Morning Watch, August 27
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August 27, 2008
Stocks weaker in early trading despite better than expected durable goods orders data. Gains in oil prices are mainly to blame with Gustav bearing down on the Gulf of Mexico. Amylin Pharmaceuticals (AMLN) is a taking a hit this morning on more bad news about its diabetes drug Byetta.
Oil prices are up nearly three dollars a barrel in early trading to a price near $119. Strength is mostly due to concerns about Tropical Storm Gustav, which is headed straight toward the Gulf Coast. By the time it hits land, Gustav is expected to be a hurricane and this could pose problems for oil installations in the area. Data on weekly inventory levels is due out this morning and estimates are for crude to see a gain of a million barrels.
Durable goods orders for July rose 1.3 percent, which easily surpassed estimates for a gain of just 0.1 percent. Even when transportation orders are excluded, durable goods orders rose 0.7 percent. Nondefense capital goods orders, a key measure used in the GDP figure, rose 1.6 percent. In the past year, new orders for durable goods are down 4.5 percent.
Shares of AMLN are taking a hit Wednesday, down nearly 16 percent to a price below $23. The pharmaceutical company got more bad news about its Byetta drug with four more patients dying that were using the diabetes drug. The FDA advised the company last week that the company should discontinue the drug if damage to the pancreas was possibly to blame.
The financial sector has been hit hard this year with mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) a big part of these problems. However, both stocks are higher Wednesday despite getting their ratings cut at Standard and Poor’s. The fact is that traders sold off the shares on the view the government could bail out the two companies’ at the expense of shareholders. Many analysts now feel this will not happen and it is pushing shares higher. Nonetheless, both FNM and FRE are trading at a fraction of their 52-week highs.
Volume levels continue to be light with many traders taking end of summer vacations. This makes it tough to gauge day to day activity, especially when data on the economy and earnings have been mixed.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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