Oversold Levels Could Trigger Some Bargain Hunting on Wall Street - RTTNews Daily Market Analysis

Fri. October 03, 2008; Posted: 09:28 AM

(RTTNews) - The major U.S. index futures are pointing to a higher opening on Friday. A bigger-than-expected decline in the non-farm payroll employment in September is the latest in the string of negative readings that point towards further deterioration in economic conditions. Additionally, the fate of the $700 billion rescue package is hanging in a limbo, as the proposal is likely to be discussed again after having failed to go through the House earlier in the week. However, the oversold levels of the markets suggest some bounce back, as traders hunt for bargains.

U.S. stocks opened Thursday's session modestly lower and declined steadily over the course of the session to end near the day's lows. The predicament reflected investor anxiety over the effectiveness of the rescue package even as the Senate approved the package and an economic report that showed a notably weak labor market.

The Dow Industrials declined 348.22 points or 3.22% to 10,483 and the S&P 500 Index receded 46.78 points or 4.03% to 1,114. Meanwhile, the Nasdaq Composite fell 92.68 points or 4.48% to 1,977.

Among the sectors, the Dow Jones Transportation Index tumbled 8.72% and the Dow Jones Utility Average fell 3.21%. Notwithstanding the pullback in oil prices, the Amex Airline Index receded 5.64%. The Philadelphia Housing Sector Index lost 5.24% compared to a 4.23% decline by the S&P Retail Index. While the Amex Oil Index slumped 7.21%, the Philadelphia Oil Service Sector Index fell 10.35%. The Amex Gold Bugs Index plummeted 16.08%.

In the technology space, the Philadelphia Semiconductor Index receded 4.84% and the Computer Hardware Index declined 3.85%. The Software Holders Index dipped 3.69% compared to a 4.14% drop by the Amex Networking Index. The Amex Internet Holders Index was down 5.69% for the day.

On the economic front, the weekly jobless claims created a flutter, as the number of individuals claiming unemployment insurance rose 1,000 in the week ended September 27th to 497,000 from the upwardly revised reading of 496,000 for the previous week. Job losses due to hurricanes may have boosted claims. Barclays believes that the underlying trend in jobless claims could be 450,000, a level which is consistent with steep job losses.

Meanwhile, factory goods orders declined by 4% month-over-month in August, a faster rate of decline than the 3% drop expected by economists. Orders and shipments of the core capital goods, which are the non-defense capital goods excluding aircrafts, were revised downwards to show 2.4% and 2.1% declines, respectively.

Currency, Commodity Markets

Crude oil futures for November delivery are reversing some of their previous session's losses and are currently trading at $94.14 a barrel, up $0.17. On Thursday, the commodity plunged $4.56 to $93.97 a barrel.

Meanwhile, gold futures are gaining $3.60 an ounce after declining $43 to $847.90 an ounce in the previous session.

On the currency front, the U.S. dollar is trading at 105.165, down from 105.336 yen it was worth at the close of New York trading on Thursday. Against the euro, the dollar is currently worth $1.3766.

Asia

Stock markets across the Asia-Pacific region closed mostly lower on Friday, mirroring Wall Street's plunge overnight. Concerns that Bush Administration's $700 billion bailout package might not be enough to prevent the world's largest economy from slowing down contributed to the weak market sentiment. Japan's Nikkei 225 average languished in negative territory throughout the session before closing down 216.62 points or 1.94% at 10,938.

Among exporters, construction machinery manufacturer Komatsu plunged 8.1%, Canon fell 4.1%, top automaker Toyota Motor dropped 5.3%, and electronics giant Sony slipped 0.3%. Nippon Steel, which is often swayed by the state of the economy, shed 3.1%.

In the banking space, Mitsubishi UFJ lost 2.4%. The company denied a report that it plans to merge its brokerage units in Japan with a local subsidiary of Morgan Stanley. Meanwhile, Mizuho Financial eased 0.9% and Sumitomo Mitsui declined 1.7%. Top brokerage Nomura Holdings slipped 0.2%. Bucking the trend, Nippon Suisan edged up 0.3% and Aeon climbed 3.3% after the supermarket operator opened Aeon LakeTown, one of Japan's largest shopping centers, on Thursday in Saitama Prefecture.

Hong Kong's Hang Seng Index opened notably lower and moved sideways for the rest of the session. The index closed down 528.71 points at 17,682, taking the losses for the week to 5.4%.

Shares in Hang Seng Bank sank 5.9%, adding to Thursday's nearly 9% fall, but China Resources Logic soared 30%. Asia's largest oil & gas producer Petrochina dropped 5.3%, offshore oil specialist CNOOC gave away 5.9%, and China Shenhua Energy lost 5.2%.

