Options Wonderland

[3xBuBu]

Market Update 070207
http://biz.yahoo.com/mu/update.html

4:20 pm : The major averages closed in positive territory again; but the blue-chip indices saw little conviction on the part of buyers since much of the market's attention was directed at the tech-heavy Nasdaq. Investors weighed upbeat news in the recently beaten-down Tech sector and tame inflation data against an underlying sense that the market is still overbought on short-term basis.

The day's biggest headliner was Cisco Systems (CSCO 28.09 +0.81). The tech bellwether, which is also a suggested holding in the Briefing.com Active Portfolio, kicked things off in fine fashion last night after topping Wall Street expectations with a 40% rise in Q2 profits. More notably, Cisco also raising its Q3 and Q4 sales guidance renewed optimism in the sector's growth prospects, especially since several tech companies have lowered guidance of late.

However, while Cisco's news had a ripple effect throughout the market early in the session, so much so that the bulls pushed the Dow into unchartered territory, concerns over overbought conditions crept back into the market late in the day to close the Dow and S&P 500 just barely in the green.

Just before 11:00 ET, the Dow eclipsed the 12,700 level for the first time ever, actually benefiting from a reversal in crude futures following a bearish oil inventories data. The commodity was up as much as 1.6% and making another run at $60/bbl ahead of the report. However, after failing to break above the psychological $60/bbl barrier for a third straight session, crude for March delivery plunged 2% and closed 3.6% off its intraday highs at $57.71/bbl.

Albeit only accounting for a 10% weighting on the S&P 500, the Energy sector tumbling in sympathy with the sell-off in oil, without much evidence of investment dollars rotating into other areas, exacerbated this week's already underlying cautious tone going into the close.

Fortunately for the bulls, one of the other sectors attracting buyers was also the most influential of all, Financials. REITs were among the day's best performers again, this time after Equity Office (EOP 55.45 -0.60) shareholders approved Blackstone's sweetened takeover bid. Vornado Realty Trust (VNO 135.59 +8.59) was the sector's best performer (+6.8%) as its shareholders applauded Vornado's decision to withdraw its riskier offer just hours before the vote. Lincoln National Corp. (LNC 70.41 +2.01) posting a 69% rise in Q4 profits as revenue nearly doubled further supported our Overweight rating on a rate-sensitive Financials that got an added boost from falling bond yields.

With the Fed asserting in its latest policy statement that "the high level of resource utilization has the potential to sustain inflation pressures," today's preliminary read on Q4 productivity was also reassuring, even for bond traders.

At 8:30 ET, the Labor Dept. showed that productivity rose a stronger than expected 3.0% in Q4. Unit labor costs rose just 1.7%, after rising at a 3.2% rate in Q3, pushing the year-over-year increase to 2.8%. That follows a 2.9% rate in Q3 and 3.0% rate in Q2, a declining trend that won't necessarily put to rest concerns at the Fed about the implications of a tight labor market, but it eased the worst of fears that wage-based inflation pressures are building. DJ30 +0.56 DJTA +0.3% DOT +1.0% NASDAQ +19.01 NQ100 +1.0% R2K +0.7% SOX +1.6% SP400 +0.4% SP500 +2.02 XOI -0.5% NASDAQ Dec/Adv/Vol 1167/1866/2.20 bln NYSE Dec/Adv/Vol 1385/1861/1.40 bln

3:30 pm : The indices are bouncing off session lows going into the close, but barely enough the inch the S&P 500 back into positive territory. Only four sectors are trading higher, but respectable gains from the S&P's two most heavily-weighted areas -- Technology and Financials -- are currently providing a floor of support.DJ30 -19.23 NASDAQ +14.90 SP500 +0.55 NASDAQ Dec/Adv/Vol 1286/1726/1.86 bln NYSE Dec/Adv/Vol 1473/1757/1.17 bln

3:00 pm : The blue-chip indices and the Nasdaq now trade in opposing directions as sector leadership continues to deteriorate. Albeit only accounting for a 10% weighting on the S&P 500, the Energy sector now down more than 1.0%, without any evidence of investment dollars rotating into other areas, is exacerbating the market's weakening sentiment. For instance, the beaten-down Tech sector is now trading at afternoon lows and has seen its gains from intraday highs more than halved even though lower energy prices are bullish for equities. DJ30 -28.60 NASDAQ +11.77 SP500 -0.71 NASDAQ Dec/Adv/Vol 1369/1632/1.69 bln NYSE Dec/Adv/Vol 1479/1725/1.06 bln

2:30 pm : After briefly slipping into negative for the first time this afternoon, the Dow is currently struggling to find its footing. Not only are half of its 30 components now trading lower, but many of its highest priced stocks (e.g. BA, JNJ, MO, PG and XOM) are among today's laggards. In fact, if not for a 2% surge in Caterpillar (CAT 65.78 +1.36), which accounts for an 11-point move on the Dow, the price-weighted index would be negative and likely stay that way until the close. That's especially a concern for the bulls since Exxon Mobil (XOM 74.74 -0.40) is unlikely to recoup much in the way of its recent reversal with oil prices closing at session lows.DJ30 +1.36 NASDAQ +16.38 SP500 +1.17 XOI -0.8% NASDAQ Dec/Adv/Vol 1266/1717/1.53 bln NYSE Dec/Adv/Vol 1347/1845/952 mln

10:30 am : Recent attempts to lock in some early gains are short lived as buying efforts get back on track. Aside from strength in Technology, which is now benefiting from a turnaround in hardware stocks, the Energy sector is also providing some notable leadership to the upside. However, not too much should be read into the recent upturn in stocks since oil prices making another run at $60/bbl, with weekly inventories out momentarily, still pose a concern for the bulls. DJ30 +19.15 NASDAQ +12.37 SP500 +3.07 XOI +0.6% NASDAQ Dec/Adv/Vol 1247/1439/412 mln NYSE Dec/Adv/Vol 1313/1505/220 mln

10:00 am : The major averages are now mixed as split industry leadership dictates this morning's action. Of the five sectors trading higher, Technology (+0.6%) is not only pacing the way but appears to be the only space convincingly attracting buyers. Cisco's (CSCO 28.20 +0.92) upbeat guidance has renewed optimism throughout the beaten-down sector, sparking a wave of bargain-hunting interest; but some early profit taking in the stock leaves Cisco near session lows. The nine remaining S&P sectors are only posting gains/losses of between 0.1% and 0.2%.DJ30 -1.60 NASDAQ +5.60 SP500 +1.56 NASDAQ Dec/Adv/Vol 1112/1329/190 mln NYSE Dec/Adv/Vol 1285/1215/72 mln

09:40 am : With the Tech sector's growth prospects under the microscope, as guidance has come down noticeably of late, bellwether Cisco Systems (CSCO 28.74 +1.46) following up a 40% rise in Q2 profits by raising its sales guidance for the next two quarters have helped calm the worst of those fears. Cisco, a suggested holding in the Briefing.com Active Portfolio, is surging 5.4% and within reach of a multi-year high.

Today's strong Q4 productivity growth pushing unit labor costs lower is also contributing to the positive disposition as the declining trend help alleviate wage-based inflation worries. As a reminder, the tight labor market condition is the key item the Fed was referring to in its policy statement when it asserted "the high level of resource utilization has the potential to sustain inflation pressures." DJ30 +3.81 NASDAQ +10.51 SP500 +1.44 NASDAQ Vol 112 mln NYSE Vol 48 mln

09:15 am : S&P futures vs fair value: +3.4. Nasdaq futures vs fair value: +9.2.