Sector Investing

[ReturntoSender]

MORNING WATCH, July 10
By Frederic Ruffy, Optionetics.com
7/10/2003 6:00:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=8677

Stocks are set to trade lower Thursday following disappointing news on the economic front and after earnings from Yahoo! (YHOO) and Genentech (DNA) were not as high as some investors had hoped. Forty-five minutes before the start of trading, index futures were pointing to a 60-point decline in the Dow Jones Industrial Average ($INDU) and a 17-point drop in the Nasdaq Composite Index ($COMPQ).

The employment situation continues to be a thorn in the side of bullish investors. Although many areas of the economy have begun to show improvement, the rate of unemployment has not. That trend continued Thursday after a report on weekly jobless claims showed a larger-than-expected increase. According to the Labor Department, weekly jobless claims rose by 5,000 to 439,000 in the week ended. Economists were expecting no change in jobless claims. Weekly jobless claims have been above the key 400,000 level for several months now and continues to cause concern—especially after last week’s June unemployment report was much worse than economist estimates.
In other economic news scheduled for Thursday, June sales will be released throughout the early morning from individual retailers. The results could set the stage for next week’s key readings on retail sales. In addition, Federal Reserve Chairman Alan Greenspan will speak to a Senate committee at 10:00 a.m. ET. The topic will be the high cost of natural gas. Rising natural gas prices have been a persistent worry for manufacturers.

Shares of Yahoo! (YHOO) are set to move lower after the Internet media giant reported earnings after the close of trading Wednesday. The company said that net income in the second quarter more than doubled to 8 cents a share from 3 cents. Some were expecting Yahoo! to earn 9 cents, and the stock slid on the news. Meanwhile, shares of PepsiCo (PEP) were moving modestly higher overseas after the soft-drink maker said second-quarter profit rose 15% to $1.01 billion and earnings matched analyst estimates. Finally, Genentech (DNA) gave their latest results after the close of trading today. The company said it swung to a profit in the quarter thanks to higher sales of two key cancer drugs. However, the stock traded modestly lower following the news in after hours trading Thursday.

Shares of Motorola (MOT) were also moving lower after the Wall Street Journal reported that rival Nokia (NOK) is gaining market share in the US. Shares of chipmaker Micron Technology (MU) could also experience weakness on news that Texas Instruments (TXN) sold 24.7 million Micron shares.

General Electric (GE) reports earnings before the start of trading tomorrow. In addition, Friday’s Producer Price Index [PPI] and International Trade reports could grab the market’s attention. Overall, after the stock market’s recent ascent during the past few months, there is little margin for error from the economic and earnings data. Indeed, some market watchers now worry that certain sectors of the stock market are “priced for perfection”. If so, the result is likely to be some interesting and volatile trading, and an ideal environment for straddles, strangles, backspreads, or other options strategies that make money whether stocks move higher or lower.

Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site

Be patient. The stocks will come to you at a buy point you feel comfortable with.

RtS