Thursday, October 30, 2008

October 30, 2008: Morning Call

October 30, 2008: Morning Call

Fair Value: SP500 – 929.83; NDX: 1306.29; DOW – 8977

Technical Levels:

SPX: 848-850 support/ 998, 1098-1100 resistance

NASDAQ: 1423 support /1640-1650, 1890 resistance


Pre-market EPS: BJS (.56/1.46B); CAM (.71/1.48B); CL (.98/4.0B); D (.91/3.63B); EK(.22/2.53B); EXPE (.42/838.1M); IFF (.77/629.2M); IP (.78/6.89B); MOT (.02/7.81B); MRO (2.36/24.52B); RDS (2.61/123.8B); XOM (2.36/131.38B); DB (1.25/5.3B)
04:00: DB earnings call
04:55: German Unemployment Rate (October): 7.6%
06:00: Euro-zone Consumer Confidence (October): -20
08:30: Q3 US GDP: -0.5%; Personal Consumption: -2.4%
08:30: GDP Price Index: 4.0%; Core PCE QoQ: 2.5%
08:30: Initial Jobless Claims (Oct 25): 475,000; Cont. Claims: 3.7m
08:30: Fed’s Kroszner speaks on risk management
10:35: EIA Natural Gas Storage Change
15:15: Fed’s Yellen speaks on the economy
Post-market EPS: AKAM (.40/196.0M); BMC (.51/467.1M); CHK (.89/2.8B); MEE (.74/782.8M); SWN (.41/426.3M0; WYNN (.62/756.9M);

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 23 points above fair value at 7:41am ET primarily due to strength in Asian markets. Asian markets surged higher on news that the Federal Reserve was establishing a 120 billion dollar swap facility with South Korea, Singapore, Brazil, and Mexico. Money-market rates have also fallen and three-month dollar LIBOR is pegged at 3.19% versus 3.42% yesterday. Asian markets ripped higher with Japan gaining 9.9%, Hong Kong 12.8%, and South Korea 12.17%. Basic material and resource sectors were among the sharpest gainers. European markets are up 2.5% at the highs for the session. Advancers on the FTSE 100 lead decliners 4-1. Deutsche Bank (DBK.GR), Alcatel-Lucent (ALU.FP), Royal Dutch Shell (RDSA.LN), Novo Nordisk (NOVOB.DC) and Unilever (ULVR.LN) all traded higher following quarterly earnings or trading updates. Volkswagen (VOW.GR) extended gains after reporting 9 month results and reaffirming forecasts. German Oct Unemployment and France Sept PPI were both better than expected. EuroZone Industrial and Consumer confidence data were weaker than forecast. Q3 GDP and weekly jobless claims will be reported at 8:30 ET. Fed Governor Kroszner speaks at 8:30 ET, followed by SF Fed President Yellen at 15:15 ET.

Traders should begin scaling out of longs above the 950 level on the S&P 500 because the easy money has been made off the lows. The 998-1002 area on the SPX should be an area of formidable resistance given the headwinds facing the global economy and consumer. Also, the Baltic Dry Index (BDIY Index GO on Bloomberg) is a red flag right now because the index is still at a 52 week low despite the bounce in commodity prices and global stock indexes. The index closed at 925 on Wednesday (at a 52-week low and 92% below the May 20, 2008 record) signaling that many shippers are still unable to obtain trade financing from the banks. Obviously, the Fed swap lines are partially targeting the frozen shipping markets with the goal of trying to rekindle trade financing in many emerging markets (in many emerging markets, ships have been idled in port). So, keep your eye on the Baltic Dry Index. The broader indexes will face additional headwinds if the Baltic Dry Index does not see a sharp recovery in the next few days. This market continues to favor traders with a short-term time horizon and a disciplined strategy. Avoid taking substantial intermediate and long-term risk.

Impact Research Calls/Market Moving News:

RIMM (47.82): Barron's Weekday Trader is cautious on Research In Motion: The article notes that despite the fact that the stock is down roughly 70% from its all-time high in June, the bullish case has dissipated given the outlook for consumer retrenchment and heightened competition. Barron's adds that the company is on the verge of rolling out its new phone, Storm, next month, which is more costly to produce, but will compete with smart phones costing less, including the company's Pearl. According to the article, if Storm is a bust, the shares could fall further, while if it is successful, the company will have to contend with the uncertainties of being in a hit-driven business. Barron's also highlights concerns surrounding the deterioration in gross margins as fickle consumers represent an increasingly larger portion of BlackBerry subscriber additions.

CLF (27.19): Cleveland Natural Resources reports Q3 EPS $2.13 ex-items: Q3 North American Iron Ore pellet sales volume was 8.0M tons, up 31% from the 6.1M tons sold in the prior-year Q3. Cost per ton increased 25% in Q3 to $60.47, compared with $48.34 in 2007's comparable quarter. Asia-Pacific Iron Ore sales volume was virtually flat during the 2008 Q3 at 2.1M tonnes when compared with Q3 in 2007. Per-tonne cost in Asia-Pacific Iron Ore for Q3 increased 44% to $63.76, versus the comparable period in 2007.

WYNN (41.05): Steve Wynn spends money as others cut back – WSJ: The article, for which Wynn was interviewed, says WYNN's low level of debt helps it tremendously as it splurges. While both Wynn and WYNN have lost money of late, Wynn sees the economic downturn as a chance to build market share and win customer loyalty, and sees not spending money now as a very bad idea.

FSLR (116.00): First Solar upgraded to buy from neutral at Merriman Curhan Ford

BJS (13.46): BJ Services reports Q4 EPS $0.57 vs 14-Oct guidance of $0.55-0.57: Company reports revenues of $1.53B vs 14-Oct guidance of $1.53B. Guides Q1 Lower: EPS to $0.48-0.51 vs Reuters $0.57.

CSCO (17.87): Cisco Systems' mentioned cautiously at Morgan Stanley: The shares are rated overweight with a $24 target. The firm believes Street estimates are too high and would view a reduction in consensus estimates as an opportunity to accumulate shares. Morgan Stanley says their checks suggest FQ109 results should be in line at 8% y/y growth, however weaker demand drives a (3%) reduction to their FQ209 sales estimate, which the firm now expects to come in flat Q/Q.

RIG (73.00): Transocean contract is a record for multi year deepwater rig, says Citi: Firm says yesterday's contract announcement from the company at a day rate of $640K/day is the highest rate ever for a multi year drilling contract, and is a positive for those in the deepwater drilling services space. Firm says selloff in shares of RIG is overdone. Shares rated buy, tp $159.

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