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MORNING WATCH, Sep. 5
By Frederic Ruffy, Optionetics.com
9/5/2003 6:00:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=9012

Stocks are set to open lower Friday following five straight days of gains. The Dow Jones Industrial Average ($INDU) has risen during every trading session since last Wednesday and added more than 250 points. However, a disappointing report on the nation’s employment situation sent stock index futures lower before the start of trading Friday, and could prove to be a catalyst for a round of profit taking before the weekend.
Early Friday, the Labor Department said that the nation lost far more jobs than expected in August. The monthly report, which is released on the first Friday of every month, showed that the number of non-farm payrolls dropped by 93,000 in August, after dropping 49,000 in July. It marked the seventh consecutive month of declines and was much worse than the expected. In fact, economists were expecting the report to show an increase in non-farm payrolls. The August numbers also represent the largest loss of jobs March of this year, when the non-farm payrolls decreased by 101,000.

While stock index futures fell following the unemployment report, investors reacted favorably to comments from Intel (INTC) late Thursday. The world’s largest chipmaker boosted its third quarter sales forecast—from a range of $6.3 billion to $6.8 billion to a new range of $6.6 billion to $6.8 billion. Although that represents flat or modestly lower sales from second quarter numbers, investors cheered the upward revision and sent Intel shares sharply higher after the close.

Meanwhile, PeopleSoft (PSFT) shares are likely to be active. The software marker, which is currently trying to fend off a hostile takeover from Oracle (ORCL), said late yesterday that it is shedding 900 jobs or 7% of its workforce. PeopleSoft also predicted that third quarter revenues would total $575 million to $595 million and full year revenues will probably reach $2.15 billion. Full year earnings are anticipated to total 52 to 55 cents a share. Furthermore, sales are expected to rise to $2.8 billion to $2.9 billion in 2004. Investors reacted favorably to the news and PSFT was also trading higher in after hours trading late Thursday.

In the options market, traders appear to be growing more bullish. As evidence, total call volume across the five options exchanges totaled 2.12 million contracts yesterday, compared to only 1.28 million puts. Consequently, the total put-to-call ratio dipped to .60. We have not seen such a high ratio of call to put activity since July 15, when the ratio fell to .57. At that time, bullish sentiment had also reached relatively high levels, and, interestingly, that was also the last time the stock market put in a short-term top.



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