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Opening View: DJIA Heads for Two-Year Highs

By: Schaeffer's Investment Research
Posted: 12/13/2010 8:06:00 AM
Referenced Stocks: FCEL;GE;GENZ;SNY;WMT

The Dow Jones Industrial Average (DJIA) closed above the 11,400 level for the first time since Nov. 8 on Friday, though the blue chip barometer failed to follow its Wall Street brethren to a fresh two-year high. That may change this morning, as futures on the DJIA and the S&P 500 Index (SPX) are trading roughly 32 points and 4.4 points above fair value, respectively. Investor sentiment has received a shot in the arm this morning, with a slew of merger and acquisition activity, as well as clarity on Chinese monetary policy, which doesn't include an interest rate hike.

Technically, the DJIA enters the final expiration week of 2010 resting above potential round-number support at the 11,400 level, but below its 2010 peak near 11,450. Should 11,450 fall, look for 11,500 to offer at least a modicum of resistance before the DJIA heads higher. Support lies at the 11,300 level. As for the SPX, the index is trading at its highest point since September 2008, and is within earshot of potential psychological resistance at the 1,250 level. Support for the SPX should hold near the 1,230 level.

In equity news, General Electric Co. ( GE ) announced that it will buy Wellstream Holdings PLC for $1.3 billion. Under terms of the deal, GE is offering 780 pence in cash and a special dividend of 6 pence in cash per Wellstream share. Wellstream's board intends to unanimously recommend shareholders accept the deal, expected to close in the first quarter of 2011, according to a statement from GE.

In other merger and acquisition news, Sanofi-Aventis SA ( SNY ) announced that it is extending its $18.5 billion offer for Genzyme Corp. ( GENZ ) until Jan. 21, 2011. Genzyme has rejected the offer, saying it is too low to even start negotiations.

Elsewhere, Wal-Mart Stores Inc. ( WMT ) said that it is closing its Moscow representative office due to the lack of an "clear acquisition partner in the near term." Wal-Mart said it will continue to pursue market entry opportunities in the country.

Earnings Preview

On the earnings front, only FuelCell Energy Inc. ( FCEL ) is on the docket. Keep your browser at for more news as it breaks.

Economic Calendar

There are no major economic reports scheduled for release today, while tomorrow offers up the November producer price index, November retail sales, and October business inventories. The Federal Open Market Committee is also slated to step up on Tuesday to deliver its decision on U.S. monetary policy, with Fed watchers expecting the central bank to hold steady on its "extended period" language on interest rates.

Wednesday is packed with data, as the November consumer price index, the December Empire State manufacturing index, November industrial production, the National Association of Home Builders' housing market index, and the usual weekly report on U.S. crude inventories are slated to arrive. Thursday is also busy, with weekly jobless claims, November housing starts, and the Philly Fed's December manufacturing index. The flood finally abates on Friday, with only the Conference Board's leading indicators for November slated for release

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,521,299 call contracts traded on Friday, compared to 645,998 put contracts. The resultant single-session put/call ratio arrived at 0.42 while the 21-day moving average dropped to 0.56.

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

Overseas Trading

Overseas trading looks strong this morning, as all 10 foreign indexes that we track are in positive territory. The cumulative average return on the collective stands at a gain of 0.93%. Asian markets engaged in a relief rally over night, after it became clear that Beijing's current monetary policy did not include an interest rate hike. In fact, the Shanghai Composite soared nearly 3% after the People's Bank of China lifted banks' reserve ratio by half a percentage point on Friday. The clarity on Chinese monetary policy has also prompted a buying spree in Europe, leading to a global rally in the equities market.

Overseas markets

Currencies and Commodities

The lack of an interest rate hike out of China over the weekend has had little effect on the U.S. dollar. In fact, the U.S. Dollar Index is trading roughly 0.14% lower at 79.96, with the index unable to reclaim the round-number 80 level in premarket trading. Bolstered by strong gains in Asian trading, and a weak U.S. dollar, crude futures are sharply higher this morning, with the front-month contract up $1.32 at $89.63 per barrel. Finally, gold futures have been bolstered by the lack of an interest rate hike out of Beijing. At last check, gold futures were up $8.50 at $1,393.40 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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