Equities Update: Oil Drops, Stocks Too

4:12 PM, Oct 26, 2009 --

• NYSE down 106 (1.5%) to 6,960.10
• DJIA down 104 (1.1%) to 9,867
• S&P 500 down 12.7 (1.2%) to 1,067
• Nasdaq down 12.6 (0.59%) to 2,142

GLOBAL SENTIMENT

• Hang Seng up 1.71%
• Nikkei up 0.77%
• FTSE up 0.22%

UPSIDE MOVERS

(+) CVM report says new facility signals long-awaited Phase III trial is imminent.

(+) IO inks JV pact with BGP for land seismic equipment that includes $175 mln cash proceeds from BGP.

(+) NVE beats with Q3 results.

(+) RSH beats with revenue.

(+) BCRX says emergency use authorization granted for Peramivir.

(+) ARNA reports positive study for weight management trial.

(+) MRVL raises revenue view.

(+) VZ regains positive ground after earnings beat.

(+) GLW earnings beat.

(+) ALD to be bought by Ares Capital (ARCC).

DOWNSIDE MOVERS

(-) ING splitting insurance and banking business.

(-) CYOU issues mixed Q4 guidance.

(-) SOHU reports Q3 profit on record sales but guides for Q4 miss.

(-) PVTB loss widens, issuing stock.

MARKET DIRECTION

Stock averages end broadly lower, in the lower end of the day's range. The Dow Jones Industrial Average has now logged back-to-back triple-digit losses, dropping back below the key 10,000 mark. The S&P 500 is also down 1%. The Nasdaq fell a less-dramatic 0.6%.

Stocks rather quickly gave up very early, modest gains when mixed earnings results, a stronger dollar's impact on commodities and early declines in the financial space proved too much for the broader averages.

Earnings news has been mostly positive, yet this picture has been priced into trading over several weeks now. Verizon (VZ) gave up its early advance seen following an earnings beat, for example.

Stocks have traded in choppy fashion since hitting fresh 2009 highs around mid-month.

Stocks were also under a little pressure after a Chicago Fed National Activity index fell slightly in September.

For September, the index slipped to negative 0.81 from negative 0.65 in August. In September, production and income indicators were positive for the third straight month, but the other three main categories -- employment, sales and consumption -- remained negative.

There were no additional economic reports on the slate for Monday. Treasury's sale of $7 billion in 5-year notes depressed bond market prices, driving up yields.

Commodities-linked and materials shares declines weighed on the broader market.

Crude oil futures for December delivery fell $1.82, or 2.3%, to $78.68 a barrel after earlier reaching a high of $81.59. The bounce in the U.S. dollar, oil supplies offset a report suggesting the U.S. economy has already emerged from recession. Natural gas fell 27 cents, or 5.7%, to $4.513 per million British thermal units.

In company news:

Verizon Communications (VZ) reported Q3 EPS of $0.60 vs $0.66 a year earlier and just topping the Thomson Reuters mean analyst estimate for $0.59. Verizon's total operating revenues grew 10.2% to $27.3 billion. The Street looked for $27.1 billion.

Corning (GLW) turned lower. It reported Q3 EPS ex-items of $0.42 vs $0.46 a year earlier but topping the Thomson Reuters mean analyst estimate for $0.39. Sales of $1.5 billion, were down from $1.6 billion a year earlier. The Street looked for $1.42 billion.

BioCryst Pharmaceuticals (BCRX) was a rare, sharp gainer. The company said the U.S. Food and Drug Administration (FDA), in response to a request from the U.S. Centers for Disease Control and Prevention (CDC), has issued an emergency use authorization (EUA) for the investigational anti-viral drug intravenous (i.v.) peramivir in certain adult and pediatric patients with confirmed or suspected 2009 H1N1 influenza infection who are admitted to a hospital. Shares are up about 14% in early trade.

ION (IO) rallied after it said late Friday it signed a term sheet with BGP to create a joint venture that will provide land seismic products worldwide. The joint venture will align ION's land equipment business with BGP's own expertise and experience in land seismic operations to create a new enterprise with the resources, technology and experience required to provide products and services on a global basis, the company said.

ION will receive total cash proceeds of $175 million from BGP. BGP will
receive a 51 percent interest in the joint venture and an approximate 16.66
percent interest in ION. Prior to the joint venture closing, ION will also
receive up to $40 million of bridge financing arranged by BGP.

At the transaction's closing, ION will refinance and reduce its long-term debt, and receive an expanded replacement revolving line of credit. Overall, after
closing ION expects to have over $100 million in liquidity from cash and spare
capacity on its revolving line of credit.

In mergers and acquisitions, Allied Capital (ALD) jumped on news it will be bought by Ares Capital (ARCC) in an all stock transaction currently valued at $648 million, or approximately $3.47 per ALD share.

Nyer Medical (NYER) shares nearly tripled after the company says Walgreen (WAG) will buy assets of 12 Eaton Apothecary pharmacies from Nyer Medical. The transaction is valued at approx $19 mln.

Comments

[David White:]

The down movement in the markets seemed to agree almost exactly with the up movement in the USD. You can watch this by tracking UUP. The USD seems to have bottomed against the yen. With the negative UK GDP news, it bottomed against the pound. Many are theorizing that it is bottoming from about 1.50 against the Euro. Prechter has been calling for a rally in the USD based on extremely low bullishness. Commodities are over bought. The US equities markets are over priced and over bought. The Fed is withdrawing stimulus programs. The Fed is talking about when to start raising rates. All this is contributing to a possible rally in the USD.

If the USD rallies, commodities will likely go down, as they are USD denominated. This will push commodity based stocks such as energy, materials, and Agriculture downward. This should push the equities markets overall downward. We will have to watch closely as this situation develops. GOLD and Oil certianly fell today.

If the USD rallies, a lot of people will start to bail out of the USD carry trade. If they don't they will lose a lot of money as the USD rises. They will have to sell other assets in order to repay their USD obligations. Those sales will contribute to the US and other countries equities markets going down.

Oct 26 05:42 PM

[William M. ...:]

VZ or LLY should be a safe after earnings investment play. Both exceeded forecast and maintained a positive future outlook. Both have 6+% yields with LLY having a forward P/E under 8. Basically these two stocks are selling for less than their Sep 08 and May 09 price. Two boring investments. But even if they go nowhere but sideways it beats a 1/2% MMF return.

Oct 26 09:44 PM

[Options Tra...:]

Its the 10,000 points psychological resistance level. Don't expect such an important level to be broken like it don't exist. So what do traders do when they get out of equities on fear of short term volatility? They reallocate their assets into other assets such as currency and bonds, hence the reaction on the forex and bonds front.

Oct 27 01:12 AM

[gorilla:]

interesting post

Oct 27 06:59 AM