U.S. futures are higher this morning, following the path set by both Asia and Europe. If the earnings numbers are good and the economic news not bad then we should end green today as well. Bernanke will not be speaking today, so all attention will be on the data coming out. Earnings this season have so far impressed us as we were expecting them to be on the lighter side, however this is a long season and we are still in the early stages so judgment shall be reserved until a later date - but that is our first impression at this point.
We have a good bit of economic news out today, and as always we have the jobs numbers. Up today investors need to look out for the Initial Claims (Consensus 365k), Continuing Claims (Consensus 3300k), Existing Home Sales (Consensus 4.65M), Philadelphia Fed (Consensus -10.0) and the Leading Indicators (Consensus -0.2%).
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Looking at Asian markets we see markets are higher:
- All Ordinaries - up 1.92%
- Shanghai Composite - up 0.73%
- Nikkei 225 - up 0.79%
- NZSE 50 - up 0.34%
- Seoul Composite - up 1.56%
In Europe markets are higher:
- CAC 40 - up 0.80%
- DAX - up 0.89%
- FTSE 100 - up 0.28%
- OSE - up 0.35%
We wanted to revisit one of our picks this morning which we never went bearish on and once again is setting new 52-week highs. The company is The Gap (GPS) which saw shares rise $0.65 (2.28%) to close at $29.12/share. Volume was below the three month average daily volume with 5.1 million shares traded, but the stock traded as high as $29.28, which was enough to top its old high for the year. Earnings are quickly approaching, as is the back to school shopping season. It certainly appears that the company is once again relevant and this cycle should last at least two years, if history is to be used as a guide.
We briefly touched on this yesterday, but apparently some readers did not follow us so a second attempt to get the point across. As it pertains to the diet drug market, we think the market is plenty big enough for more than a single drug, and that both Arena Pharmaceuticals (ARNA) and Vivus (VVUS) should have at a minimum billion dollar blockbusters on their hands. To be the only game in town would certainly be great for either company, but the competition may very well be best. Think the erectile dysfunction market and its entrants as an example. While we think that both drugs and by extension the company that owns them should perform well we seriously have our doubts about Orexigen Therapeutics (OREX). We think it is foolish/childish for Arena and Vivus shareholders to go back and forth and argue about which one of those will be the winner. That is not the issue as both companies will be winners as they have approval. The scrutiny should rather be directed towards Orexigen as it is hard to imagine the FDA approving yet another diet drug with potential health risks when the market is already being served by not one but two drugs. The fact that Orexigen shares have run up to the level they are currently at is a bigger issue to us than these other arguments and those shares could very well come under pressure in the coming weeks and months. As a recap of yesterday's action in the industry:
- Arena Pharmaceuticals: Fell $1.07 (9.69%) to close at $9.98/share on volume of 26.2 million.
- Vivus: Rose $2.54 (9.60%) to close at $29.00/share on volume of 37.8 million.
- Orexigen Therapeutics: Fell $0.22 (3.08%) to close at $6.92/share on volume of 14.6 million.
- For traders please note that Arena is once again right at the $10/share level.
We discussed New Oriental Education & Technology Group (EDU) yesterday and said to stay away, and we hope readers heeded that advice. Muddy Waters came out and slammed the stock and the SEC is sniffing around so this story is getting worse by the day. The shares fell another $5.12/share (35.02%) to close at $9.50/share on volume of 69.3 million shares, which is over sixty times the three month average volume and about double Tuesday's high volume. This is one falling knife investors need to refrain from trying to catch…just let it fall.