Early indications point to mixed trading Wednesday morning, as investors await a second day of testimony from Federal Reserve Chairman Ben Bernanke as well as details of the government's stress tests of the banking system. Less than an hour before the opening bell on Wall Street, stock index futures point to a modest loss for the Dow Jones Industrial Average, but slim gains in the NASDAQ.
Federal Reserve Chairman Bernanke is back in the spotlight today. The day after the head of the US Central Bank helped ignite a rally on Wall Street with optimistic projections for an economic recovery by 2010, Bernanke gives similar testimony to the House today and holds a questions and answer session around 10:00 Eastern Time.
Investors are also awaiting details of the banking industry "stress tests", which are due to be unveiled today. The tests will give regulators a sense of which banks are lacking capital and might need additional government help.
A report on existing home sales is due out at 10:00 ET. Economists expect to see modest improvement in January, to an annualized rate of 4.79 million homes from 4.74 million the month before.
With not much other news to guide trading, bonds saw modest losses in early pit action. The benchmark ten-year Treasury is down 8/32nd ahead of an auction of 5-year notes later today. The yield on the 10-year is up to 2.83 percent, from about 2.8 percent late Friday.
The dollar gave back a little ground following big gains on the Japanese yen Tuesday. The buck is back down to 96.69 on the yen. The euro slipped back to 1.2808 against the US currency.
Crude oil is up 73 cents to $40.69 a barrel ahead of weekly inventory data due out at 10:30 Eastern Time. Gold lost another $5 to $964.5 an ounce.
Among the stocks to watch, Citi (C) shares are holding steady on reports a deal with the Treasury Department, which will include a swap of funds for preferred shares, could be announced today. BofA (BAC) edged higher despite news of a $15 billion loss at its Merrill Lynch unit, or about $500 million more than the bank had previously announced.
In the options market, trading remained cautious Tuesday, even as 29 of 30 Dow stocks finished the day with gains and the industrial average gained 234 points. Approximately 6.9 million puts and 6.4 million calls traded Monday. The CBOE Volatility Index (.VIX) plummeted 7.77 to 44.85.
Hartford Financial Services Group (HIG) had a good day. Shares of the embattled insurance company gained $1.33 to $8.01. The top options trade of the day hit early with shares at $6.67. At that time, an investor bought 17K Jan 2011 calls at the $7.5 strike for $3.90. It was a straight call buy, according to an exchange-floor contact. The call option is now bid for $5 and saw open interest increase to 21,909 from only 206 contracts
Bullish trading was also seen in El Paso (EP), Yahoo (YHOO), and Schlumberger (SLB).
Best Buy (BBY) hit a low of $26.84 early in the day, but battled back to close up 30 cents to $27.88. The early weakness was possibly related to rival Radioshack's (RSH) disappointing earnings. RSH lost $2.64 to $8.81. In the options market, puts on Best Buy saw active trading. 26,000 contracts traded, or about four times the number of calls. March 20 and 25 puts saw the most volume, as it appeared that some investors were positioning for possible downside in BBY shares.
Bearish trading was also seen in Autonation (AN), Headwaters (HW), and US Steel (X).
Frederic Ruffy
WhatsTrading.com
