Jan 19th A/H Wrap Up

End of Day Wrap Up

 

S&P 500 Index (SPX) 1,281.92 -13.10

CBOE Volatility Index (VIX) 17.31 +1.44

DJIA 11,825.29 -12.64

NASDAQ 2,725.36 -40.49

 

A modest 13-point loss in the Dow Jones Industrial Average masked a bearish trading day on Wall Street Wednesday. While the Dow suffered a very small loss, the S&P 500 Index was sacked for a 13-point drop and the NASDAQ tumbled 40.5 points.

IBM gained 3.4 percent on better-than-expected earnings and helped to keep the Dow steady. However, IBM was only one of eight Dow stocks moving higher today. Twenty-two traded lower.

Meanwhile, CREE, which lost 14.4 percent on earnings, weighed on the NASDAQ. Apple (AAPL) traded higher Wednesday morning after its profit report blew past estimates, but gave up early gains and finished down on the session as well.

Post-earnings drops in Goldman Sachs (GS) and Wells Fargo (WFC) weighed on the financials. On the economic front, data released before the bell showed Housing Starts at an annual rate of 529,000 homes in December, which was down from 553,000 the month before. Finally, the upcoming options expiration might be exacerbating volatility as well. The CBOE Volatility Index (.VIX) gained 1.46 to 17.33.

Bullish Flow

Huntsman (HUN) calls were busy today. Shares of the chemical maker lost $1.08 to $16.72 and the focus was on the February 16 call options, which traded more than 10000X. The action includes two blocks of 5,000 that traded at $1.40 and $1.80 per contract. The calls were being sold against Huntsman shares as part of a covered call or buy-write strategy, according to a source on the exchange floor. That is, the investor was buying stock and selling in-the-money calls. If shares hold above $16 through the February expiration, the strategist will be assigned on those calls and asked to sell the stock at $16. If 1 call sold for every 100 shares, the profit, excluding commissions, is equal to the difference between the new cost basis of the stock (stock price minus premium for calls) and the strike price of the option.

Bullish trading was also seen in IBM, Cubist Pharmaceuticals (CBST) and Tibco Software (TIBX).

Bearish Flow

Bearish trades surfaced in Murphy Oil (MUR), the El Dorado, AR oil and gas refiner. Shares finished the day down $1.25 to $73.06 and the action was concentrated in the February 65 calls. 5,230 traded on the day. The top trade was a block of 3,300 at the 55-cent asking price. Beyond that, most of the action was in smaller sizes and traded predominantly (97 percent) at the asking price. February 70 puts traded another 420 contracts. No news on the stock. The action might be a play on earnings, due January 26.

Bearish flow also surfaced in Blue Coat Systems (BCSI), Legg Mason (LM), and Kroger (KR).

Index Trading

Options action is heating up in the index market heading into the options expiration. Since the S&P 500 Index (.SPX) and many other cash indexes settle using Friday morning prices, the last day to trade the contracts is on the Thursday before expiration. So, volume often picks up midweek. Today, for example, 1.27 million puts and 933 calls traded across the S&P 500 and other cash indexes, which is more than double the recent average daily volume, according to Trade Alert data. VIX 32.5 calls were the most actives. SPX Jan 1250 puts were the second. While SPX lost 13.10 to 1,281.92, VIX jumped 1.44 to 17.31.

Stocks in the News

Western Digital (WDC 33.94 +0.50) reported Q2 (Dec) earnings of $0.96 per share, $0.38 better than the Thomson Reuters consensus of $0.58; revenues fell 5.5% year/year to $2.48 bln vs the $2.35 bln consensus. The co generated $505 million in cash from operations during the December quarter, ending with total cash and cash equivalents of $3.1 billion. "We are pleased to deliver better-than-expected revenues, profitability and gross margin in the December quarter, reflecting solid execution and an improvement in hard drive industry conditions compared with the prior two quarters."

IBM (IBM 150.65 +0.65) reported Q4 (Dec) earnings of $4.18 per share, $0.10 better than the Thomson Reuters consensus of $4.08; revenues rose 6.6% year/year to $29.02 bln vs the $28.26 bln consensus. Co issued in-line guidance for FY11, sees GAAP EPS of at least $12.56 vs. $12.58 Thomson Reuters consensus. IBM said that it expects to deliver full-year 2011 GAAP earnings per share of "at least $12.56; and operating (non-GAAP) earnings per share of at least $13.00, which puts the company on track for the 2015 road map of at least $20 of operating (non-GAAP) earnings per share." The 2011 operating (non-GAAP) earnings exclude $0.44 per share for the amortization of purchased intangible assets, other acquisition-related charges and certain retirement-related costs that the company has defined as non-operating. IBM's tax rate was 24.4%, down 0.2 points year over year. Net income margin increased 0.4 points to 18.1 percent. The Americas' fourth-quarter revenues were $12.2 billion, an increas 9 percent (9 percent, adjusting for currency) from the 2009 period. Revenues from Europe/Middle East/Africa were $9.5 billion, down 2 percent (up 4 percent, adjusting for currency). Asia-Pacific revenues increased 14 percent (7 percent, adjusting for currency) to $6.6 billion. OEM revenues were $784 million, up 21 percent compared with the 2009 fourth quarter.

