Will the Markets Rise on IBM Earnings?

by: Frederic Ruffy

Stocks are set to open with gains Thursday after IBM (NYSE:IBM) reaffirmed its full year profit outlook and overseas markets held steady after three days of intense selling. Less than an hour before the start of trading in New York, stock index futures indicate that the Dow Jones Industrial Average might add more than 150 points in early trading. The NASDAQ is indicated 25 points higher.

Shares in Europe are mostly higher ahead of the start of trading in New York. UK’s FTSE was up 1 percent, France’s CAC 40 gained 2 percent, and Germany’s DAX edged 1 percent higher.

Shares traded mixed in the Asia/Pacific after South Korea, Taiwan and Hong Kong all slashed interest rates. The moves come a day after the US Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank, the Swedish Riksbank and the Swiss National Bank all announced rate cuts.

Hong Kong’s Hang Seng recovered 3.3 percent after tumbling 8.2 percent the day before. In Japan, the Nikkei Average finished little changed. Major averages finished lower in Taiwan, but higher in South Korea.

In the US, the technology sector might get an early boost after IBM pre-announced third quarter earnings of $2.05 a share on $25.3 billion in revenues, which compares to analyst estimates of $2.02 per share on $26.5 billion. In addition, IBM reaffirmed its full year outlook of “at least” $8.75 a share, which was in-line with Street expectations. Shares of the computer maker are up 4.5 percent in pre-market action.

On the economic front, the latest weekly jobless claims showed decline. According to the Labor Department, the number of filings for jobless benefits fell by 20,000 to 478,000 in the week ended October 4. Economists were looking for a decline to 475,000.

A report on business inventories is due out at 10:00 a.m. Eastern Time. Economists expect the report to show inventories increasing .4 percent in August, which follows a 1.4 percent rise the month before. Data on import/export prices and the trade balance round out this week’s economic calendar. Both reports are due out Friday before the opening bell.

Bonds are taking a hit as equity markets rebound. The benchmark ten-year Treasury bond is down 16/32nd and now yields 3.72 percent, compared to 3.49 percent 24 hours ago.

The dollar is mixed. The euro is battling back, up .0024 to 1.3678 on the buck. After six days of losses, the dollar gained 1.6 to 100.76 against the yen.

In the commodities markets, crude oil rose 36 cents to $89.31 a barrel and gold gave back $17.30 to $889.20 an ounce.

Among the stocks to watch, Longs Drugs (LDG) is lower after Walgreen’s (WAG) withdrew its $75 per share bid for the company. Boeing (NYSE:BA) is in focus after the company returned to the bargaining table with machinists regarding the ongoing worker’s strike. General Electric (NYSE:GE) might see action ahead of an earnings report due out tomorrow morning before the opening bell.

The financials will be watched after the ban on short selling was lifted before the start of trading Thursday. The Select Sector Financials (NYSEARCA:XLF), which is an exchange-traded fund that holds all of the financial companies from the S&P 500, is up 2.5 percent in pre-market action.

Active trading continues in the options market, as volatility remains at historic highs. Approximately 10 million puts and 8.9 million calls trading across the US options exchanges Wednesday. The CBOE Volatility Index (.VIX) rallied 3.85 points to yet another record high at 57.53.

Investors continue to look for ways to hedge stock portfolios amid the ongoing sell-off on Wall Street. 1.3 million puts traded on the stock indexes traded Wednesday, almost double the number of index call options. Investors are also buying puts on the PowerShares QQQ (QQQQ), S&P Depositary Receipts (NYSEARCA:SPY), and iShares Small Cap Fund (NYSEARCA:IWM).

Yet, while some investors scramble to buy portfolio protection, others have been seen sifting through the recent wreckage for opportunities to enter bullish trades. For example, Mosaic (NYSE:MOS), which was the subject of a brutal 60-percent two-week sell-off heading into Tuesday’s trading session, saw heavy trading in the November 45/60 bull call spread Wednesday.

Bullish order flow was also seen in Genentech (Private:DNA), Boston Scientific (NYSE:BSX), Brink’s (NYSE:BCO), Hercules Offshore (NASDAQ:HERO), and Taiwan Semiconductor (NYSE:TSM). Meanwhile, bearish flow infected Coventry Healthcare (CVH), NetGear (NASDAQ:NTGR), and the iShares Long-Term Bond Fund (NYSEARCA:TLT).