Jody Osborne, Optionetics.com
May 13, 2008

Stocks see mixed trading Tuesday with tech stocks rising while financials decline. The Dow ($ INDU) fell 44.13 points to close the session at 12,832.18. The S&P 500 ($ SPX) was flat, down just 0.54 points, closing at 1,403.04. The NASDAQ ($ COMPQ) tacked on 6.63 points to 2,495.12. Volume remained light Tuesday with 1.11 billion shares traded on the NYSE and 1.88 billion shares exchanged on the Naz. Market breadth was positive by a 17-to-15 and 15-to-14 margin on the Big Board and Naz respectively.

 

Financials were a drag on the major market indices with an analyst at Oppenheimer stating that major banks still face problems not reflected in stock prices. Fed Chairman Bernanke also stated that financial markets remain severely stressed. Plenty of data on the economy will be released this week, including Tuesday''s data on retail sales.

 

For the month of April, retail sales fell 0.2 percent, which was a tenth worse than estimates. However, sales that exclude autos actually rose 2-tenths more than expected at growth of 0.5 percent. This release shows that the consumer continues to spend despite record high energy prices and a soft labor market. Spending should remain strong the next few months as rebate checks get spent.

 

San Francisco Fed President Janet Yellen hinted that inflation pressures have possibly topped out and that monetary policy should help improve growth the second half of 2008. Even so, crude prices continued to rise, up $1.57 a barrel to $125.80 after hitting an intraday high at $126.60. These gains occurred despite the fact the IEA lowered its daily consumption forecast for 2008.

 

In other price related news, import and export prices data for April were released this morning. Import prices rose 1.8 percent, a tenth higher than expectations. Export prices saw much slower growth, up 0.3 percent. Unfortunately, higher food and energy prices are starting to spill over to other prices and this is keeping worries about inflation high.

 

In merger news, Hewlett-Packard ( HPQ) confirmed that it would buy EDS ( EDS) for $13.9 billion or $25 a share. EDS shares rallied Monday on the reports with the stock up one percent to $24.34 Tuesday. HP shares continued to decline on the view the deal doesn''t necessarily mean HP can compete better with IBM ( IBM). HP shares fell 5.47 percent to $44.27.

 

Late in the session, the tech sector benefited from reports that billionaire Carl Icahn is mulling whether to start a proxy fight to elect new directors at Yahoo ( YHOO). Many YHOO shareholders are upset that the company rejected Microsoft''s ( MSFT) buyout. YHOO shares gained 5.2 percent on the session on the view Icahn could push hard enough to get a merger done.

 

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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