Oversold Levels May Bring In Bargain Hunters Even As Uncertainty Continues - RTTNews Daily Market Analysis

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The major U.S. index futures are pointing to a higher opening on Monday, with the oversold levels of the markets following three straight sessions of declines providing some scope for a rebound. Earnings news were bordering on the positive. However, reflecting the nervousness, risky assets such as commodities are still seeing weakness. Sentiment for the session may mostly hinge on the existing home sales to be released shortly after the markets open, which is expected to a modest decline in sales.

U.S. stocks declined sharply in the abbreviated week ended January 22nd, as risk aversion intensified following the release of mixed economic data and on fears that the gains witnessed for most of last year may have been overdone. Risk aversion led to a sell-off in commodity-related stocks due to a retreat in commodity prices.

The markets, which opened after last Monday's Martin Luther King holiday, advanced sharply last Tuesday, as deal optimism and some positive earnings helped the major averages rebound strongly to reach fresh multi-month highs. Weighed down by Chinese moves to tighten lending in a bid to cool off growth and a disappointing housing starts report, the major averages slumped on Wednesday, with each of the average receding over 1%.

The worse was still to come, as President Barack Obama announced measures to bring out reforms in the risk-fraught financial sectors and stocks fell yet again on Thursday. The Dow Industrials declined over 2% and the other two major averages showed losses of over 1% each. The major averages did not find support at key technical levels on Friday, as uncertainty once again proved the undoing of the markets. The Dow, the S&P 500 and the Nasdaq Composite all lost over 2%.

For the week, the Dow Industrials ended down 4.12%, while the S&P 500 Index and the Nasdaq Composite Index declined 3.90% and 3.62%, respectively. The S&P 500 Index and the Nasdaq Composite Index broke below their 50-day moving averages on Friday and the Dow was already below the level, although the uptrend seen since March last year is intact. With the break of the key support levels and the spike in the CBOE Volatility Index in recent sessions, the near-term direction looks more vague. The S&P has to hold support around 1,075 if further weakness is to be arrested.

Among the sector indexes, the NYSE Arca Gold Bugs Index slumped 7.94% for the week, while the NYSE Arca Oil Index and the Philadelphia Oil Service Index declined 4.95% and 6.52%, respectively. The Philadelphia Housing Sector Index ended off 6.63% for the week compared to a 4.40% decline by the Philadelphia Semiconductor Index. The Dow Jones Transportation Average fell 3.62% and the Dow Jones Utility Average receded 3.54%.

Commodity, Currency Markets

Crude oil futures are edging down $0.30 to $74.24 a barrel after the commodity came under significant selling pressure in the week ended January 22nd, extending their previous week's declines. Oil fell 4.7% to a 1-month low of $74.54 a barrel in the week ended January 22nd.

Last Tuesday, oil rose along with equities, as traders focused on the brighter side of the economic equation. Thereafter, the commodity fell for three straight sessions, with the weekly oil inventory report contributing to the weakness alongside the dollar's strength due to an increase in risk aversion.

Gold futures, which are currently rising $3.20 to $1,095.20 an ounce, fell $40.8 or 3.6% to $1,089.70 an ounce in the week ended January 22nd.

The dollar ended the week ended January 22nd higher against most other major currencies, although it weakened against the yen. Risk aversion helped the greenback, which is considered as a safe haven, to a considerable extent. The dollar fell 1.08% against the yen to 89.824 yen, while it rose 1.74% against the euro to $1.4139.

Currently, the U.S. dollar is trading at 90.285 yen and is valued at $1.4135 versus the euro.

Asia

The major Asian markets ended lower on Monday, tracking the extremely weak performance on Wall Street on Friday. However, the declines were much modest, as traders were encouraged by the oversold levels of the markets and also nurtured hopes that the unfolding week's economic calendar will bring in positive tidings. The Chinese Shanghai Composite Index led the declines in the region with a 1.09% slide.

Japan's Nikkei 225 average opened sharply lower, but it snapped back some of its losses over the course of trading to close down 77.86 points or 0.74% at 10,513. Financial stocks faced the brunt of the selling pressure, while pharma, construction, transport, real estate and telecom stocks also showed weakness. On the other hand, auto parts retailer Clarion rallied 12.39%. Retail and technology stocks showed mixed sentiment.

The Bank of Japan kick-started it 2-day monetary policy meeting today, with economists expecting the central bank to unveil additional stimulus measures. The central bank has been under pressure to act against deflationary threats and as a result it announced following its December meeting that it would not tolerate prices at or below zero.

