Midday Action, Oct. 25

On Wednesday, existing home sales data showed an even worse picture of the housing market than expected. This lowered expectations for the new home sales release this morning. However, new home sales matched estimates for a reading of 770,000 annualized units. This was actually a gain of 4.8 percent due to the fact August’s figure was revised lower to 735,000 from the initial reading of 795,000. The most positive news was the fact supply eased to 8.3 months from 9.0 months and the median price for a new home rose 2.5 percent and is down just 2.8 percent year on year.

Not all the economic news was positive Thursday with durable goods orders falling 1.7 percent against an estimate for a gain of 1.8 percent. However, nondefense capital goods orders excluding aircraft rose 0.4 percent. This is important because this component is a proxy for business spending. Nonetheless, the tech sector was hurt by news that orders for computers and electronics fell 1.4 percent and that orders for semiconductors declined 2.9 percent.

Speaking of the tech sector, shares of EMC are up more than six percent in midday trading. This maker of corporate data storage equipment announced that profits rose 74 percent during the quarter. At the same time, the company doubled its stock buyback program to $2 billion. EMC also benefited from a very strong earnings report from VMware () with EMC owning 86 percent of the virtualization software firm.

Dow Chemical shares are seeing only a modest loss Thursday despite missing analyst expectations for earnings in the third quarter. However, DOW did see increases in both its top and bottom lines with revenues exceeding estimates. DOW continues to have a solid outlook for the economy, but revenues could suffer from higher input prices.

Speaking of input prices, crude continues to rise Thursday. The December futures contract has come off its morning highs, but is still up more than a dollar a barrel. Intraday, the commodity hit a high just below $89 a share and is currently trading near $88.25. Oil spiked Thursday after weekly inventory data showed a sharp decrease.

It will be interesting to see if the bulls can gain strength this next week as we head toward the FOMC meeting on Oct. 30/31. Fed fund futures are pricing in strong odds of a rate cut with only about a five percent chance of the Fed funds rate staying at 4.75 percent.

Jody Osborne

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