Bearing Down on a Bearish Day

Stocks are set for a fall Wednesday morning, after the latest report on retail sales fell below economist projections and amid ongoing concerns about the financial sector. Less than an hour before the opening bell on Wall Street, stock index futures hint at a triple digit loss for the Dow Jones Industrial Average. The NASDAQ is indicated 15 to 20 points lower.

Retail sales fell 2.7 percent in December, according to data released from the Commerce Department Wednesday morning. The drop follows a 2.1 percent decline the month before (revised down from 1.8 percent) and was well below economist forecasts, which had predicted a 1.2 percent decline.

Excluding autos, December retail sales fell 3.1 percent and well below economist projections for a 1.4 percent drop.

A report on business inventories is due out at 10:00 a.m. ET. Economists expect to see a decline of .5 percent in November. The Fed’s Beige Book, due out at 2:00 p.m. ET, offers a qualitative look at economic conditions.

Bonds are higher on the heels of the big drop in retail sales. The benchmark ten-year Treasury gained 17/32nd to yield just 2.23 percent.

The buck is mixed. The dollar fell .29 to 89.05 on the Japanese yen. The euro slipped to 1.3104 on the US currency.

Crude oil reversed overnight gains and is trading down 43 cents to $37.35 a barrel ahead of weekly inventory data due out at 10:30 a.m. Gold fell $3.70 to $817 an ounce.

Meanwhile, the focus remains on the financials after Deutsch Bank (DB) warned of a $6 billion fourth quarter loss and Citigroup (C) said it is getting $2.7 billion for swapping its Smith Barney unit to Morgan Stanley (MS). HSBC (HBC) is lower following a cautious note from Morgan Stanley, which said the bank might need to raise up to $30 billion and slice its dividend.

Yahoo (YHOO) might also see active trading on news it named Carol Bartz to replace Jerry Yang as CEO. Tiffany (TIF) is under pressure after announcing a 21 percent drop in holiday sales. JP Morgan (JPM) might see action ahead of an earnings report due out before market tomorrow.

In the options market, the tone of trading was mixed, as the Dow lost 25 points, but the NASDAQ edged higher Tuesday. The CBOE Volatility drifted back down to 43.26, down 2.58 on the day. Approximately 6.4 calls and 6.1 million puts traded across the US options exchanges.

The CBOE Volatility Index (.VIX) saw heavy trading for a second day. Most of the volume was in the March 50-60-70 call butterfly spread. 86,000 of the 60s traded to create the body of the fly, while 43,000 in the 50s and 43,000 of the 70s traded to create the wings. Open interest in the VIX March 60 calls is now approaching 100,000 contacts.

Dish Networks (DISH) saw bullish order flow Tuesday. Shares slipped 12 cents to $12.57 and total volume in the options market jumped to 3 times the average daily levels. 5,500 calls and only 40 puts traded. March 17.5 and January 12.5 calls topped the most actives list, with almost 5,000 traded and almost all of the day’s trades hitting on the ask-side of the bid-ask spread. The activity looks like speculative call buying in anticipation of a move higher in DISH. Bullish trading was also seen in Netease (NTES), Biogen Idec (BIIB), and Genentech (DNA).

Eastman Kodak (EK) put options were actively traded for a third time in a little more than a week. The activity started last Monday when trading activity picked up in the January and February 7.5 puts. February 5 puts then saw heavy trading Wednesday. Today, another 5,000 February 7.5 puts has traded, all in lots fewer than 280. The activity looks like part of a pattern of put accumulation in Eastman Kodak. Bearish flow was also seen in Bank of America (BAC), HSBC (HBC), and Yamana Gold (AUY).

Comments

[jenny:]

Surprisingly sentiment for the NASDAQ appears to be bullish (www.predictwallstreet..../) but is bearish for the SP500 and DJIA according to this sentiment meter. I remain overall bearish but there are a few companies like Apple that I believe can still pull it out despite these market conditions.

Jan 14 01:54 PM

[hiker:]

see the RTH with various market averages

VS.

the October price lows ..in this chart thread -

forums.technicalwatch....

fyi

Jan 14 02:31 PM