Daily Market Outlook: Early Indications Are for a Modest Rebound

by: Frederic Ruffy

Early indications point to a modest rebound Thursday after Central Banks across the globe pledged more liquidity to the world's financial markets. Less than an hour before the opening bell on Wall Street, stock index futures indicate that the Dow Jones Industrial Average could add 50 or 60 points at the open. The NASDAQ is indicated 10 or 15 points higher.  

Stock index futures rose early after the US Federal Reserve and others said they would pump $180 billion into money market funds to ease the funding squeeze that has plagued the financial markets. In addition to the Fed and the ECB, Central Banks in Japan, Switzerland, Canada, and Britain are taking part in the efforts.

However, the early advance in the stock index futures stalled amid ongoing worries about the financials and after the latest data from the Labor Department showed another uptick in weekly jobless claims. The number of filings for jobless benefits increased by 10,000 to 455,000 in the week ended September 13. Economists were looking for a decline to 440,000.   

Attention turns to the Philadelphia Fed Survey and the list of leading indicators. Both reports are due out at 10:00 a.m. Eastern time. Economists expect a reading of -10 for the Philadelphia Fed manufacturing report for September, which is modest improvement from the -12.7 the month before.

The list of leading indicators is expected to show a .2 percent decline for August, up from -.7 during the month of July.

Bonds are lower ahead of the news. The benchmark ten-year Treasury bond fell 15/32nd early and now yields 3.46 percent. The dollar is mixed, trading up .20 to 104.85 on the yen and to 1.445 on the euro.

Among the stocks to watch Thursday, Morgan Stanley (NYSE:MS) is in focus on reports it is in merger talks with Wachovia (NASDAQ:WB). Shares of Morgan Stanley are down 10.3 percent early. Wachovia gained 4.5 percent.  

Washington Mutual (NYSE:WM) is up 12.5 percent on reports it is being auctioned off, with Wells Fargo (NYSE:WFC), JP Morgan (NYSE:JPM) and HSBC (HBC) mentioned as possible suitors.

FedEx (NYSE:FDX) might help the transports early after the company delivered quarterly profits of $1.23 per share, which was in-line with analyst estimates. Revenues rose 8.4 percent to $9.97 billion, which was a bit better than analyst estimates of $9.12 billion. FedEx also raised second quarter guidance to $1.40 to $1.60 per share, compared to analyst estimates of $1.35.

Conagra (NYSE:CAG) posted 27 cents per share for the quarter, which beat by three cents. Carnival (NYSE:CCL) is also due to release results this morning. Oracle (NASDAQ:ORCL) reports after the close of trading.   

Commodity-related stocks might show early strength after crude and gold moved higher. Crude oil is up $3.84 to $101 a barrel. After a $70 rally yesterday, its biggest one day gain ever, gold is up another $27.80 to $878.30 an ounce.  

In the options market, volumes set records Wednesday amid ongoing volatility in the equity market and ahead of this week's triple witch expiration. Today is the last day to trade many index options contracts. Tomorrow is the last day to trade any remaining September contracts (except quarterlys). In addition, futures and futures options also expire, making it a very busy, and potentially volatile, day for the financial markets Friday.

Yesterday, total volume reached records after 14.1 million puts and 12.0 million calls traded across the US exchanges. Implied volatility surged after the Dow Jones Industrials gave up 450 points, bringing its loss to 7.1 percent for the week. The CBOE Volatility Index (.VIX) closed at 36.22 and its best levels October 2002. VIX is up 10.56 points on the week.

The financials continue to see heavy trading. 617,000 puts and 760,000 calls traded on the Select Sector Financials (NYSEARCA:XLF). Morgan Stanley (MS), Goldman Sachs (NYSE:GS), Citi (NYSE:C), and Wachovia (WB) were among the most actives.

Volume picked up in Apple Computer (NASDAQ:AAPL), as shares closed for $127.83 and near session lows, also its worst levels since mid-March. 310,000 AAPL calls and 209,000 puts traded Wednesday.  

General Electric (NYSE:GE) saw a fourth day of heavy trading, with 231,000 GE puts and 234,000 calls traded. Call volume surged in SanDisk (SNDK) on news the company rejected a takeover offer from Samsung. Bullish trading was also seen in Seagate (NASDAQ:STX), the SPDR Gold Trust (NYSEARCA:GLD), and the iShares Xihua China Fund (NYSEARCA:FXI).  Meanwhile, defensive or bearish order flow was seen in Xerox (NYSE:XRX), Fastanel (NASDAQ:FAST), and the Ultra Financial Proshares (NYSEARCA:UYG).

Disclosure: Long