Morning Watch, July 25
July 25, 2008
Bulls hope to recover from Thursday’s sharp declines with new home sales a focus. Existing home sales results on Wednesday left traders in a selling mood, as did disappointing earnings results. Volumes are likely to be light today given it is a summer Friday and light volumes can often provide volatility. Thursday’s losses occurred despite the fact crude prices did not see large gains. The main question is whether yesterday’s declines were a solo act, or if it was the start of a new wave of lower prices for the major market indices.
On Thursday, existing home sales fell more than expected, adding to concerns that a bottom in housing sector is still struggling to find a bottom. Data on new home sales will be closely watched this morning with expectations for sales to fall to an annualized rate of 505,000 units. Traders will be watching home prices, which have fallen harder for new homes than existing homes. Ahead of this report, RealtyTrac announced that foreclosure filings rose 14 percent in the second quarter. This is a jump of 121 percent from the year ago period.
Data on durable goods orders and consumer sentiment could also have an impact on trading Friday. Durable goods orders are expected to show a decline of 0.4 percent in June after a flat reading in May. Consumer sentiment as measured by the University of Michigan is also expected to be flat compared with June at 56.4. The fact is that consumers have plenty to be concerned about, including high energy prices, a beaten down housing sector and soft labor market and this is keeping sentiment down. However, consumer spending has not fallen as much as one would expect given the weakness in most sentiment reports.
In earnings news, Netflix (NFLX) announced earnings per share of 45-cents, easily surpassing expectations for earnings of 41-cents. At the same time, the online DVD rental company raised its full year forecast to a range of $1.19 to $1.31 from $1.16 to $1.29. The stock is up almost 10 percent in premarket trading to a price of $29, roughly in the middle of its 52-week range.
Interestingly, Honda Motor (HMC) announced very strong earnings a day following sharp decline for automakers on Wall Street. HMC said profits rose 8.1 percent during its fiscal first quarter. Nonetheless, for the year ending March 31, 2009, HMC sees income dropping 18.3 percent on a 1.1 percent rise in sales. HMC shares are up nearly two percent in premarket trading on the news.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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