Australia's All Ordinaries opened unchanged but dipped sharply in early trading. Thereafter, the index recouped its losses gradually over the course of trading to close down 28.80 points or 0.60% at 4,743. Most sectors, barring defensive telecommunication and healthcare stocks, saw weakness in the session. Among individual stocks, most miners declined, with the exception of Incitec and Worleyparsons. Financial stocks ended lower across the board.

Hong Kong's Hang Seng Index languished below the unchanged line throughout the session to close down 127.63 points or 0.62% at 20,599. Financial stocks acted as a drag on the index, while utility and some property stocks advanced.

Europe

After opening Monday's session sharply lower, the major European averages have pared back most of their losses and are currently trading modestly to moderately lower. The French CAC 40 Index and the German DAX are losing 0.28% and 0.47%, respectively. The U.K.'s FTSE 100 is moving down 0.75%.

In corporate news, Ericsson (ERIC) reported that its fourth quarter earnings declined to 314 million Swedish kronor compared to 3.89 Swedish kronor a year-ago, with the decline mainly due to restructuring charges. Sales fell 13% year-over-year to 58.33 billion Swedish kronor.

Dutch consumer electronics giant Royal Philips (PHG) reported fourth quarter earnings of 251 million euros compared to a loss of 1.18 billion euros in the year-ago period. The year-ago loss included asset impairment charges totaling 629 million euros. Sales fell 3.4% to 7.26 billion euros.

In economic news, a report released by the GfK Group showed that its forward looking consumer confidence index for Germany fell to 3.2 in February from a revised reading of 3.4 in January. Economists had expected a reading of 3.3.

U.S. Economic Reports

Given the fact that uncertainty has been driving market participants from riskier assets in recent sessions, the unfolding week assumes importance due to the anticipated release of a few key economic reports. The FOMC meeting, the first read on the fourth quarter GDP, housing reports and consumer confidence readings will headline the week's economic calendar.

Traders may closely watch the post-meeting policy statement of the FOMC due to be released at the end of the 2-day FOMC meeting beginning Tuesday. Additionally, the advance fourth quarter GDP estimate to be released on Friday, the existing home sales and the new home sales reports, both for December, the Commerce Department's durable goods orders report for December, the Conference Board's consumer confidence index for January and the Reuters/University of Michigan's consumer sentiment index for January could be in the spotlight.

Other data that could be of interest to traders are the S&P Case-Shiller home price index and the Federal Housing Finance Agency home price index, both for November, weekly jobless claims and the ISM-Chicago purchasing managers' index for January. During the week, the Treasury Department is set to offer $44.0 billion in two-year notes, $42.0 billion in five-year notes and $32.0 billion in seven-year notes in a series of auctions, while President Barack Obama is scheduled to deliver the State of the Union address at 9 PM on Wednesday.

The Fed is unlikely to suggest an end to its near-zero interest rate policy at its January meeting, as the economy still grapples with unemployment and shaky consumer confidence while facing a benign inflation environment. The central bank is most likely to allow the emergency liquidity programs to expire as per previous schedule.

Although the extension of the first-time homebuyer credit until April is expected to continue to support home sales, homebuilding activity is seeing softness. A sustainable recovery in residential construction activity will materialize only when the jobless rate plunges further and foreclosures stall. New home sales for December are likely to show an increase, retracing some of the steep decline witnessed in November.

The Conference Board's consumer confidence index is expected to receive a boost from the equity market rally and signs of stabilization in the labor market. That said, confidence is likely to remain muted, given the uncertainty surrounding the recovery in the labor markets. According to BMO Capital Markets, still-depressed sentiment and balance sheet mending will keep consumers in a cautious mood this year.

Durable goods orders are expected to show strength, primarily due to resurgence in commercial aircraft orders. Boeing (BA) received 59 orders in December compared to 9 in November and 14 in October.

Meanwhile, helped by ample strength in exports and federal government spending along with a rise in inventories, U.S. economic growth is expected to have accelerated to around 4% in the fourth quarter. BMO Capital Markets estimates a 2% increase in consumer spending in the fourth quarter from a 1% estimated underlying rate in the third quarter.

The National Association of Realtors is scheduled to release its report on existing home sales for December at 10 AM ET. Economists estimate existing home sales of 5.90 million for the month.

