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MORNING WATCH, July 7
By Frederic Ruffy, Optionetics.com
7/7/2004 6:00:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10676

Stocks may recover some of Tuesday’s losses after crude oil prices edged lower and shares of the world’s largest pharmaceutical company moved higher. Yesterday, the Dow Jones Industrial Average ($INDU) lost 63.5 points and the Nasdaq Composite Index ($COMPQ) tumbled 43.2, or 2.15%. One hour before the start of trading Wednesday, however, futures pointed to modest gains in both the Dow and Nasdaq. At the same time, investors may remain a bit cautious following disappointing earnings news and ahead of a few high profile profit reports due out after the close of trading Wednesday.

Earnings pre-announcements continue. Yesterday, tech stocks sank following warnings from Veritas Software (VRTS) and Conexant (CNXT). Early Wednesday, Peoplesoft (PSFT) is in the spot light after the software maker warned that its second quarter profits will fall short of expectations. Meanwhile, Accenture (ACN) reported a 60% increase in third quarter profits, but said that fiscal 2004 results would fall short of analyst estimates. Secure Computing (SCUR), Netopia (NTPA), JDA Software (JDAS), and Ascential Software (ASCL) also issued earnings warnings after the close of trading yesterday.

Concerns over profits may be offset somewhat by a drop in crude oil prices. Yesterday, market jitters rose after prices rose to a five-week high near $40.00 a barrel on Tuesday. Early Wednesday, however, crude fell 60 cents to $39.05 a barrel.

There is no economic news to report Wednesday morning.

Pfizer (PFE) gained before the opening bell after the world’s largest drugmaker said it was expanding a discount drug program. The move will allow millions of uninsured Americans to buy products like the Lipitor cholesterol treatment at a reduced cost.

After the close of trading today, Yahoo (YHOO) is expected to announce profits of 8 cents a share. Dow component Alcoa (AA) releases its profit report, which is expected to include earnings per share of 47 cents. Analysts expect Genentech (DNA) to post earnings of 19 cents per share.

In the options market, traders were a bit more defensive yesterday. As both the Dow and the Nasdaq moved lower, the CBOE Volatility Index ($VIX) rose 1.17 to 16.25. The Nasdaq Volatility Index ($VXN), meanwhile, surged 2.22 to 22.11. The rise in the two volatility barometers indicates that market jitters are rising, and that the options market is beginning to price in the prospect of greater volatility going forward.