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Opening View: Stock Futures Lower as Street Takes a Cue from Japan

Posted
3/14/2011 8:18:00 AM
By: Schaeffer's Investment Research
Referenced Stocks:CVX;GE;GSI;HPQ;LZ

The Dow Jones Industrial Average (DJIA) added about 60 points on Friday, reclaiming the support of its 10-week moving average. The broader S&P 500 Index (SPX) and the tech-rich Nasdaq Composite (COMP), however, weren't as fortunate, finishing the week south of their respective 10-week trendlines for the first time since late August. As a result, these trendlines will be in focus this week, as will round-number support at the 12,000 level for the Dow, and the 1,300 level for the SPX.

Ahead of the bell, stock futures are mixed. The Dow is trading about 3 points north of fair value, while the SPX is down about 8 points, and the COMP is flirting with a 13-point deficit. ( Editor's Note: This article originally reported steeper pre-market losses. We apologize for the inconvenience. ) It appears many stocks are taking a cue from their overseas neighbors, with Japan's Nikkei 225 Average logging its worst single-session performance in more than two years in the wake of more earthquake-related devastation. On Sunday, the country's prime minister said it was facing the biggest disaster since World War II.

In equities news, General Electric ( GE ) has dipped lower in pre-market trading. The company built the first reactor at the Fukushima Daiichi nuclear power complex in Japan, which malfunctioned as a result of the earthquakes and tsunami. The blue chip has vowed to donate $5 million to relief efforts.

Meanwhile, fellow Dow components Hewlett-Packard ( HPQ ) and Chevron Corp. ( CVX ) will be in focus today, with both companies hosting analyst meetings.

Finally, the shares of Lubrizol Corp. ( LZ ) are poised to gap about 27% higher, after Warren Buffett's Berkshire Hathaway (BRK) will buy the lubricant maker for about $9 billion. The cash deal values the company at $135 per share, representing a healthy 28% premium to LZ's closing price of $105.44 on Friday. "Lubrizol is exactly the sort of company with which we love to partner," Buffett said in a statement this morning.

Earnings Preview

On the earnings front, General Steel Holdings ( GSI ), Tsakos Energy Navigation (TNP), and American Oriental Bioengineering (AOB) are slated to release their quarterly earnings reports. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The economic calendar won't kick off until tomorrow, with the release of the latest New York-region manufacturing data, last month's import and export figures, the National Association of Home Builders' monthly housing market index, and the Federal Open Market Committee's (FOMC) highly anticipated interest rate decision. On Wednesday, the Street will get word on February's housing starts and building permits, as well as the latest producer price data and regularly scheduled crude inventories report. Finally, the economic calendar will wind down on Thursday with the government's weekly jobless claims and the Conference Board's index of leading indicators, as well as the latest data on consumer prices, industrial production, and manufacturing activity in the Philadelphia region.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,010,365 call contracts traded on Friday, compared to 632,206 put contracts. The resultant single-session put/call ratio arrived at 0.63, while the 21-day moving average remained at 0.59.

Volatility indices

NYSE and Nasdaq summary

Dow, S&P and Nasdaq futures

Trading the News: A Contrarian View. Check out this special report from Bernie Schaeffer here.

Overseas Trading

Stocks in Japan staggered lower today, with the Nikkei tumbling 6.2% to record its steepest single-session drop in more than two years. The sharp decline came even as the Bank of Japan injected a record 7 trillion yen into the financial system, and voted 8-1 to increase its asset buying program by 5 trillion yen, in an attempt to preempt "a deterioration in business sentiment and an increase in risk aversion in financial markets from adversely affecting economic activity." Elsewhere in the region, Hong Kong's Hang Seng added 0.4%, while the Shanghai Composite added 0.1%.

European stocks also showed some weakness, with energy stocks dipping on concerns that the disaster in Japan could hinder nuclear project investment. Insurance companies also struggled, as traders fretted over the potentially high costs of the earthquake cleanup. London's FTSE 100 Index shed 0.2%, the German DAX gave up 0.9%, and the French CAC 40 backpedaled 1.2%.

Overseas markets

Currencies and Commodities

The U.S. dollar is slightly lower this morning, as the U.S. Dollar Index was seen lower by 0.33% at 76.53. Elsewhere, crude futures are also headed lower, testing support at the psychologically significant century mark. In electronic trading, the April crude futures contract has fallen $1.81 to $100.54 per barrel. Finally, gold futures have soared thanks to a flight to safety. In London, the lead gold futures contract has added $3.40 to flirt with $1,425.80 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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