Existing home sales rose to a seasonally adjusted annual rate of 6.54 million units in November, with the upside coming from an increase in sales of single-family homes. Existing home sales reached their highest level in about 3 years. Economists had expected sales of 6.25 million units. Inventories measured on the basis of months of supply declined to 6.5 months from 7 months in the previous month. The median sales price of an existing home declined 4.3% year-over-year.

Earnings

Sealed Air (SEE) reported fourth quarter adjusted earnings of 40 cents compared to 39 cents per share in the year-ago period. Sales fell 2% year-over-year to $1.15 billion. Analysts estimated earnings of 39 cents per share on revenues of $1.18 billion. The company expects full year 2010 earnings per share in the range of $1.58-$1.70 compared to the $1.64 per share consensus estimate.

Halliburton (HAL) said its fourth quarter adjusted earnings from continuing operations fell to 28 cents per share. Consolidated revenues rose to $3.7 billion from the year-ago's $3.6 billion. The consensus estimates called for earnings of 27 cents per share on revenues of $3.63 billion.

Eaton (ETN) reported fourth quarter net income of $1.25 per share, up from 98 cents per share last year. On an adjusted basis, the company's earnings climbed to $1.35 per share from $1.08 per share in the year-ago. Sales fell 10% to $3.1 billion. Analysts estimated earnings of $1.23 per share on revenues of $3.07 billion. The company expects operating income of 75-85 cents per share for the first quarter and $3.70-$4 per share for the full year 2010. The Street estimates earnings of 78 cents per share for the first quarter and $3.65 per share for the full year.

Quest Diagnostics (DGX) reported fourth quarter revenues of $1.8 billion, up 2.7% year-over-year. The company reported income from continuing operations of 97 cents per share compared with 87 cents per share last year. The consensus estimates had called for earnings of 96 cents per share on revenues of $1.87 billion. For 2010, the company estimates adjusted earnings of $4.10-$4.30 per share and revenue growth of 3%-4%. Analysts estimate earnings of $4.20 per share on 4% revenue growth. Separately, the company also said it had raised share repurchase authorization by $750 million.

Stocks in Focus

Poniard Pharma (PARD) could be in focus after it announced that the final data from a randomized controlled Phase 2 trial of picoplatin in metastatic colorectal cancer patients met its primary objective of showing statistical significance in reducing neuro-toxicity compared to oxaliplatin given in combination with 5-fluorouracil and leucovorin.

Biogen Idec (BIIB) could gain ground after it announced that the FDA has approved its investigated drug AMPYRA for improved walking in patients with multiple sclerosis. The company noted that the FDA approval was granted on January 22nd. While the company will commercialize a prolonged release version of the tablet outside of the U.S., Acorda Therapeutics (ACOR) will market it in the U.S.

Columbia Bancorp. (CBBO) is likely to be in focus after it said its bank holding company Columbia River Bank was closed by the State of Oregon and the FDIC was appointed as receiver of the bank.

Shanda Interactive Entertainment (SNDA) may also see some activity after it announced the resignation of its president Qunzhao Tan. The company said Tan is resigning to spend more time on his roles as Chairman and CEO of Shanda Games Ltd.

Boeing (BA) is expected to see buying interest after it announced that Ethiopian Airlines ordered 10 Next Generation 737-800s valued at $767 million at list prices. Separately, a Boeing 737-800 plane owned by the airline with 90 people on board crashed into the sea immediately after taking off from the Lebanese capital, Beirut.

Liberty Global (LBTYA) may move in reaction to its announcement that it has reached an agreement to sell its subsidiaries that directly or indirectly hold its 37.8% ownership interest in Jupiter Telecommunications, a broadband provider in Japan, to KDDI Corp. for gross proceeds of $4 billion in cash. The consideration includes a final 2009 dividend of 490 yen per share attributable to its interest in J:COM.

Google (GOOG) could be in focus after the company revealed in a filing that its founders Larry Page and Sergey Bin would sell 5 million shares each under pre-arranged trading plans. The plans will be part of a 5-year diversification program for the portfolio's of the founders. If the planned sales are completed, the founders' stake will be reduced to 15% from the current 18% and voting powers will be diluted to 48% from 59%.

Wal-Mart (WMT) is also likely to see activity after it announced that it would trim about 11,200 jobs at its Sam's Club warehouses. The bulk of the reduction of 10,000 jobs will be among workers who demonstrate products, while the company also plans to cut 1,200 membership recruiting jobs.

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