Closing Wrap-Up, Nov. 20

The day got off to a bullish start with the Dow up triple digits in the first half of the session. News that housing starts showed a surprising rise of 3.0 percent in October was viewed positively, although building permits continued to decline. This is a sign that the worst might not yet be over for the housing sector. Of course, problems in the credit markets continue to be a concern for financial companies as well.

Hewlett-Packard () was a bright spot Tuesday after the tech company reported better than expected earnings. Profits rose 28 percent and traders were pleased to see HP raise its guidance for current quarter earnings. HP shares rallied early in the session, but ultimately closed with a gain of just 12-cents to $49.56.

Freddie Mac () wasn’t as lucky with the mortgage provider announced it lost $2 billion in the quarter. Even more importantly, the company announced it might need to cut its fourth-quarter dividend. This news pushed the stock to a low not seen since early 2000. FRE closed at $26.74, a loss of 28.7 percent on the session. This news also pushed down shares of Fannie Mae (), which lost 24.8 percent Tuesday.

The FOMC minutes from the October meeting showed that the decision to cut rates was a tough one. However, odds remain better than even that the committee will cut rates at the December meeting. When looking at the outlook of Fed leaders, they expect GDP growth to slow sharply in 2008, although they also see inflation pressures also easing. If there are any signs between now and the Dec. 11 meeting that economic growth is not going to be as bad as expected, we could quickly see Fed cut odds diminish.

We can expect light volumes Wednesday with many traders taking the day off or leaving early to get a head start on the Thanksgiving holiday Thursday. Light volumes can create volatility, especially with several economic reports on tap as well as weekly crude inventory data. The bulls would like to see the Dow close above 13,000 to build up the support found at this level.  

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