Morning Watch, August 18
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August 18, 2008
Geopolitical news helps provide positive open for stocks, although there remain concerns about the economy. Oil prices have come off highs seen overnight despite bullish comments from an OPEC leader. Lowe’s (LOW) shares are seeing declines after the company’s earnings release, but BHP Hilton (BHP) shares are up following its release. News that Pakistan’s President would resign and that Russian troops were withdrawing from Georgia.
Oil prices rose above $115 a barrel in overnight trading, but have since returned to the flat line near $114. Weather concerns and comments from an OPEC leader provided strength for oil initially. However, Tropical Storm Fay is now not expected to hit key oil installations and Russia’s commitment to withdraw from Georgia has eased concerns about oil disruptions in the region. Even so, an OPEC leader stated that the cartel might need to cut production at the September 9 meeting.
In earnings news, LOW reported better than expected results for its second quarter. However, the home-improvement company lowered its third quarter earnings range to 27-cents to 31-cents with estimates for 33-cents. Lowe’s shares are seeing slightly higher prices, although there are still a lot of concerns about the problems in the housing sector. LOW shares are trading near $24.50 and so far the stock has been able to hold above support at its 200-day moving average.
Mining company BHP is seeing its shares rise Monday by nearly two percent. BHP reported that it made more than $15 billion for the year ending June 30. Profits were up 30 percent due to strong demand from China. Nonetheless, the company did warn that weak global economic growth could provide problems in the short term. BHP shares have fallen sharply the past quarter, falling to a price near $67 from highs above $95 seen in May.
Financial shares are seeing weakness once again Monday following negative comments in the Wall Street Journal about Lehman Brothers (LEH). The newspaper stated that LEH could lose $1.8 billion in the quarter and this has pushed LEH shares down nearly five percent. LEH shares have fallen hard this past year, trading near $16 currently, but seeing highs near $65 earlier in the year.
Overall, the major market indices could struggle to see gains given strong resistance. The S&P 500 ($SPX) is struggling to move through 1,300 and a rejection at this level would result near term weakness. However, if positive news is released this week on the economic front, a break of 1,300 could result in strong gains.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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