Chinese banks fell with top lender ICBC sliding 3.8% and China Construction Bank falling 4.4%. China Overseas Land Investment gained 2%. Cathay Pacific tumbled 6.2% after Deutsche Bank downgraded the airline's stock to "Sell" from "Hold".

Australia's All Ordinaries opened unchanged, but it declined sharply in early trading before stabilizing around the '4,700' levels. The All Ordinaries index lost 71.3 points or 1.5% to finish at 4,703.

In the resources sector, index leader BHP Billiton plunged 4.0% and Rio Tinto fell 2.6%. Gold miners closed mixed after gold prices fell in Sydney. Among banking stocks, Commonwealth Bank dropped 0.9%, ANZ Banking Group fell 1.4%, Westpac lost 1.3%, and St. George bank declined 2.2%. Bucking the trend, National Australia Bank gained 1.8% and investment bank Macquarie Group advanced 1.7%.

Europe

The major European markets are trading higher on Friday. The French CAC 40 Index is gaining 0.12% and the Germany's DAX Index is up about 0.34%, while the U.K.'s FTSE 100 Index is gaining 0.38%.

Eurostat reported that euro zone's retail sales rose 0.3% month-over-month in August compared to a 0.4% increase in July. On a year-over-year basis, retail sales declined 1.8% in the euro area.

U.S. Economic Reports

A report released by the Labor Department showed that the U.S. non-payroll employment shrank by 159,000 in September, worse than the 105,000 job losses predicted by economists.

Employment continued to fall in the construction, manufacturing and retail trade sectors, while the mining and health care sectors added jobs. The unemployment rate based on the household survey held steady at 6.1%, in-line with the expectations of economists.

The average hourly earnings rose $0.03 or 0.17% to $18.17. The goods producing sector lost 77,000 jobs, with the construction and manufacturing sectors losing 35,000 and 51,000 jobs, respectively. Meanwhile, the service-providing sector lost 82,000 jobs.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM ET on Friday. The non-manufacturing index is likely to show a reading of 50 for September.

The non-manufacturing index rose to 50.6 in August from 49.5 in July. The new orders and supplier deliveries indexes rose in the month, while the employment index fell to 45.4 from 47.4 in the previous month.

Stocks in Focus

Wachovia (WB | Quote | Chart | News | PowerRating) and Wells Fargo & Co. (WFC | Quote | Chart | News | PowerRating) are likely to react to their announcement that their boards have signed a definitive agreement, which provides for the merger of the two companies, including Wachovia's banking operations. Wells Fargo would acquire Wachovia in a stock-for-stock transaction, exchanging 0.1991 shares of Wells Fargo stock for each share of Wachovia.

Fannie Mae (FNM | Quote | Chart | News | PowerRating) is expected to react to its announcement that it has decided to withdraw a fee hike it announced earlier that was to come into effect from November 1st. The company had intended to hike the 'adverse market delivery charge' it had introduced last year to 0.50% from 0.25%.

Apple (AAPL | Quote | Chart | News | PowerRating) is expected be in focus after it won a ruling from the Copyright Royalty Board that rejected a request from the National Music Publishers' Association that called for an increase in royalties paid on digital downloads to 15 cents from 9.1 cents.

Ford (F | Quote | Chart | News | PowerRating) could also react to an announcement that it expects results of its Volvo segment will be worse instead of improved in the second half of 2008 compared with the first half of the year. The company also revealed in a filing that it would sell about $500 million equity shares to retire debts of its financing subsidiary Ford Motor Credit.

Motorola (MOT | Quote | Chart | News | PowerRating) could be in focus after privately held Freescale Semiconductor, one of its major supplier of handset chips, said it is exploring strategic options for its cellular handset chip group.

Global Payments (GPN | Quote | Chart | News | PowerRating) is likely to gain ground after it reported that first quarter earnings rose to 71 cents per share from 54 cents per share last year, as sales rose 30% to $405.8 million. Analysts, on average, estimated earnings of 60 cents per share on revenues of $395.7 million. The company also raised its 2009 revenues estimate to $1.64-$1.68 billion and increased its earnings per share estimate to $2.37-$2.45 per share.

Lawson Software (LWSN | Quote | Chart | News | PowerRating) may move to the downside after it reported first quarter revenues of $190.9 million, shy of the consensus estimate of $191 million. On an adjusted basis, the company reported earnings, in-line with the consensus estimate. The company also said it expects second quarter adjusted earnings of 7-10 cents per share compared to the 9 cents per share consensus estimate. The company's revenue guidance of $205-$215 million is below the mean analysts' estimate of $224.2 million.

Six Flags (SIX | Quote | Chart | News | PowerRating) may be in focus after it said it is not in compliance with the continued listing standards of the New York Stock Exchange due to the fact that the thirty-day average closing price of its stock was less than $1. In the eventuality of its trading range not improving, the company said it would explore other alternatives, including a reverse stock split.

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