Heightened risk aversion, further sub-prime lending woes and disappointing results from a couple of bellwethers are squaring off with a severely oversold condition and technical testing of the bull at large. As of 10:45 ET, the S&P500 ($SPX) and NASDAQ Composite ($COMPQ) are both registering a fractional .13% bit of greenie on heavier and above average reasons for caring.
Wednesday's early conditions could be a lot worse, if the market was to simply key off headline drama and simultaneously failed to appreciate the tail wagging the dog routine currently in play. Investors woke up to heady overseas declines, with risk-averse decision-making steeped in red by nearly -3.00% in Hong Kong and beyond. Global declines followed stateside equities second worse session of 2007 as concerns over the sub prime sector increased, due in part to subpoenas issued to investment bankers Bear Stearns (BSC) and UBS (UBS) late in the day. Potentially questionable research on the fore mentioned forlorn group has apparently raised a flag or two with prosecutors. And for investors looking to put back on their risk-aversion equipment, a definitive red flag of caution was lowered severely.
Carryover in negative sentiment is a top concern with traders and on that front a couple of fresh catalysts bear watching. H & R Block (HRB) becomes the latest company to enter the sub prime confessional. Best known for its tax preparation business, H & R is also involved in the mortgage industry through one of its subsidiaries. Today's news is that due to its sub prime activities, the company will be forced to delay its quarterly filing and make a provision for increased losses. In volatile trade, HRB is currently off 50 cents at 19.55 after striking four-year lows of 18.39 in the regular session.
Lehman Bros. (LEH) and General Motors (GM) aren't helping the bulls cause either. The influential Broker / Dealer (IAI) is the second to report after Goldman's (GS) powerful earnings release and results aren't nearly as robust. With the group notoriously cyclical and seen by Wall Street as a leading market barometer, decelerating earnings growth is being thrust into the spotlight once more. As for the numbers, Lehman reported record-breaking earnings of 1.96 a share. However, profits beat estimates by just a penny, which might call into question how much steam the group has left in the ârecord-breaking' results category. For their part, management cited profits were hurt by declines in its securitized products business related to the mortgage sector. And for their part, investors aren't in any mood for buying excuses. Intraday, LEH is off -2.55 at 69.45.
Elsewhere, automobile giant General Motors (GM) swung its quarterly performance into the black versus the year-ago period. However, profits of 32 cents a share fell short of analysts expectations calling for something in the neighborhood of 1.03 to 1.20 EPS. In other neighborhoods, management cited a weak housing environment and a thriftier consumer as reasons behind today's weak results and a continued weight for the industry. GM is off 65 cents at 29.85.
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.
.36 / .23
3.79 / 3.54
.77 / .77
Economic releases on tap:
Wall Street Forecast
PPI & Core
Empire State Index
INDICES & MARKET MOOD
The "FTD" is histoire for the time being. Entering deep into the lunchtime hour, last Monday's lows have been undercut in the majority of major market indices. The action, however, does represent an even more extreme oversold condition, as well as a lower-low double bottom pattern. While intermediate-minded growth stock strategists are now likely to be biding more time, shorter-term reversal traders are being presented with a potential bounce situation worthy of monitoring.
With the markets undercut patterns appreciated in conjunction with the CBOE Volatility Index ($VIX) jumping to fresh nine-month highs, conditions are ripe once more for a bullish directional bias. Hopefully though, that bias, if accepted, is made stronger with the use of some limited risk alternatives. With no guarantees as to potential bounces actually bouncing and an economic calendar chock full o' surprises, hedging the trade like a hog and not acting like a pig make excellent sense and âcents.'
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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