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MORNING WATCH, Mar. 23


By Frederic Ruffy, Optionetics.com
3/23/2005 6:15 AM EST


Stocks are set to open to the downside Wednesday following a stronger-than-expected reading from the latest Consumer Price Index [CPI]. Shares of Oracle edged lower following its earnings report. Approximately forty-five minutes before the opening bell on Wall Street, stock index futures hinted at a possible 20-point move lower in the Dow Jones Industrial Average ($INDU) and 6-point loss for the Nasdaq ($COMPQ).

The Consumer Price Index [CPI] rose .4% in February. The index, which measures the prices paid for a basket of goods on the consumer level, was expected to rise .3%. Excluding food and energy, the core-CPI rose .3%, compared to expectations for a .2% increase. The stronger-than-expected reading from the price index fanned inflation jitters, which sent bonds and stock index futures lower Wednesday morning.

Yesterday, stocks and bonds fell sharply at the conclusion of the Federal Reserve Open Market Committee [FOMC] meeting. After the FOMC announced another.25-point increase in its Fed Funds target, to 2.75%, and, for the first time in four years, mentioned that inflation is becoming a concern, bonds tumbled. The yield on the bench market ten-year Treasury note rose above 4.6% for the first time since July of last year.

The prospect of rising inflation and interest rates also sent stocks tumbling. The Dow Jones Industrial Average, which was up more than 40 points before the FOMC statement, lost 95 points on Tuesday.

The next piece of economic data is due out at 10:00 a.m. ET. Existing home sales data for February is released at that time. Economists expect to see a decline to 6.65 million units, from 6.8 million in January. Data on durable goods, weekly jobless claims, and new homes sales is released Thursday. Markets are closed Friday in observance of Good Friday.

Among the stocks to watch Wednesday, Oracle shares traded lower late yesterday after the software maker posted profits of 16 cents a share, compared to analyst estimates of 15 cents. However, revenues came up short of expectations. Total revenues rose from $3.054 billion to $3.09 billion. Some analysts were looking for as much as $3.15 billion.

In other stock news, Microsoft (MSFT) is expected to trade actively on news the software maker is under scrutiny for possibly not adhering to anti-trust regulations imposed by the European Trade Commission. General Motors (GM) might be trying to sell its GMAC Commercial Mortgage unit for approximately $1 billion, according to a report in the Wall Street Journal. MCI (MCIP) might be active today as the company’s board of directors meets today to discuss a recent takeover offer from Quest (Q).

In the options market, trading has been active lately and implied volatility is clearly on the rise. Yesterday, 3.2 million calls and 2.8 million puts traded across the six US options exchanges. Meanwhile, the CBOE Volatility Index ($VIX) rose .66 to 14.27. The market’s so-called fear gauge is now well above its February lows of 11.10 and at its highest levels since January 25.



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