Cree (CREE 62.71 +1.06) reported Q2 (Dec) earnings of $0.55 per share, $0.03 worse than the Thomson Reuters consensus of $0.58; revenues rose 28.8% year/year to $257 mln vs the $276.6 mln consensus. CREE reports Q2 operating margins 26.5% vs 27.3% Thomson Reuters consensus; Q1 31.3%. CREE reports Q2 gross margins of 47.1% vs 47.8% Thomson Reuters consensus; Q1 49.0%. Co issued downside guidance for Q3, sees EPS of $0.38-0.45 vs. $0.58 Thomson Reuters consensus; sees Q3 revs of $245-265 vs. $288.33 mln Thomson Reuters consensus. "Q2 results reflected continued growth in our LED lighting product line, but revenue and earnings were lower than our targets due primarily to lower sales to our LED component distributors in Asia… We are managing through an inventory correction in Asia in the near term, but the opportunity in LED lighting has not changed. Quarterly revenue increased 29% year-over-year and based on the market trends we are seeing, and the success of our own LED lighting business, we are more confident that we will see continued adoption of LED lighting over the next several years."

Rightnow (RNOW 27.50 +0.41) signed a definitive agreement to acquire Q-go.com B.V., a natural language search solutions provider. "We expect this acquisition to help further accelerate our growth, adding approximately $8 million in revenue for the 2011 fiscal year… We will also gain additional critical mass in Europe with approximately 60 new clients and 70 talented employees." Under the terms of the definitive agreement, RightNow will acquire all of the Q-go stock and the stock of Q-go's subsidiaries, for ~$34 million in cash. Q-go is headquartered in Amsterdam with subsidiary operations in Germany, Spain and the United States. The company anticipates the acquisition will add ~$1 million of revenue in the first quarter of 2011, ~$8 million of revenue for the 2011 fiscal year, and ~$3.5 million of expenses per quarter during 2011. RightNow expects the acquisition to be accretive to earnings in the first quarter of 2012. Additionally, RightNow expects increased expenses from the acquisition in amortization of acquired intangibles, which will be finalized once the purchase price accounting valuation is complete. The acquisition will be recorded in the company's March 31, 2011 quarter end financial statements.

Shares of F5 (FFIV)  , which were added to the S&P 500 Index (SPX)  last month, tumbled 19% to $112.66 in heavy trading as the company said it expects fiscal second-quarter revenue of $275 million to $280 million. Analysts polled by FactSet Research currently expect revenue for the March quarter to come in at $281 million. The company also expects adjusted earnings of 84 cents to 86 cents a share, in line with the current estimate of 85 cents a share.

For its fiscal first quarter, F5’s adjusted earnings were 88 cents a share, beating the estimate of 83 cents a share. Revenue was $268.9 million, up from $191.2 million in the year-ago period. The sales figure was lower than Wall Street’s forecast for $270.6 million. Net earnings were $55.7 million, or 68 cents a share, up from $29.3 million, or 36 cents a share, in the year-ago quarter.

Stock in eBay (EBAY)  climbed 3.1% to $29.99 following the company’s report that fourth-quarter earnings rose 17% excluding last year’s sale of Skype. Adjusted earnings rose to $684 million, or 52 cents a share, and revenue climbed 5% to $2.5 billion. Analysts had been expecting earnings of 47 cents a share on revenue of $2.48 billion.

Net earnings at eBay were $559 million, or 42 cents a share, compared with $1.36 billion, or $1.02 a share, for the same period the previous year.Read more about eBay’s report.

Meanwhile, shares of Seagate Technology (STX)  fell 3% to $13.70. The hard-disk-drive maker posted fiscal second-quarter adjusted earnings of 33 cents a share on revenue of $2.72 billion, down from $3.03 billion in the year-ago period. Analysts had expected earnings of 33 cents a share on revenue of $2.73 billion, according to a consensus survey by Thomson Reuters. Seagate posts 72% drop in quarterly profit.

Before the start of late trading, a decline in U.S. stocks was paced by the financial sector after American Express Co. (AXP)  forecast quarterly earnings below Wall Street’s expectations and Goldman Sachs Group Inc.’s (GS)  revenue disappointed. U.S. stocks wobble after Goldman, American Express updates.

Little Changed: Treasuries are little changed after spending most of the session in negative territory. The 10-yr yield climbed as high as 3.388% during overnight trading, but has retreated back to the flat line near 3.370%. Yields across the curve are slightly elevated in every maturity except for the 30-yr, which happens to be lower by less than 1 bp. After steepening to almost 279.5, the 2-10-yr spread is a touch flatter on the session at 277.3.

The same can be said for the 10-30-yr spread as it trades near 118.5. Spot gold is holding on to a small gain at 1374 while spot silver trades up 45 cents at 29.32. Data set to be released includes Housing Starts and Building Permits (8:30). The Fed will purchase $6-$8 bln worth of 2013/2014 maturities through its Permanent Open Market Operations.

