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Opening View: DJIA Pointed Higher Ahead of Historically Positive, Payrolls-Punctuated Week

Posted
5/31/2011 8:09:00 AM
By: Schaeffer's Investment Research
Referenced Stocks:ASH;CBOE;EJ;KKR;LGF

After concluding last week with their fourth straight weekly drop, the major market indexes are set to kick off the holiday-shortened week on a high note. Historically, the bulls have fared well during the week following Memorial Day , with the S&P 500 Index (SPX ) averaging a 1.15% return since the start of the new millennium. Fueling optimism ahead of the bell are rising expectations for a second Greek bailout, which has also helped to soften the dollar and push crude oil futures further north of the century mark. On the equities front, a freshly debuted laptop from Intel Corp. (INTC) is aiding the blue chips' early lead, while merger-and-acquisition news from both Ashland Inc. ( ASH ) and KKR & Co. ( KKR ) is bolstering sentiment about the collective corporate purse strings. Against this backdrop, the Dow Jones Industrial Average (DJIA ) is flirting with a 95-point lead, while the SPX is up roughly 11.3 points.

Dow, S&P and Nasdaq futures

In equities news, Intel Corp. (INTC - 22.21) is set to open roughly 1.7% higher, after the blue chip debuted a new category of "Ultrabook" laptops. At the Computex trade show in Taipei, the firm admitted it was "late" to the tablet game, but said it's catching up with the introduction of the lightweight, high-performance processor that it expects to account for 40% of consumer laptop sales by the end of next year. "There'll be some confusion if you look at the fold factor; when you open it you'll see a PC but if you're on the go, just fold it and suddenly it's a tablet. Is it a PC? Is it a tablet? I think it doesn't matter," said Intel V.P. Mooly Eden.

Meanwhile, Ashland Inc. (ASH - 61.04) agreed to purchase chemical supplier International Specialty Products Inc. for $3.2 billion in cash. Ashland expects the deal to close by the fourth quarter, and anticipates the acquisition to immediately contribute to earnings. Should ASH fail to shore up financing, ISP is entitled to a $413 million termination fee. "This defining transaction enables us to significantly expand our market positions in higher margin, higher growth and less cyclical global markets like personal care and pharmaceuticals," said Ashland Chairman and CEO James J. O'Brien. At last check, ASH is up about 3.1%.

Finally, KKR & Co. (KKR - 17.12) agreed to buy Academy Sports + Outdoors for an undisclosed sum. The transaction is expected to close in six to eight weeks. "This transaction with KKR will help accelerate Academy's continued growth and provide even greater flexibility to achieve our strategic goals," said Academy Sports President Rodney Faldyn. In pre-market trading, KKR is hovering just north of breakeven.

Earnings Preview

Today's earnings docket will feature reports from Lions Gate Entertainment ( LGF ) and E-House China Holdings Ltd. ( EJ ), to name a few. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The economic schedule kicks off today with the S&P/Case-Shiller home-prices survey for March, the Chicago purchasing managers' index, the Dallas Fed manufacturing survey, and the Conference Board's consumer confidence index for May. On Wednesday, reports on construction spending and vehicle sales, as well as the Institute for Supply Management's (ISM) survey of manufacturers, will hit the Street, though investors will likely pay closer attention to ADP's monthly employment report. On Thursday, the government's weekly jobless figures will take center stage, along with reports on April factory orders and first-quarter productivity. Finally, the economic calendar goes out with a bang on Friday, with the highly anticipated release of Uncle Sam's nonfarm payrolls report.

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 956,998 call contracts traded on Friday, compared to 484,234 put contracts. The resultant single-session put/call ratio docked at 0.51, while the 21-day moving average inched lower to 0.64.

NYSE and Nasdaq summary

Volatility indices

The spring 2011 issue of SENTIMENT magazine is now available here.

Overseas Trading

Stocks in Asia gained ground today, with upbeat economic data out of Japan setting a bullish mood. Industrial output in the quake-crippled country increased 1% in April, and many manufacturers are predicting continued growth in May and June. The data helped to offset a downgrade warning from Moody's, which cautioned that the fiscal fallout from the March 11 earthquake and tsunami is "magnifying the adverse effects imparted by the global financial crisis." Meanwhile, Chinese equities finally broke an eight-session slump, with alternative energy issues leading the charge after Germany announced plans to shut down all of its nuclear reactors by 2022. By the close, South Korea's Kospi rose 2.3%, Hong Kong's Hang Seng tacked on 2.2%, Japan's Nikkei gained about 2%, and China's Shanghai Composite added 1.4%.

European shares are also moving higher, led by financials. Traders seem enthusiastic about the bailout prospects for Greece, after Jean-Claude Juncker -- chairman of a group of euro-zone finance ministers debating the fiscal emergency -- said he was "quite optimistic" about the progress made toward an aid package. A total restructuring of Greek debt is now viewed as unlikely, providing a boost for the euro (and, in turn, commodities and energy stocks). At last check, the German DAX is up 1.9%, the French CAC 40 has gained 1.6%, and London's FTSE 100 has crept about 1% higher.

Overseas markets

Currencies and Commodities

The greenback has continued its slide amid easing fears about Greek debt, with the U.S. dollar index down about 0.5%. Elsewhere, black gold has extended its run higher on escalating geopolitical tensions in the Middle East, as well as reports of a temporary closure of a pipeline transporting oil to Cushing, Okla. At last check, the front-month contract has added $1.63, or 1.6%, to linger near $102.22 per barrel. Meanwhile, gold and silver futures have continued to power higher, with the front-month contracts up 0.1% and 2%, respectively.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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