Early indications point to a steady open Tuesday, as the major averages attempt to stabilize from the steep losses suffered the day before. About an hour before the opening bell on Wall Street, stock index futures suggest that Dow might add 40 or 50 points in early trading.
Stocks suffered steep losses and the S&P 500 (.SPX) hit its lowest level in 12 years Monday amid mounting fears about the problems in the banking industry and the risks those problems pose for the global economy.
With little news to guide trading, some of the financial names are seeing a modest bounce Tuesday morning.
Dow components Citi (C) and BofA (BAC) are up 6 and 7 percent, respectively, as the Obama administration looks for ways to help the banking industry by creating investment funds to buy toxic debt. The Wall Street Journal is reporting that one idea is to establish separate funds managed by private investment mangers to buy up to $1 trillion in distressed assets.
Eyes will also be on Fed Reserve Chairman and Treasury Secretary Tim Geithner. Both are scheduled to discuss plans for the budget to separate Senate and House committees today.
The economic calendar is light. Pending home sales numbers are due out at 10:00 a.m. ET. Economists expect the report to show a 3.5 percent drop for January, which follows a 6.3 percent increase the month before.
Investors get a peek at the February jobs situation courtesy of ADP's private sector report tomorrow morning. Weekly jobless claims are due out Thursday before key payroll data hit Friday.
Bonds are seeing modest losses in early trading. The benchmark ten-year Treasury is down a few ticks and its yield is back up to 2.94 percent, up from 2.87 percent late Friday.
The euro is bouncing back a bit. The European currency was recently up .0074 to 1.2630 against the buck. The dollar rallied .97 to 98.08 on the yen.
Crude oil is up $1.00 to $41.15 a barrel after a big drop yesterday. Gold is down $13.50 to $926.60 an ounce.
The automakers will be in focus with General Motors (GM), Ford (F), and Chrysler expected to post sales declines of more than 40 percent for February.
Costco (COST), Toll Brothers (TOL), BJ's Wholesale (BJ), and Liz Claiborne (LIZ) might see action ahead of earnings Wednesday before the bell. BP (BP) is down after Bernstein downgraded the energy giant to Market Perform from Outperform. Eagle Bulk Shipping (EGLE) might help the dry bulk shippers early. Shares gained 13 percent after the company posted better than expected earnings and revenues.
In the options market, the tone was decidedly more cautious Monday, as fears about ongoing problems in the financial world sent the Dow Jones Industrial Average reeling for a 300-point loss. The CBOE Volatility Index (.VIX) rallied 6.37 to 52.72 and approximately 8.3 million puts and 7.8 million calls traded on the options exchanges.
Unusual trading activity surfaced in Las Vegas Sands (LVS) late in the day. Shares fell 9 cents to $2.19 and 46,000 calls traded, compared to just 740 puts. The top trade of the day was a block of 37,000 June 7.5 calls bought for 25 cents. Similar activity surfaced in MGM Mirage (MGM). Shares fell 45 cents to $3.05 and it appeared that an investor bought 19,000 June 7.5 calls for 25 cents. The interest in these deep out-of-the-money puts is unusual because there is a very low probability that they will be in-the-money at June options expiration.
Bullish trading was also seen Foot Locker (FL), Fred's (FRED), Ivanhoe Mines (IVN), and the CBOE Volatility Index (.VIX).
Talisman Energy (TLM) shares fell $1.01 to $8.35 and trading turned bearish Monday. 4,300 puts and 650 calls traded. March 7.5 puts saw the most action. 2,665 contracts traded and about 60 percent hit ask-side of the bid-ask spread. April 7.5 puts were also being bought and implied volatility rose to 86, up from about 76 the day before. It seems that some investors were bracing for additional volatility in the Calgary-based oil and gas company ahead of earnings due out later this week.
Bearish trading was also seen in Anadarko Petroleum (APC), Best Buy (BBY), Cerner (CERN), and the Dow Jones Transportation Average ETF (IYT).
Frederic Ruffy
WhatsTrading.com
