Morning Watch: October 14
October 14, 2008
Bulls kick-off Tuesday with aggressive follow-through as details of “The New Plan Version 3.0” and similar global efforts are cheered. As of 9:15 ET the “Cubes” (QQQQ) and “SPYder” (SPY) are up to more extraordinary “business as unusual” with opening gainers in excess of 4.0% and a “Mama of all bottoms” an almost distant memory.
From “Double Wows!” to quite simply “Extraordinary!” bulls continue to follow-through on Friday’s last hour 12% surge from the abyss and continue to sail forward beyond Columbus Day’s near 14% historic voyage for the S&P500 & Co. Tuesday’s impetus has been a favorable reaction to the global government bailout efforts and three new initiatives by stateside policymakers.
Highlights of the US’ “Version 3.0” include $250.0B in recapitalization. Half of that amount will go directly to nine Anchor Bankers (MER, C, WFC, BK, STT, BAC, JPM, MS, GS) and for which the government will receive preferred stock interest in. Additionally, new bank debt guarantees for a three-year period will be implemented, as will FDIC insurance for non-interest bearing accounts—to which Fed Chief Bernanke confidently said would enable bringing the financial markets back to normal. Hmm, what’s that?
In related and intertwined markets, the response looks to be equally good as investor confidence and stability appear to be filtering in. Overnight Libor rates have declined by 0.2875 overnight to 2.1813. The TED (Treasury Euro-Dollar) spread, which indicates the banking sector’s willingness to loan to one another, has also come down by 0.1429 to 4.1376. Separately, Black Gold is jumping higher as traders look towards economic relief on the horizon and demand for the product, a byproduct of that optimism. For its part, the US Oil Fund (USO) is up roughly 3% to 69.55.
On the earnings front, shares of J&J (JNJ) are higher by nearly 5% at 65.80 and forming its own version of a “Mama Bottom.” Investors are reacting favorably in front of the Opening Bell after the consumer healthcare products giant posted “b-t-e” results of $1.17 per share, topping estimates of $1.11. The company also issued FY08 guidance above Street views to a range of $4.50 - $4.53 from its prior forecast of $4.45 - $4.50.
Separately, it’s appearing that “Coke Is It” over at Pepsi (PEP). Shares are off a bit more than 4% near 59.20 after the beverage giant posted worse-than-expected profits of $1.06 and missing views by two cents despite a sales increase of 11%. Investors also owe their less-than-bubbly response to the company’s reduction of FY08 guidance below consensus estimates and news of six facility closings and job cuts of 3,300, in an effort to reduce overhead by $1.2B.
And finally, the financials (XLF) and those with credit-related mishaps such as General Electric (GE) will be closely-watched in Tuesday’s session. In premarket action the XLF proxy is tacking on 6% to 17.20. With details now in place as to the allocation of bailout funds to the fore-mentioned Anchor Bankers, bulls would like to see the technical gains of the last two sessions improved upon or hold steady—without seriously jeopardizing “Mother Merrill” and other “Mama Bottoms”, which at this juncture do look more than ready for a little schnitzel as Tuesday kicks off.
Chris Tyler
Staff Writer & Options Strategist
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