CLOSING WRAP-UP, August 27

Traders take profits Monday on record inventory in the housing sector. The Dow () ended the session with a loss of 56.74 points to close at 13,322.12. The S&P 500 () fell 12.58 points Monday to 1,466.79. The NASDAQ () gave up 15.44 points to finish the session at 2,561.25. Volume remained very light on the session with the NYSE trading 1.10 billion shares and the Naz turning over 1.34 billion shares. Market breadth was negative by a 10-to-24 and 11-to-19 margin on the Big Board and Naz respectively.

Existing home sales actually came in above expectations at 5.75 million annualized units, roughly the same as in June. However, traders are concerned about the sharp rise in inventory with supply coming in at a record 9.6 months. New home sales data last Friday showed supply of 7.5 month, also at an elevated level. This raises concerns that the housing sector is still many months away from seeing a bottom and this will put further pressure on home builders.

Home improvement retailer Home Depot () saw its shares rise 1.64 percent on the session. HD announced it has revised its agreement with a group of private equity investors dealing with the sale of its wholesale supply unit. The initial offer was worth $10.3 billion, but has been dropped by $1.8 billion due to the recent problems in the credit market. Investment banks J.P.  Morgan () and Lehman Brothers () were not comfortable financing the deal with the original terms.

Merger news kept selling to a minimum Monday with several deals announced. Computer maker Acer based in Taiwan agreed to buy Gateway () for $710 million. This was a 57 percent premium to GTW’s closing price on Friday, leaving the stock higher by 50.4 percent to $1.82. Interestingly, the company was valued at more than $20 billion in its heyday in the late 1990’s.

Shares of U.S. Steel () fell 0.4 percent after announcing plans to buy Canada’s Stelco Inc. for C$1.1 billion. Chicago Bridge & Iron () announced its intentions to buy Lummus Global from ABB () for nearly a billion. Neither stock saw much movement on the news. Dow component Altria () gained 1.3 percent on the session after rumors spread that the company is looking to spin-off its international business.  

Overall, Monday was a quiet session with profit taking occurring on very light volumes. Economic news will be a focus this week, especially on Friday when Fed Chairman Bernanke speaks. Though volatility has calmed, any new negative information dealing with the credit markets could easily turn the volatility spigot back on.

Jody Osborne
Senior Writer & Options Strategist
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