Dollar's 78.80 Support Fails: The dollar index broke below the 78.80 level that has provided support since early December, and now trades near 78.50. Weakness in the greenback comes amid continued strength in the euro. The single currency is trading higher by almost 100 pips at 1.3480 as reports from a German newspaper surface that Germany may help Greece restructure its debt. Today's move in the euro has pushed the currency to its best level since November 22nd. The pound is higher for the ninth consecutive session after the U.K. jobless claims number for December came in better-than-expected. 

Sterling is better by 50 pips to 1.6010 as it looks to close above 1.60 for the first time since November 17th. The gradual decline of dollar/yen continues with the pair trading 82.20 after the 82.00 level provided support in overnight trading. Dollar/swiss dipped below its .9600 support area for the second consecutive session, but once again recaptured that level. The pair is little changed at .9625. After holding the .9900 area for the past two weeks, the aussie has recaptured dollar parity, and trades up 70 pips at 1.0060. The next level of resistance lies near 1.0160. After yesterday's big reversal, dollar/cad has so far been unable to extend its gains, and trades down 15 pips at .9895. The yuan settled little changed at 6.5834. 

Buying Follows Banks' Results: Treasuries are near their best levels of the session, having found a bid following the mixed earnings results from Goldman Sachs and Wells Fargo. The 30-yr yield leads the decline, falling close to 3 bps so far for the session. The 2-yr lags the rest of the curve in terms of drop in yield, seeing less than a 1 bp decline.

Yesterday's close in the 2-30-yr spread at 397.5 was its steepest on record. Today's action has flattened the spread a bit as it now trades 396. Spot gold trades higher by 10 dollars at 1378, and spot silver is up 59 cents at 29.45.

 

 

 

Upgrades

Company Symbol Brokerage Firm Upgraded From: Upgraded To:
G&K Svcs GKSR Robert W. Baird Neutral Outperform
Comcast CMCSA Collins Stewart Hold Buy
Waddell & Reed WDR Stifel Nicolaus Hold Buy
Polycom PLCM Wedbush Neutral Outperform
CGGVeritas CGV RBC Capital Mkts Sector Perform Outperform
Western Digital WDC Rodman & Renshaw Mkt Perform Mkt Outperform

Downgrades

Company Symbol Brokerage Firm Downgraded From: Downgraded To:
UniFirst UNF Robert W. Baird Outperform Neutral
Janus Capital JNS Stifel Nicolaus Buy Hold
Legg Mason LM Stifel Nicolaus Buy Hold
Sterling Banc SBIB Argus Buy Hold
Garmin GRMN MKM Partners Buy Neutral
Albemarle ALB Davenport Buy Neutral

Coverage Initiated

Company Symbol Brokerage Firm Initial Recommendation:
Value Vision Media VVTV Dougherty & Company Buy
Google GOOG ISI Group Hold
Ariad Pharm ARIA Brean Murray Buy
Stericycle SRCL Wedbush Neutral
NetScout Systems NTCT Wedbush Outperform
NetScout Systems NTCT Wunderlich Buy
Airmedia AMCN Auriga U.S.A Buy
Apple AAPL Kaufman Bros Buy
Cree CREE Kaufman Bros Hold
Kanye Anderson Midstream KMF Robert W. Baird Outperform
Bitauto Holdings BITA Oppenheimer Outperform
AmerisourceBergen ABC Oppenheimer Outperform
Apple AAPL Oppenheimer Outperform
Cardinal Health CAH Oppenheimer Outperform
Cree CREE Oppenheimer Outperform
Express Scripts ESRX Oppenheimer Outperform
McKesson MCK Oppenheimer Outperform
Medco Health Solutions MHS Oppenheimer Outperform
Motorola Mobility MMI Oppenheimer Outperform
New Oriental Education & Technology EDU Oppenheimer Outperform
Omnicare OCR Oppenheimer Outperform
PharMerica PMC Oppenheimer Perform
Sensata Tech ST Oppenheimer Outperform
IBM IBM Collins Stewart Buy
Apple AAPL Ticonderoga Buy
Western Digital WDC Brean Murray Buy
Apple AAPL Stifel Nicolaus Buy
IBM IBM Stifel Nicolaus Buy
Microsoft MSFT Stifel Nicolaus Buy
Stratasys SSYS Dougherty & Company Neutral
Apple AAPL Wedbush Outperform
Boeing BA Wedbush Outperform
Apple AAPL RBC Capital Mkts Outperform
Ariba ARBA RBC Capital Mkts Sector Perform
Fortinet FTNT RBC Capital Mkts Outperform
Union Pacific UNP Longbow Buy
CSX CSX Longbow Buy
Steelcase SCS Longbow Buy
Norfolk Southern NSC Longbow Buy
Cree CREE Brigantine Sell
Sensata Tech ST Longbow Neutral
Apple AAPL Canaccord Genuity Buy

 

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