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MORNING WATCH, Apr. 12
By Frederic Ruffy, Optionetics.com
4/12/2004 6:15:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10210

Stocks are set to open modestly higher after the three-day weekend. The market was closed on Friday in observance of Good Friday, but stocks may get a lift early this week due to expectations that corporate America will deliver upbeat earnings news during the second half of April. As a result, forty-five minutes before the opening bell Monday, stock index futures pointed to a 35-point advance for the Dow Jones Industrial Average ($INDU) and a 7-point gain in the Nasdaq Composite ($COMPQ). However, while earnings reports are expected to be in focus, trading may turn a bit cautious due to ongoing violence in Iraq and ahead of a busy economic calendar later in the week.

Earnings are in focus. More than 700 companies report results this week. 60 of the S&P 500 stocks are set to report. Four Dow components release results this week, including Intel (INTC), Johnson & Johnson (JNJ), Citigroup (C), and International Business Machines (IBM). According to recent estimates compiled by Thompson First Call, analysts expect S&P 500 companies to show solid first quarter earnings growth in excess of 17%.

In addition to earnings, traders will also be watching events unfold in Iraq. Escalating violence between US troops and Iraqi insurgents is causing the numbers of casualties to mount. According to recent reports, more than 600 Iraqi, including many civilians, have died in the past week. At least 60 US soldiers have been killed since April 4. Ongoing violence and the prospect of a prolonged war in Iraq could have important political and economic consequences for the United States, which could also impact market sentiment.

In economic news this week, The Federal Reserve Bank of Kansas City releases its March manufacturing survey at 11:00 a.m. ET. At noon, the Federal Reserve Bank of Chicago releases its Midwest Manufacturing Index for February. Neither report is expected to garner a great deal of attention. However, the economic calendar picks up later in the week with key reports on manufacturing, industrial production, and consumer sentiment due out Wednesday through Friday.
Semiconductor stocks are likely to be active ahead of key earnings reports due out during the next few days. Novellus Systems (NVLS), a maker of equipment used to build computer chips, reports its quarterly results after the close of trading today. Intel, the world's largest chipmaker, reports results on Tuesday. Advanced Micro (AMD) and Texas Instruments (TXN) report on Wednesday. Call options on semiconductor companies like Novellus (NVLS), Asmel (ASML), and Linear Technology (LLTC) traded actively last week ahead of the earnings.

Elsewhere in the options market, there have been signs that traders were growing a bit more cautious last week. For instance, the CBOE Volatility Index ($VIX) has risen during the past three trading sessions and, after dipping below 15 on Monday, is now back above 16.3. The rise in the market’s so-called “fear gauge” indicates that, while investors expect corporate America to post strong quarterly earnings this week, a busy economic calendar, events in Iraq, and Friday options expiration might also add to market volatility.



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