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Opening View: DJIA Retreats as Euro Zone PMI Sparks Selling

By: Schaeffer's Investment Research
Posted: 9/23/2010 8:02:00 AM

The Dow Jones Industrial Average (DJIA) has done little but consolidate since Monday's spike higher, but a weakening purchasing managers' index ( PMI ) out of the euro zone has provided Wall Street with a reason to sell this morning. Futures on the DJIA and the S&P 500 Index (SPX) are trading some 60 points and 6.7 points below fair value, respectively. Given that the 14-day Relative Strength Indexes on the DJIA and the SPX came close to "overbought" territory on Monday, a bit of profit taking should also be expected. That said, support for the blue chip barometer still resides in the 10,700 level, while the SPX should find a cushion near 1,130. On a final note, the 21-day moving average of the Chicago Board Options Exchange ( CBOE ) single-session equity-only put/call ratio tagged its lowest reading since May 14 on Tuesday, rebounding off that low yesterday.

In equity news, Blockbuster Inc. (BLOKA) filed for Chapter 11 bankruptcy protection after agreeing to a deal with bondholders to recapitalize the company. Blockbuster said the filing applies to the company and its domestic subsidiaries, but not to non-U.S. operations or the group's franchisees. The agreement will reduce its indebtedness to around $100 million from the current level of nearly $1 billion. The company said that all 3,000 U.S. stores will remain open, but that it will "evaluate its U.S. store portfolio."

Elsewhere, McDonald's Corp. ( MCD ) is increasing its quarterly cash dividend by 11% to 61 cents per share. "With today's announced dividend increase, we expect the 2010 total cash returned to shareholders to be approximately $5 billion, split between dividends and share repurchases," said Chief Executive Jim Skinner. The dividend will be paid on Dec. 15 to shareholders of record at the close of business on Dec. 1.

In earnings news, Red Hat Inc. ( RHT ) reported fiscal second-quarter net income, excluding items, of 19 cents per share, as revenue rose 20% to $219.8 million. Analysts had expected Red Hat to report earnings of 18 cents per share, and $211.5 million in revenue.

Bed Bath & Beyond Inc. ( BBBY ) said its second-quarter profit rose to $181.6 million, or 70 cents per share, with revenue increasing to $2.14 billion. Analysts estimated a quarterly profit of 63 cents per share on revenue of $2.1 billion.

Earnings Preview

On the earnings front, Rite Aid Corp. ( RAD ), Nike Inc. ( NKE ), and Saba Software Inc. ( SABA ) are slated to release their quarterly earnings reports today. Keep your browser at for more news as it breaks.

Economic Calendar

The report on weekly initial jobless claims will be accompanied by August's existing home sales and leading indicators today. Rounding out the week, durable goods orders for August and new homes sales for August are on tap on Friday.

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 1,037,409 call contracts traded on Wednesday, compared to 750,822 put contracts. The resultant single-session put/call ratio arrived at 0.72, while the 21-day moving average rose to 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

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Overseas Trading

Overseas trading is awfully quiet this morning, as markets in Japan, China, South Korea, and Hong Kong are closed for a holiday. As a result, none of the 10 foreign indexes that we track are in positive territory. The cumulative average return on the collective stands at a loss of 0.55%. With most of Asia on vacation, attention fell squarely on Europe and the region's weaker-than-expected purchasing managers' index. Specifically, the Markit composite PMI index fell to 53.8 from 56.2 in August, giving investors a reason to sell across the board.

Overseas markets

Currencies and Commodities

Safe-haven buying is providing lift for the U.S. dollar this morning, with the euro dropping against the greenback following weak economic data in Europe. At last check, the U.S. Dollar Index was up 0.26% at 80.04. Gold's advance has been slowed by the rebound in the dollar, with the lead contract up a mere $1.40 at $1,293.50 an ounce in London. Finally, crude futures are retreating as investors remain concerned about falling demand and rising supply. In premarket trading, the most active crude contract has fallen 49 cents to $74.22 per barrel.

Currencies and commodities

Unusual Put and Call Activity:

For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations .

Unusual options activity - puts

Unusual options activity - calls

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