Closing Wrap-Up, August 6
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August 6, 2008
After weak start, stocks rally on continued drop in crude prices. The Dow ($INDU) gained 40.30 points to close the session at 11,656.07. The S&P 500 ($SPX) rallied 4.31 points to 1,289.19. The Nasdaq ($COMPQ) tacked on 28.54 points, to 2,378.37. Volume was lighter than on Tuesday with 1.20 billion shares traded on the NYSE and 2.26 billion shares exchanged on the Naz. Market breadth was positive by a 17-to-14 and 17-to-12 margin on the Big Board and Naz respectively.
The session got off to a rough start following a disappointing earnings report from Freddie Mac (FRE). The fact that stocks rose sharply Tuesday also created some profit taking in the early going. However, a further decline in energy prices and a solid report from tech bellwether Cisco (CSCO) convinced traders to buy the second half of the session.
Oil prices fell 86-cents a barrel to a price of $118.31 on a surprise gain in weekly inventory levels. Crude inventory levels rose by 1.614 million barrels this past week, which was five times more than expected. However, gasoline reserves fell by 4.4 million barrels, which stopped crude from falling even further. The recent decline in oil prices has definitely helped stock prices move higher and has eased some concerns about pricing pressures.
Shares of FRE fell 19.28 percent Wednesday after the mortgage buyer announced earnings that fell well short of expectations. FRE lost $821 million in the second quarter compared with a profit of $729 million a year ago. This loss was more than triple what was expected by analysts. Adding insult to injury, the company said it will cut its dividend to at least 5-cents from the current 25-cents a share. Shares of Fannie Mae (FNM) fell sharply as well, down 14.71 percent with FNM set to report earnings on Friday.
CSCO helped provide strength for tech stocks after the company reported better than expected earnings. CSCO earned 40-cents a share on an adjusted basis, which were 2-cents above expectations. CEO John Chambers also confirmed guidance going forward and was rather upbeat in his comments. Shares rose 5.65 percent to a price of $23.93, yet the stock is still more than $10 below its 52-week high.
Thursday will see some economic reports that could influence trading including data on jobless claims, pending home sales and chain store sales results. Of course, there will be plenty of earnings news to digest as well with the bulls looking to add to recent gains, while the bears will be selling into this rally. The Dow ran into resistance Wednesday at its 50-day moving average, so it will be interesting to see if this level can be broken Thursday.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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