Subprime Damage Drives Stocks To Multi-Month Lows

Subprime Damage Drives Stocks To Multi-Month Lows
August 14, 2007: 05:30 PM EST

Aug. 14, 2007 (Investor's Business Daily delivered by Newstex) --

A midafternoon rebound collapsed to deeper losses as most major indexes sank to multi-month lows.

The NYSE ended down 1.9%, at its lowest close since March. The Dow lost 1.6% and the S&P 500 1.8%. All marked their lowest closes in several months.

The Nasdaq lost 1.7%, holding just above its Aug. 6 low.

Preliminary figures showed volume ended 3% higher on the NYSE, 8% lower on the Nasdaq.

The financial market eruption that began with a subprime lending meltdown in the U.S. and spread to markets across Europe and Asia, apparently also hit Canada. Toronto-based Coventree, which administers short-term debt offerings for companies, said it was unable to sell $950 million in new debt. The lack of demand for debt had no direct impact on U.S. markets. But it suggested liquidity problems that forced central banks to inject large sums of capital may be pressing into new economies and new sectors.

A Conventree release noted that problems "that initially seemed isolated to a few U.S. subprime mortgage lenders have led to broader concerns related to debt capital markets generally."

Crude oil was up 98 cents to 72.60 a barrel. Ten-year bond yields ended near 4.73%, down from Monday's 4.78% close.

Losing stocks led gainers by 7-to-1 on the NYSE and by nearly 3-to-1 on the Nasdaq. Only three of 197 IBD industry groups closed higher.

Chile-based Lan Airlines (NYSE:LFL) LFL dropped 5.58 on big volume to 74.05. The stock had dropped below its 10-week moving average in July. Tuesday's 7% drop left shares near their 40-week moving average.

Oceaneering International OII closed on better footing, adding 1.46 to 64.95. The 2% blip left the energy industry undersea construction specialist's shares just below their Aug. 8 high, and 12% above the 58.06 buy point from a recent pullback to the 10-week moving average.

Blue Coat Systems BCSI gained for a second day, rising 1.26 to 53. The move lifted shares further from the 10-week moving average, extending Monday's 2% jump. The stock sat just below a 56.42 buy point on the pullback.

Fertilizer producer CF Industries CF logged a third high-volume gain, rising 1.62 to 57.40. The gain left shares even with their 10-week moving average line. The stock was 19% below its July 16 high.

3 p.m. ET update: Stock Slide Deepens In Late Trading

By JUAN CARLOS ARANCIBIA

The main indexes were trading near session lows late Tuesday and in some cases undercut the lows from early this month.

At 3 p.m. ET, the NYSE composite was down 1.6%; the S&P 500 and Nasdaq were each down 1.4%; the Dow lost 1.3% and made a fresh low for the current correction. It was another low also for the NYSE composite.

Volume remained weaker, which was cold comfort.

The put-call volume ratio was above 1.0, an indication of heightened investor fear.

Almost all 197 industry groups were down, led by building and transportation-related groups. Some finance-sector groups also were weaker.

Blackrock BLK slid 5.18 to 147.60 on heavy trading amid a broad retreat by investment management stocks. The stock has sunk bank to the lows of its most recent correction, from which it never quite broke out.

Seaspan SSW dropped 1.73 to 31.67 as it slipped back below its 50-day moving average. The containership operator priced a public offering of 4.5 million common shares at $33.05 each.

Fossil FOSL was up 1.56 to 29.60 after strong earnings. But shares gave up most of their earlier gains. The stock passed a possible buy point at 32.07 early, but was trading below that level late Tuesday.

1 p.m. ET update: Stocks Rebound Off Intraday Lows, Volume Firms Some

By ALAN R. ELLIOTT

Stocks rebounded mildly in early afternoon trading, weighed down by earnings misses and fear of further trouble in the finance sector.

The NYSE composite was down 0.9%, the Nasdaq 0.7% at 12:55 p.m. ET. The Dow and S&P 500 were down 0.8%.

Volume was down 6% on the NYSE, 16% on the Nasdaq.

