Fresh merger news and lower oil prices are trying to make a favorable impression on investors. However, a rally already running on empty and plenty of reasons for pausing are offering a standoff in Monday's early trade. As of 10:30 ET, the S&P500 ($SPX) and NASDAQ Composite ($COMPQ) are fractionally mixed from a slight -.11% decliner to an equally tepid bit of .11% greenie on lighter trade.
For a few traders on Wall Street it's just another Merger Monday, but elsewhere the sign of the times is a bit more manic. For the bulls, some impressive deal making and oil slipping hard below the $60-a-barrel are making for pleasant headlines. Unfortunately, fresh saber rattling in the sub prime space, a lack of leadership for a bounce that's already bounced and a few key market moving reports out later this week have bulls and bears engaged in choppy profit-taking to start off the week.
After a few relatively quiet weeks, Merger & Acquisition headlines are populating the tape with a well-rounded group of players involved. The largest deal of the day centers on Schering Plough's (SGP) $14.5 billion bid for Netherland-based Akzo Nobel's drug unit. The largest shocker of the day is Express Script's (ESRX) announcement of a âbest and only' offer for Caremark (CMX). The move looks to be the last in ongoing negotiations that many had thought would spur an even stronger bid for the drug chain. Analysts and traders seem to agree with management's move, however, as an upgrade to "buy" and a stock tacking on gains of more than 3.75 to 80.85 bring home that point. Elsewhere, Barron's reports that financier Sam Zell is looking to take newspaper concern Tribune (TRB) private for $13 billion. LBO specialist KKR is acquiring Dollar General (DG) for $6.9 billion and health management operator United Health (UNH) is buying competitor Sierra Health (SIE) for $2.6 billion. In general, Monday's deals are being cheered as the scope is supportive of both the market itself, as well as the idea that major players still see some unrecognized value.
Speaking of unrecognized value, equity traders are failing to see a hard drop in the price of crude as a positive catalyst. The April futures are off -$1.00 at 59.08 as talk of still ample supplies and anticipation that OPEC's meeting this week won't result in a tightening of the spigot are putting pressure on the commodity. Traders could see the price development as a positive for equities via increased consumer spending and corporate profits. However, the always complex and heavily-weighted energy sector (XLE, OIH) is following suite to the downside, off -.54% to -1.01% respectively.
New developments of the disappointing kind in the sub prime market are also weighing in on Monday's early trade. New Century Finance (NEW) is currently halted after trading roughly 50% lower before the NYSE opening bell. The company announced that all of its creditors have discontinued lending to the sub prime outfit. Last week chatter of a pending bankruptcy proceeding was already making the rounds. For its part, the company would need $8.4 billion to repurchase its outstanding mortgages, which management announced is not possible with its current situation of insufficient liquidity. Not helping matters, Countrywide (CFC) is also under some pressure, down -1.10 at 35. The company announced that investors can expect short-term earnings volatility (i.e. not so pleasant headlines) as a result of the changes in the sub prime lending market and more stringent underwriting rules of engagement. With the double whammy of sorts, many financial and housing stocks are also seeing some indirect pressure, further affecting the broader market and potential negative sentiment.
GROWTH & MOVERS COVERAGE
Industry / Sector
RS / EPS 1YR%
Select reports scheduled after the market close and in the premarket:
Industry / Sector
Q-Estimates / Prior Yr.
1.15 / 1.00
.13 / .05
Smith & Wes
.03 / .03
Economic releases on tap:
Wall Street Forecast
Retail & ex-Auto
INDICES & MARKET MOOD
While there's plenty of catalysts' being offered currently, Monday's indifferent tape might also thank lots of looming data. Some slated reports of note include market barometer Goldman (GS), its Broker / Dealer (IAI) peers, retail sales and key inflation figures later this week. This evening's mid quarter update from Texas Instrument's (TXN) also deserves some merit. Of the fore mentioned, Goldman's earnings release is likely to be the most influential report in setting the tone for the major indices. However, with a broader market at a key decision point, just worrying about and not acting before what the next report may or may not do for our positions seems a bit silly. Plan the trade and trade the plan.
Index or Sector Proxy
S&P500 ETF (SPY)
Neutral / LT Bear
138.05, 136.20 - 137.50
141.80 - 143
NASDAQ 100 (QQQQ)
Neutral / LT Bear
41.75 â 42.25, 40.60, 39.40 - 40
43.25 â 44
Staff Writer & Options Strategist
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.