower gas prices and pent-up demand drove strong tire sales in the last month of the quarter, which have continued into the fourth quarter," said President and CEO Mike Odell. At last check, PBY is bracing for a 0.8% dip out of the gate.

Earnings Preview

Today's earnings docket will also feature reports from Bank of Montreal ( BMO ), Casey's General Stores ( CASY ), Toll Brothers ( TOL ), AeroVironment ( AVAV ), Vera Bradley (VRA), and Men's Wearhouse (MW). Keep your browser at for more news as it breaks.

Economic Calendar

Today's economic calendar is bare, with Wednesday bringing us the usual crude inventories stats, along with the Federal Reserve's monthly consumer credit report. On Thursday, the regularly scheduled report on first-time jobless claims will hit the Street, as well as the government's wholesale inventories data. Finally, Friday rounds out the week with Uncle Sam's monthly trade balance report and the Thomson Reuters/University of Michigan consumer sentiment index.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 820,350 call contracts traded on Monday, compared to 569,855 put contracts. The resultant single-session put/call ratio arrived at 0.69, while the 21-day moving average was 0.71.

NYSE and Nasdaq summary

Volatility indices

Overseas Trading

Stocks in Asia ended lower today, after S&P placed the debt ratings of 15 euro-zone nations on review for possible downgrades. The negative note raised the stakes ahead of Friday's EU summit, and applied pressure to economically sensitive issues, such as miners and banks. In fact, HSBC helped spearhead the decline in the financial sector, after the U.K.'s Financial Services Authority (FSA) levied its biggest-ever retail fine against the bank over inappropriate investing advice to elderly clients. By the close, China's Shanghai Composite slipped 0.3%, South Korea's Kospi fell 1%, Hong Kong's Hang Seng gave up 1.2%, and Japan's Nikkei lost 1.4%.

Meanwhile, the major European indexes are mixed at midday, showing relative resilience after that downgrade warning from S&P. Euro-zone heavyweights France and Germany were among the 15 countries put on notice last night -- and, in fact, the only two countries omitted were Cyprus and Greece, which have already attracted their fair share of negative attention from the ratings agency. Despite S&P's warning of rising "systemic stresses," stocks moved off their lows after Fitch Ratings stated that both Spain and Italy should benefit from the European Commission's recently announced extension of state-aid rules for banks. At last check, the German DAX is off 0.7%, the French CAC 40 is 0.5% lower, and London's FTSE 100 is up 0.3%.

Overseas markets

Currencies and Commodities

The greenback has turned tail this morning, with the U.S. dollar index fractionally lower at last check. Crude oil, meanwhile, is on the upswing, with the front-month contract last seen about 0.1% higher at $101.06 per barrel. Finally, gold futures have extended yesterday's slide, surrendering 0.7% to trade near $1,722.70 an ounce.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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