Friday, November 20, 2009

Morning Call: November 20, 2009

November 20, 2009: Morning Call

Fair Value: SP500 – 1093.48; NDX: 1772.72; DOW: 10314.84

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/ 1110 resistance

5-Day Outlook:
Today: ANN and DHI report earnings.

Next Monday: French, German, and Euro-zone PMI Manufacturing data, US Existing Home Sales.

Next Tuesday: German GDP, US GDP Revision, S&P CaseShiller Home Price Index, US Consumer Confidence, Richmond Fed Manufacturing Index

Next Wednesday: UK GDP, US Personal Income/Spending, US Durable Goods, US Initial Jobless Claims, University of Michigan Confidence, US New Home Sales

Next Thursday: Thanksgiving Holiday- Markets Closed.

Notable Earnings: Monday Pre-Market: BJS, CPB, LDK. Monday Post-Market: HPQ, BRCD. Tuesday Pre-market: AEO, HNZ. Tuesday Post-Market: JCG

Detailed Daily Calendar of Events:

Pre-market EPS: ANN (.06/475.9M); DHI (-.25/1.15B); SJM (1.04/1.24B)
10:00: DHI earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 9 points below fair value and the NASDAQ futures are trading 13 points below fair value at 7:45am ET. There are a few developments that have contributed to sell-off in the futures market over the last 2 hours. European markets reversed modest gains on the open and are down 1% led by financial and basic material stocks after ECB President Trichet said the ECB would begin to absorb liquidity to ensure price stability and that banks must strengthen their balance sheets. Zhang Ping, chairman of the Chinese National Development and Reform Commission, said at 7am ET that domestic demand growth is not strong enough and that China's economic recovery is not solid. Also, said that China still has an industrial overcapacity problem. Zhang says China's external and domestic situation is complicated. There are also rumors circulating that Ukraine is on the verge of defaulting on their sovereign debt - this Ukraine news story is weighing on the Euro, which is trading down 0.75% against the dollar, right at the short-term uptrend line at 1.48. Gold is trading down 10 to 1134 and other commodities are down 1% to 1.25%. Asian markets closed mostly lower as DELL's disappointing results weighted on technology shares and resource stocks fell on lower commodity prices (Japan down 0.54%-4th down day in a row; Hong Kong down 0.83%, Australia down 1.33%, Shanghai down 0.31%, India up 1.4%). India reversed early declines led by banking and technology shares as traders moved to cover short positions. South Korea was flat as chipmakers weighed on the market. Gainers outnumbered losers in China, but the market still turned down by the end of the day on concerns about the country’s monetary policy.

Research Calls/Market Moving News:

DELL (15.87): Dell reports Q3 EPS $0.23 ex-items vs Reuters $0.28Company reports revenues of $12.90B vs Reuters $13.20B. For Q4, Dell expects seasonal demand improvement in its Consumer business, while demand in Public is typically lower during the quarter. The company expects Q4 revenue to improve over Q3; Reuters consensus is $13.58B. DELL shares are trading down 6.7% in the pre-market.

Fed Makes Monitoring Capital Foremost Concern Amid Bubble Talk- Bloomberg: -- “Federal Reserve officials are stepping up scrutiny of the biggest U.S. banks to ensure the lenders can withstand a reversal of soaring global-asset prices, according to people with knowledge of the matter. Supervisors are examining whether banks such as JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. have enough capital for the risks they take, how much they know about the strength of their counterparties and whether risk managers have authority to influence bank practices and policies. Lawmakers led by Senator Christopher Dodd have criticized the Fed for failing to prevent a decline in lending standards that contributed to the credit crisis. The central bank’s monitoring takes on renewed urgency as Chairman Ben S. Bernanke’s pledge to keep the benchmark interest rate near zero for “an extended period” is helping to fuel a surge in assets. The MSCI AC World stock index is up 71 percent since hitting a recession low on March 9. Gold reached an all-time high of $1,145.50 an ounce Nov. 18. The policy is raising the “systemic risk” of new asset bubbles, Bill Gross, who runs the world’s largest bond fund at Pacific Investment Management Co., said in a note posted on the Newport Beach, California-based company’s Web site yesterday. Finance officials in Asia say a bubble fueled by the Fed’s low rates has already arrived.”

RIMM (58.84): Research In Motion downgraded to neutral from buy at FTN Equity :Firm notes a decline in market share due to greater than expected competitive pressure.

GPS (21.84): Gap reports Q3 EPS $0.44 vs guidance $0.42-0.44 vs Reuters $0.44: Company previously reported revenues of $3.59B. Gross margin increased 380 basis points to 42.5%; operating margin increased to 13.9% compared with 11.1% last year. inventory per square foot was down 9% y/y. GPS shares are trading up 1.6%.

Treasury announces plans to sell warrants from JPM, COF, TCB in modified Dutch auctions: The auctions will be held during the next month. The warrants were obtained from the companies as part of the TARP program.

Dallas Fed President Fisher comments on too big to fail problem - wires: Fisher says that it is unrealistic to expect the government not to help systemically important firms get "out of the fire". But Fisher added that banks that are considered too big to fail might need to divest some businesses such as proprietary trading.

GS (172.83): Some of Goldman Sachs' largest investors say more profits should go to shareholders reports the WSJ: Sources familiar with the situation say that some of the firm's largest shareholders are saying the firm should reduce its bonus pool and pass along more of the earnings to shareholders. Shareholders point to expectations that the record net income and compensation that will result in EPS about 22% lower than '07 because of the 100M shares issued in the past year as the bank sought to bolster its financial position and capital. The shareholders say reigning in the bonus pool would give a boost to EPS and the share price. Some investors point to the change in the financials that now includes consultants and temp workers in the total worker count so that total pay per worker appears lower.

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