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EARLY TRADE

In Friday’s first half, some government relief and an oversold corrective move not soon to be forgotten (maybe) has a skittish Wall Street attempting to fend off existing momentum and mixed corporate news. As of 10:40 ET, the NASDAQ Composite ($COMPQ) and S&P500 ($SPX) are off fractionally by -.13% to -.16% punctuated by still volatile and fragile conditions.

If traders woke up early enough, it looked to be yet another terrible day for Wall Street. In front of the advance GDP report futures presaged that woes of a looming credit crunch, fading market supports from former star “PE” and ongoing subprime / housing issues remained front and center with investors. And while it’s still too early to think those negatives will fade and allow the bulls to right themselves up in an easy manner, thus far investors are likely uttering silently “TGIF” with only a fractional shade of red being seen in most market barometers.

Out-the-gate existing premarket anxieties have taken a bit of a backseat to better-than-expected economic data. The advance GDP report came in above Street views by two-tenths of a percent with an increase of 3.4% for the second quarter. The data suggests second-half growth of 2.5% to 2.75%. However, with consumer spending a weak component, the bulls aren’t entirely out of the woods. Somewhat more comforting, inflation components came in weaker than estimates, possibly easing concerns regarding price pressures. The GDP deflator rose a slighter 2.7% versus estimates of 3.4%. Further, the core PCE index, a Fed favorite, was five-tenths below views with a slight gainer of 1.4%.

Separately, a second report saw consumer sentiment from the U of M improve in early July to 90.4 versus 85.3 last month, but below expectations of 91.5. Net-net, the combined reports have a flight-to-safety move in treasuries reacting relatively well to the latest data. Intraday, the yield on the 10-Year is up slightly from 4.77% to 4.79%. While higher yields can spook investors, in the context of the recent move, the stabilization is a welcome sign as it suggests that some fear of a credit crunch and spillover effect on the broader economy are being deliberated with a bit more skepticism.

In stock news, the reports are decidedly mixed. On the earnings front, headliners Amgen (AMGN), Chevron (CVX) and KLA-Tencor (KLAC) all posted results above views. For its part, the biotech giant beat by eight cents and issued higher guidance for FY07. Meanwhile, Chevron delivered earnings of $2.52-a-share versus estimates of $2.28. And finally, KLA-Tencor beat by eight cents while revenues rose 27% and topped estimates. However, trader reaction has been less than receptive in those stocks. All three are underwater in volatile conditions and an environment where existing negative sentiment and the macroeconomic continue to rule the day.

Not helping matters, existing woes over former market star “PE” having seen a cyclical peak and tightening credit markets and widening spreads in debt markets are doling out mixed reports. For the bulls, the healthcare arena is finding a tourniquet of sorts as Medtronics (MDT) announced a $3.9 billion / 32% premium bid for medical device maker Kyphon (KYPH). However, given current concerns over a possible credit crunch, bearish news from Cadbury Schweppes (CSG) likely takes precedent as to which report matters more. Management at the ‘sweets shop’ announced its intention to delay a merger due to “extreme volatility” in debt markets.

GROWTH & MOVERS COVERAGE

EARNINGS CALENDAR

Select reports scheduled after the market close or premarket:

REPORT CALENDAR

Economic releases on tap:

INDICES & MARKET MOOD

Entering the lunchtime hour and market conditions have deteriorated once more. Some of the blame might be placed on September crude back up .70 cents at 75.65 and through the $76-a-barrel level intraday. However, Wall Street initially cheered that strength as the move was thought tied to reassuring data on economic growth. Call it a case of investors not being able to have their cake and eat it too.

More to the point, the grasping of catalysts to inspire bullish behavior and then only to fail, continues to underscore very difficult conditions. While hard technical testing (a double bottom of sorts) should soon find a reason to challenge the bears into their own brand of profit-taking and the bulls snapping up shares for more than a blip on the intraday radar; bulls, bears and hedge hogs stand to do it a bit better, by spreading off any wagers of interest.

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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