Today's Market: Merger News And Market Movers

Includes: AAL, AMX, ARNA, DAL, DDD
by: Matthew Smith

The Syria situation is becoming a real head scratcher as now it appears that France is willing to intervene in the country's civil war and that President Obama is apparently seriously entertaining the notion of going it alone on this military action. That would be a mistake and a move which would push oil prices higher and the general market strongly lower. No way is the U.S. able to go it alone and have everything go right. The fact that it appears we are planning this strike assuming it will all go as planned shows just how silly this whole exercise is. One thing is certain, if missiles are launched, then there will be no shock and certainly no awe.

Chart of the Day:

Even though the volume growth on Nasdaq and NYSE has fallen in recent years from the high growth rates of prior years we must remember that the high frequency traders have 95-98% of their entered transactions pulled before orders can be filled. That is a lot of stress on systems built years ago and one must wonder how we do not have more trading issues at the Nasdaq and NYSE.

(Click to enlarge)


We have economic news today and it is as follows:

  • Personal Income (8:30 a.m. ET): 0.1% EXPECTED, 0.1% ACTUAL
  • Personal Spending (8:30 a.m. ET): 0.3% EXPECTED, 0.1% ACTUAL
  • PCE Prices - Core (8:30 a.m. ET): 0.2% EXPECTED, 0.1% ACTUAL
  • Chicago PMI (9:45 a.m. ET): 53.0
  • Michigan Sentiment - Final (9:55 a.m. ET): 80.0

Asian markets finished higher today:

  • All Ordinaries -- up 0.83%
  • Shanghai Composite -- up 0.06%
  • Nikkei 225 -- down 0.53%
  • NZSE 50 -- up 0.45%
  • Seoul Composite -- up 0.99%

In Europe, markets are lower this morning:

  • CAC 40 -- down 0.70%
  • DAX -- down 0.50%
  • FTSE 100 -- down 0.46%
  • OSE -- down 0.72%


Europe's telecom market is entering a consolidation phase, and whether the various political states and regulatory bodies like it, it sure appears that this is a wave which will not be stopped. The increased activity in recent months has highlighted that deals are in fact possible so the news this morning that America Movil's (NYSE:AMX) play for the remaining KPN shares that it does not already own is going to be opposed means little to us. Our bet is that Carlos Slim closes the deal and gains a foothold on the continent to expand from...which he will. America Movil's shares have traded lower in anticipation of the company buying out KPN, so many in the market still believe that the deal will be closed and we tend to want to bet with those who bet with their money. Look for Mr. Slim to go on the offensive in the next week or two and attempt to sway the foundation to give America Movil its approval.


If oil prices retreat from current levels and the DOJ agrees to a palatable compromise regarding gates in certain markets then shares could rebound strongly here, possibly by 20%.

(Click to enlarge)

Source: Yahoo Finance

Speaking of approval for mergers and acquisitions, the good news yesterday for U.S. Airways (LCC) shares was that the U.S. Department of Justice, or DOJ, is open to negotiating terms which would enable them to sign off on the merger between U.S. Airways and American Airlines. Many believe that this acquisition needs to happen to give the country a third major airline and cement U.S. Airways' status as one of the names in the industry which could make it through a downturn. U.S. Airways shares rose $0.62 (4.04%) on the news to close at $15.96/share as investors cheered the news and adjusted their time lines for some sort of DOJ approval for the merger to proceed.

Also in the airline industry, we want to highlight Delta Airlines (NYSE:DAL) which might be the best positioned airline to benefit from a climate with higher oil prices. As many will remember, the company does own a refinery that it purchased last year and uses that asset to lower its jet fuel costs, which at U.S. Airways represents about 40% of their expenses. If one believes that the Middle East troubles are going to carry forward, then Delta is the best play in the sector.


We continue to be impressed by 3D Systems (NYSE:DDD) as the shares have been able to stay around the $50/share level and not fall through. The stock seems to be building support there, which is a positive especially when one considers that $50/share used to represent a very strong resistance level. The stronger this $50/share support becomes, the more inclined we shall be to possibly make this a short-term trading tool for one of our portfolios. We most certainly will not use retirement funds for this speculation, but the taxable accounts would not be off limits to this if we deemed it a worthy trade. We do think shares head higher from here and are of the thinking that the Citigroup analyst may have been on the low side with his $60/share price target for the shares.


this chart highlights just how ugly 2013 has been for Arena shareholders and with a few more months to go in the year it still could get worse.

(Click to enlarge)

Source: Yahoo Finance

One of the big disappointments in the biotech industry has been Arena Pharmaceuticals (NASDAQ:ARNA) which saw its shares hit a 52-week low in yesterday's trading. The shares actually closed the session below their previous 52-week low, so it was a serious event no matter what the Arena bulls will try to tell you. The outsized gains many expected from the company have yet to materialize and we see new reports every day concerning potential drugs which could be approved and mark new entrants into the field. Even more troubling are articles like the one we saw from Reuters yesterday (see link here) that discuss companies totally changing the process of how these drugs work. It is an exciting time for biotech but with all of these great breakthroughs also come heartbreak as some drugs which are heralded as game changers and blockbusters fail to generate anywhere near the business promised. We are not writing off the company yet, but the situation is not nearly as rosy as was promised.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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