Sentinel Management Group, which manages cash for major investors, reportedly requested permission from the Commodity Futures Trading Commission to block investors' withdrawals. The Northbrook, Ill.-based firm reportedly cited lack of market liquidity, saying it could not meet heavy redemption requests "without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients."

American Railcar ARII gapped down, losing 6.16 to 28.53. The stock rose Monday when JPMorgan (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) initiated coverage, then tanked on Tuesday after the company missed Q2 EPS views by 19%. That drove shares to their lowest point since March, and left them well below the 40-week moving average.

On the upside, heavy construction specialist Fluor FLR added 1.62 to 125.19, the stock's sixth straight advancing session on heavy volume. The jump boosted shares to 2% above a 122.77 buy point from a pullback to the stock's 10-week moving average line.

Nvidia NVDA rose 1.30 to 44.81. The move lifted the graphics chip maker's shares above the 10-week line. It was the stock's first pullback since its June breakout from a cup-with-handle base.

Contact lens and eye-care products maker Alcon (NYSE:ACL) ACL gained 2.69 to 139.98. The stock remains glued to its 10-week line following July's breakout from an 11-week double-bottom base.

Swiss industrial scale maker Mettler Toledo MTD continued rebounding from recent lows, adding 2.67 to 95.07. The bounce, after a dip to its 40-week moving average, continued a consolidation begun in May.

11 a.m. ET update: Stocks Dig Deeper In Late Morning Trade

By Alan R. Elliott

Stocks compounded Monday's losses with a slack performance Tuesday morning.

Wal-Mart's weak results and fresh credit-market woes dragged down the major averages.

The NYSE composite, Dow and S&P 500 were down 1.0%, the Nasdaq off 0.8% at 11 a.m. ET. Nasdaq's (NASDAQ:NDAQ) financial indexes were under particular pressure.

Volume was down 14% on the NYSE, 25% on the Nasdaq.

Foreign markets, which have helped track the outward spiral of the U.S. subprime lending train wreck, showed mixed results. European stocks were mildly lower across the board, with London's benchmark FTSE 100 showing a 0.4% loss late in the session. Asian markets were mixed. In China, the Shanghai composite rose 1.1%, while its counterpart in Tokyo, the Nikkei 225, notched a 0.3% gain.

Markets showed little reaction to the Labor Dept.'s producer price data before the open.

Crude oil prices held fairly steady at above $71 a barrel. Ten-year bond yields slipped slightly, to 4.74% from Monday's 4.78% close.

China South Airlines ZNH lofted 3.36 to 48.81. It was the stock's third gap-up since July 25, when the airline announced its first-half earnings would top last year's 1.38 a share by a factor of 20. The move hoisted the stock well into new highs on heavy volume.

Faro Technologies FARO added 1.17 to 37.89. Standard & Poor's (NYSE:MHP) announced Monday the maker of high-tech engineering measurement instruments would join its S&P Smallcap 600 on a yet undisclosed date. Tuesday's uptick lifted the stock further off its 10-week moving average line. That left it just below a 40.59 buy point on the stock's first pullback to its 10-week since breaking out of an 11-week base in July.

Telefonica TEF rose 0.81 to 72.93. The Spain-based telecommunications provider's earnings turned up sharply through the past three quarters, while sales slowed significantly. The stock is hitting seven-year highs on strong volume, but is not forming any discernable base.

Shares of Dick's Sporting Goods (NYSE:DKS) DKS slipped below their 10-week moving average line for the second time in a month, losing 2.38 to 55.77. The chain announced this morning it would report Q2 results before market open Aug. 21. Shares have pulled back to their 10-week line twice since failing to break out of a 14-week cup-shaped base in July.

10:15 a.m. ET update: Stocks Mixed In Early Trade

By Ed Carson

The major averages opened modestly higher but turned mixed as Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) weighed on stocks.

At 10:02 a.m. ET, the Nasdaq climbed 0.2%. But the Dow fell 0.2% and the S&P 500 slid 0.1%.

Wal-Mart WMT shares fell 4% to the lowest level since Aug. 2006. The world's largest retailer missed profit views and guided 2nd-half views lower. The discounter has relied on heavy promotions to boost sales, hurting profit margins.

