MIDDAY ACTION, August 27

Stocks come off morning lows, but remain negative on disappointing existing home sales. Home Depot () remained in the news after revising terms for its wholesale supply business and traders might just be taking profits after very strong results last week. The economy will get attention this week as well with data on GDP and personal incomes on tap.

Shares of HD are up nearly two percent after the home improvement retailer agreed to sell its wholesale supply business for $8.5 billion. This is $1.8 billion less than the initial deal due to problems in the credit markets. In other merger news, Taiwan’s Acer Inc. agreed to by Gateway Inc () for $710 million. This news has pushed GTW shares higher by nearly 50 percent to a price of $1.81. Ironically, computer maker Gateway was once valued near $27 billion during the euphoria of the 90’s. Nonetheless, GTW is the fourth largest maker of personal computers in the U.S.

Existing home sales for July actually were higher than expected at 5.75 million annualized units. However, this is still the lowest rate in five years and the focus has been on the record 9.6 months of inventory. This is the highest amount of inventory in 16 years and shows that the housing sector is not about to recover anytime soon. Last week, new home sales showed inventory levels at 7.2 months, better than existing home sales, but still rather high.

The Dow () has benefited from not only gains in HD, but also from Altria (). MO is higher by two percent after the New York Times reported that the company is considering spinning off its overseas cigarette business. MO is hoping this will boost the price of its stock, which is trading near $70.65, well below its 52-week high above $90.

Economic news will get attention this week starting with Tuesday’s FOMC minutes from three weeks ago. Traders want to hear how concerned the Fed is about the economy and if they are considering cutting the Fed funds rate. Fed fund futures are pointing to a rate cut before or on the September meeting. Later this week, data on personal incomes and GDP will also be closely watched. However, a lot of the problems that have occurred have been in the past few weeks, which means data for July won’t be much of a help.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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