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MORNING WATCH, July 1
By Jody Osborne, Optionetics.com
7/1/2004 9:15:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10648

Post rate hike trading looks to be flat at the open, though economic news could sway traders. Individual stock news this morning could take a toll on Yahoo (YHOO) and Emulex (ELX), though software stocks are seeing a bump in pre-market trading. The Fed decision to raise rates by 25-basis points didn’t hinder stocks Wednesday, but there still is plenty of economic news left to digest today and Friday.

Though traders were pleased to see the word “measured” used in the Fed statement, volume remained moderate during Wednesday’s session. Traders will get some further key data on the economic front this morning in the form of the ISM Index and construction spending. Of course, Friday’s jobs report is also a very important release. Jobless claims rose a bit more than expected last week, with 351,000 claims filed. Economists were not pleased to see a third consecutive rise in continuing claims either.

Shares of Yahoo are looking weak before the bell after the Internet company was downgraded to “Hold” from “Buy” at Smith Barney. The broker feels that the stock is properly valued at its current price, though Smith Barney raised its price target to $36.50 from $33. Yahoo closed Wednesday’s session at $36.40, reaching a new 52-week high at $36.51 intraday.

Shares of Emulex are also down sharply in pre-market trading after the storage networking supplier warned that fourth quarter earnings would fall short of expectations. Original estimates were for earnings per share near 25-cents, but ELX lowered this to 18-cents a share. Revenues are also expected to come in 15 percent below original forecasts. The company is blaming weak demand from two of its main customers for the shortfall.

Oracle (ORCL) CEO Larry Ellison has put attention on software stocks this morning. Mr. Ellison stated last night that Oracle is looking at several companies besides PeopleSoft (PSFT) as possible acquisitions. This has benefited shares of Business Objects (BOBJ), BEA Systems (BEAS) and Siebel Systems (SEBL). Oracle has been in a hostile take over bid of PSFT for months now.

It will be interesting to see how the markets fare today following the Fed announcement. Stocks rose after the initial news Wednesday, but volume wasn’t particularly heavy. Nonetheless, stocks might benefit from knowing that the Fed still plans on using baby steps to raise rates. Of course, there is plenty of other news that could impact trading, including second quarter earnings which will be flowing as July moves along.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site