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CLOSING WRAP-UP, May 10
By Jody Osborne, Optionetics.com
5/10/2005 5:15 PM EST

http://optionetics.com/articles/article_full.asp?idNo=12417

Rough day for stocks, with the major market indices falling sharply. The Dow ($INDU) gave up 103.23 points to close the session at 10,821.11. The S&P 500 ($SPX) fell 12.62 points, finishing at 1,166.22. The Nasdaq ($COMPQ) fell 16.90 points, or 0.9 percent, to 1,962.77. Volume remained light with the NYSE trading 1.47 billion shares and the Naz turning over 1.63 billion. Market breadth was negative by a 10-to-22 and 10-to-20 margin on the Big Board and Naz respectively.

Rumor’s can be blamed for much of today’s weakness. There is talk that two hedge funds are in trouble because of their exposure to General Motors (GM) bonds. These bonds were dropped to “junk” status last week by Standard & Poor’s. However, details have not been released, leaving traders to speculate and this led to selling Tuesday. Ironically, GM shares were one of only two Dow components to gain ground on the session. American International Group (AIG) continues to see declines on further problems in the SEC investigation. This type of negative news creates uncertainty and this results in selling.

Oil prices spiked to a high of $53.10 in midday trading, but ultimately closed near the flat line at $52.07. Ironically, oil prices having been moving higher since last week’s strong petroleum inventory data was released. Tomorrow we will see if crude stocks continued to build last week. If the results better than expected, one would expect oil prices to fall. Today’s intraday gains were being blamed on short covering and negative comments from OPEC about capacity in the winter months.

Shares of Cisco (CSCO) closed unchanged Tuesday ahead of its earnings report after the bell. The networking giant announced better than expected results after the close, leading to gains in after hours trading. CEO John Chambers was positive in his outlook, pointing to Cisco’s competitive advantage across many segments. Nonetheless, it seems unlikely this report alone will be able to make up for the declines found in tech stocks Tuesday.

One of the most disappointing sectors Tuesday came from the airline sector. Delta (DAL) saw its shares fall 10 percent following negative comments. DAL stated in an SEC filing that it might not have the capital to meet financial obligations despite cutting billions in costs this past year. High fuel prices are hurting airline stocks, but so has a price war among airline companies. Overall, the AMEX Airline Index ($XAL) fell 3.33 percent to 45.03.

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