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Opening View: DJIA on Hold as Europe Debates Irish Bailout

By: Schaeffer's Investment Research
Posted: 11/17/2010 8:15:00 AM
Referenced Stocks: BJ;EU;GM;IMF;TGT

The Dow Jones Industrial Average (DJIA) dropped like a rock on Tuesday, falling 178 points to log its worst day since Aug. 11. Chinese monetary policy and Ireland's sovereign debt remain front and center, especially with the European Union ( EU ) and the International Monetary Fund ( IMF ) meeting to discuss options for the latter. However, traders looking for a "dead cat bounce" on Wall Street may be sorely disappointed, as futures on the DJIA and the S&P 500 Index (SPX) are trading roughly 3.5 points and 1 point below fair value, respectively. More domestic economic data is due out later this morning, with reports on consumer inflation, petroleum supplies, housing starts, and building permits, but as we saw yesterday, even positive reports may have little impact if overseas reports worsen. Look for the DJIA to hold support at 11,000, while the SPX should see buying emerge near 1,170.

In equity news, General Motors Co. ( GM ) announced that it has increased the number of shares up for sale in the company's initial public offering (IPO) to 478 million from 365 million. GM cited strong investor demand for the increase, which could make the stock sale the largest in history. Yesterday, GM lifted the pricing range to $32 to $33 each from its previous expectation of $26 to $29. GM also lifted the amount of preferred stock it plans to sell, to as much as $4.6 billion from $3 billion. According to the Wall Street Journal , if the deal is priced at the top of the range, it would value the common and preferred stock together at $22.8 billion, exceeding Agricultural Bank of China's $22.1 billion IPO in July.

Elsewhere, Target Corp. ( TGT ) reported that its third-quarter profit rose 23% to $535 million, or 74 cents per share, from $436 million, or 58 cents per share, a year earlier. Sales rose 3% to $15.2 billion with comparable sales increasing 1.6%. Analysts were looking for earnings of 68 cents per share. Looking ahead, Target said that it expects fourth-quarter same-store sales to be the best in the past three years.

Also on the retail front, BJ's Wholesale Club Inc. ( BJ ) reported a third-quarter profit of $23 million, or 43 cents per share, as sales climbed nearly 5% to $2.57 billion. Analysts were looking for earnings of 36 cents per share on sales of $2.57 billion. For the full year, BJ lifted its forecast to a range of $2.48 to $2.52 per share, above Wall Street's consensus estimate of $2.47 per share.

Earnings Preview

On the earnings front, Chico's FAS Inc. (CHS), Suntech Power Holdings Co. Ltd. (STP), VanceInfo Technologies Inc. (VIT), Applied Materials Inc. (AMAT), Aruba Networks Inc. (ARUN), Hot Topic Inc. (HOTT), Limited Brands Inc. (LTD), NetApp Inc. (NTAP), NetEase.com Inc. (NTES), and PetSmart Inc. (PETM) will release their quarterly reports today. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The usual weekly report on U.S. petroleum supplies will arrive today, as well as the October consumer price index (CPI), core CPI reading, October's housing starts, and building permits. The economic calendar ends the week early tomorrow, with weekly initial jobless claims, October's leading economic indicators, and November's Philadelphia Fed manufacturing index.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,568,223 call contracts traded on Tuesday, compared to 1,061,406 put contracts. The resultant single-session put/call ratio arrived at 0.68, 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

Overseas Trading

Overseas trading is mixed this morning, with four of the 10 foreign indexes that we track in positive territory. The cumulative average return on the collective stands at a loss of 0.56%. The song remains the same in Asia, with regional markets still reeling from the prospects that Beijing will unveil more tightening measures. However, a weakening yen bolstered Japanese stocks into the black. European markets, meanwhile, are trading cautiously higher, as the region awaits the results of talks between the European Union and the International Monetary Fund on how to deal with Ireland.

Overseas markets

Currencies and Commodities

Focus remains on the U.S. dollar and its strength versus the euro this morning, as traders await the potential fallout from Ireland's sovereign debt debacle. At last check, the U.S. Dollar Index was up fractionally at 79.24. Meanwhile, dollar-denominated commodities continue to pull back in the face of the greenback's rally. For instance, crude futures are down 64 cents at $82.20 per barrel in electronic trading. What's more, gold prices are still retreating, falling $4.10 to $1,335.30 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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