Home Depot HD fell 2% as a weak outlook offset better-than-expected Q2 results.

Shares of retailers overall declined.

But VMware VMW skyrocketed 80% in its debut after the EMC spinoff priced at $29, the high end of its boosted IPO price range. VM, which raised nearly $1 in its offering, makes software that boosts the power of Web servers and data centers. EMC rose 1%.

Excel Maritime EXM rose 8% in the early going after the dry bulk cargo tanker firm reported Q2 profit more than tripled to 71 cents a share ex items, 14 cents above views. Revenue rose 40% to $37.3 mil. Shares rose 6% on Mon. and 4% last Fri. as they found support near their 50-day moving average.

Mattel MAT fell 3% in the early going as the toy giant announces its 2nd big safety recall of toys made in China.

China has been plagued with health and safety recalls in recent weeks. It's the subject of IBD's front-page article, which you can find at Today In IBD at investors.com.

Among various credit issues, UBS (OOTC:UBSLF) (NYSE:UBS) UBS fell 2.5% after warning that 2nd-half results could suffer due to market woes.

Fortress Investment Group FIG slid 5% after reporting a Q2 loss and revenue that were both worse than expected. Fortress has hedge fund and private equity operations.

Countrywide Financial CFC fell 2%. It said mortgage originations rose 6% in July vs. a year ago, but fell 14% vs. June as tightening credit hurt business. The No. 1 U.S. mortgage lender warned last week of "unprecedented" credit market woes.

But Thornburg Mortgage (NYSE:TMA) TMA, faced with big margin calls from creditors, tumbled 21% to a 6-year low after falling 21% on Mon. and 15% on Fri. Delta (NYSE:DAL) Fin'l (NASDAQ:DFC) DFC shot up 21% to 5.50 after saying it met margin calls. Its shares crashed last week.

Meanwhile, Moody's Investors Service MCO, criticized for rating various some debt too high and taking too long to cut ratings, fell 3% to a 52-week low.

9:15 a.m. ET Update: Futures Point To Higher Open

By Vincent Mao

Stocks futures turned higher and pointed to a higher open Tuesday, despite weak results and outlook from the world's largest retailer. Nasdaq futures are up 3 points vs. fair value, the S&P 500 is up 2 and the Dow up 15 points.

Wal-Mart WMT lost about 4% in the premarket. The Dow component missed second-quarter profit views, though sales rose 9% to $93.01 billion, above views. But the discounter cut Q3 and full-year profit views.

Fellow Dow stock Home Depot HD edged higher after beating views. The home improvement store chain's Q2 profit fell 17% to 77 cents a share, but that was a nickel ahead of views. Home Depot cited weakness in the housing sector, which it expects it to continue until next year.

UBS UBS fell 3% in pre-market trading. The Swiss bank reported higher earnings, boosted by its sale of Julius Baer. However it warned that current volatility would have a negative impact. "If the current turbulent conditions prevail throughout the quarter, UBS will probably see a very weak trading result in the Investment Bank, offset by predictable earnings from wealth and asset management. This makes it likely that profits in the second half of 2007 will be lower than in the second half of last year."

CME Group CME said it would slash 380 jobs as it integrates operations with it merger partner Chicago Board of Trade.

Fossil FOSL climbed 7% in the premarket. The watchmaker delivered Q2 earnings, excluding items ahead of estimates. It also guided full-year profit above views.

Gentiva Health Services GTIV may get a boost after Deutsche Bank (NYSE:DB) upgraded the stock to buy from hold and raised its price target.

Nokia NOK warned that 46 million cell phone batteries made by Matsushita may overheat when charging.

In economic news, producer prices jumped 0.6% in June, much higher than expected. But core prices rose 0.1%, below views of 0.2%. On a year-over-year basis, wholesale inflation is up 2.3%, a two-year high.

Data on consumer inflation will be out Wednesday.

Meanwhile, the trade gap narrowed to $58.1 billion in June, a smaller shortfall than expected, as export growth continues to outpace imports.


Newstex ID: IBD-0001-18895948

Originally published in the August 14, 2007 version of Investor's Business Daily.

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