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MORNING WATCH, Mar. 21


By Frederic Ruffy, Optionetics.com
3/21/2005 5:45 AM EST


Early indications point to modest market strength Monday morning, with gains in Internet and biotechnology stocks following merger news. Trading is expected to remain cautious, however, due to rising oil prices and ahead of tomorrow’s Federal Reserve Open Market Committee [FOMC] meeting. Approximately 90 minutes before the start of trading in New York, stock index futures pointed to modest gains for both the Dow Jones Industrial Average ($INDU) and the Nasdaq ($COMPQ).

Merger news in the Internet sector is making rounds Monday morning. IAC InterActiveCorp (IACI) is making a bid for Ask Jeeves (ASKJ), according to a story on Reuters. ASKJ was up $5.05 to $29.29 on the news. Meanwhile, Yahoo Inc. (YHOO) is acquiring privately held Ludicorp Research & Development Ltd. A merger was also announced in the biotech sector Monday. Medicis Pharmaceutical (MRX) and Inamed (INMD) are merging in a $2.8 billion deal.

Elsewhere in the biotechnology sector, Genentech (DNA) is set to trade higher after studies showed that cancer treatment from rival Novartis (NVS) failed to produce successful results in fighting tumors. DNA rose $1.70 to $52.51 in overseas trading. Protein Design Labs (PDLI) and Imclone (IMCL) might also benefit from the news.

Shares of the homebuilders might be active today after the latest issue of Barron’s published an article warning about the risks of owning housing stocks amid rising interest rates and a possible bubble in the real estate market. KB Home (KBH), Beazer (BZH), and Toll Brothers (TOL) were among a dozen or so names mentioned in the article. As a side note, KB Home reports earnings after the closing bell.

Among the stocks to watch Friday, Paychex (PAYX) might be active ahead of its earnings report due out after the closing bell. Carnival Corp. (CCL) reports profits this morning. General Motors (GM) is expected to trade actively on news that it will fire some of its white-collar workforce in its North American division. Citigroup (C) is in focus on news that regulators are barring the company from making any further acquisitions until the financial services giant resolves various regulatory issues.

Meanwhile, oil related stocks may show strength after crude oil prices rose again Monday morning. Crude oil was recently trading up 28 cents to $57.00 a barrel. Prices rose to all time highs of more than $57.50 a barrel last week on concern that global supplies will not be enough to meet rising demand during the busy summer travel season.

On the economic front, no reports are due out today, but inflation and interest rates will be an important topic this week. Reports on Producer Prices [PPI] and Consumer Prices [CPI] are due out Tuesday and Wednesday. The numbers will take on added important because the FOMC meets to discuss interest rates on Tuesday. The committee is widely expected to announce another .25-point increase in its Fed Funds target, to 2.75%. However, there is some uncertainty regarding the wording of the post meeting statement and whether the Federal Reserve will abandon its reference to “measured” rate increases. For that reason, if tomorrow’s PPI comes in much stronger-than-expected, it will signal that inflationary pressures are rising, and it will become more likely that the Fed’s reference to “measured” rate increases will disappear tomorrow. In other words, high readings from the PPI and CPI might bring about higher interest rates sooner rather than later.



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