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MORNING WATCH, May 20
By Frederic Ruffy, Optionetics.com
5/20/2004 6:00:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10429

Stocks index futures were not much changed Thursday morning. Economic news is expected to garner most of the market’s attention in early trading. Disappointing earnings news might drag down the technology sector. As a result, roughly one hour before the opening bell, index futures showed a small gain for the Dow Jones Industrial Average ($INDU) and a modest loss in the Nasdaq Composite Index ($COMPQ).

Investors will get a series of readings about the economy today. According to statistics released from the Labor Department early Thursday, the number of weekly jobless claims rose during the latest period. The report showed that the number of applications for jobless benefits rose by 12,000 from a revised 333,000 the week before. Economists predicted the report to fall towards 330,000.

Bonds moved higher on the news, and the yield on the benchmark ten-year Treasury note fell. The report might therefore temporarily ease some of the interest rate jitters that have spooked investors lately, which could also help push stock prices modestly higher early Thursday.

In other economic news today, the index of leading economic indicators is due out at 10:00 a.m. ET and, after rising .3% during the month of March, is expected to increase by .2% in April. The Philadelphia Fed Survey is due out at noon. Economists expect the widely watched gauge of manufacturing activity to produce a reading of 31, compared to 32.5 in April.

Technology stocks are likely to trade actively following disappointing earnings news from Intuit (INTU) and Ciena (CIEN). Software maker Intuit warned that its fiscal fourth quarter loss will be wider than previous estimates. Ciena is expected to fall after the company said its second quarter loss totaled 9 cents a share. Analysts were expecting the marker of fiber optic equipment to show a loss of 8 cents a share.

Elsewhere in the networking sector, Tellabs (TLAB) might fall on news that it will acquire Advanced Fibre (AFCI) for $1.9 billion in cash and stock. The deal values AFCI at $21.25 a share, and up 25% above yesterday’s closing price. Brocade (BRCD) is expected to trade higher after the maker of switches for data storage networks said job cuts help the company narrow its quarterly loss to only 1 cent a share, compared to 57 cents a year ago.

In the options market, traders will be adjusting positions ahead of Saturday’s option expiration. Today is the last day to trade many index option products. Friday represents the last opportunity to trade any remaining contracts. Therefore, options strategists will be using the next two days to close out or roll forward any options positions that involve May 2004 options contracts, which could also cause volume and volatility to rise.



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