Familiar Late Afternoon Sell-off

123jump.com Staff
19 Dec, 2005
New York City

Market played to a familiar tone of morning rally followed by a late afternoon sell-off. Tech stocks rallied in the morning only to face few semiconductor stocks downgrades. Retailers advanced on strong weekend buying from consumers. Gold rose, oil fell but natural gas rose at close. Google rose to all-time high of $446 before tracking all the way back to $426. Google was added to Nasdaq 100 index.

U.S. MARKET AVERAGES

The trend is familiar now for weeks. The stocks gain in the morning on merger and economic news only to sell-off in the late afternoon. This cycle of rise and then fall suggests that traders are not willing to hold on to stocks and lock their profits. In this environment the prospect of a year-end rally looks less and less likely.

The morning news of purchase of Constellation Energy by FPL Group for $11 billion gave a strong boost to the early trading. Market gained further momentum as retailers suggested that weekend sales for most retailers met their expectation. Tech stocks especially the Internet stocks rose on solid gains in price for Google. Goolge stock was added to Nasdaq 100 and reached during the day all-time high of $446.21 only to close lower $5.55 at $426.01.

Several downgrades on semiconductor stocks and comments that Constellation Energy may have been sold too cheap cooled market in the last hour of trading. Yield on 10-year bond fell to 4.43% from 4.44%.

Home builder stocks fell in advance of release of November housing starts tomorrow. Market has turned very cautious on the sector. In the last several leading companies in the sector have declined by more than 15%.

MOVERS AND SHAKERS

Pfizer ((PFE)) rose 11% after a federal judge upheld the exclusivity of two of Pfizer''s patents related to its Lipitor cholesterol-lowering drug.

Time Warner Inc. ((TWX)) entered into talks to sell a 5% stake in its AOL unit to Google Inc. (GO0G)) for $1 billion. Time Warner’s shares gained about 1%. Google’s shares rose 2.8%.

FPL Group Inc. ((FPL)) and Constellation Energy Group Inc ((CEG)) agreed to merge, forming a company with a market capitalization of about $28 billion. The companies reported that under the deal, each Constellation Energy share will be exchanged for 1.444 common shares of the combined company, while each FPL Group share will be converted to 1 share of the combined entity. The new company formed in the merger will be called Constellation Energy. Shares of FPL Group inched up 0.3%, while shares of Constellation Energy dropped 3.8%.

The third merger in the utility sector in less than a year suggests that the sector is rapidly consolidating. Merger of Duke Energy with Cinergy created a new company with $27 billion in revenue and merger of Exelon and Public Service Enterprise created a company of similar revenue.

Poore Brothers ((SNAK)) announced that its president and CEO, Thomas Freeze, and chief financial officer, Richard Finkbeiner, agreed to leave the company. It also said that, primarily due to severance payments associated with the above departures and professional services fees the company sees a net loss for the fourth quarter, which is below previous annual guidance of 8 cents to 10 cents a share. The stock dropped 20%.

ECONOMIC NEWS

No important economic news is due out today.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks advanced across the region with the Nikkei finishing up after three straight losing sessions. The Japanese bellwether rose 1.4% on bargain hunting and strong exporter-related issues. Among other regional markets, South Korea’s Kospi climbed 1.4%, Taipei’s Weighted index gained 1.3%, and Hong Kong’s Hang Seng was up 1%.

European stocks closed mixed, pressured by the energy sector but supported by surging drug stocks which gained after the exclusivity of two Pfizer patents was upheld. The German DAX 30 declined 0.1%, the French CAC 40 fell 0.2%, while London’s FTSE 100 advanced 0.2%.

OIL, METALS, CURRENCIES

Crude oil prices dropped to a three-month low on mixed weather forecasts. Light sweet crude for January delivery dropped 72 cents to $57.34 a barrel on the Nymex. Heating oil fell 2 cents to $1.7033. Gasoline lost 4.2 cents to $1.5269. Natural gas gained 41 cents to $14.043 per 1,000 cubic feet.

Gold prices climbed 1.2% amid speculation the precious metal''s biggest weekly decline in more than 11 months was overdone. In London spot gold rose $6.05 to $509.29 per troy ounce and in New York rose to $512 but closed up 20 cents at $506.10.

The U.S. dollar climbed the most in three weeks against the yen, recovering from recent losses. The dollar bought 116.19 yen, up from 115.67.

EARNINGS NEWS

Circuit City Stores ((CC)), consumer electronics retailer, reported Q3 earnings from continuing operations of 6 cents a share, up from an equivalent loss of 3 cents a share a year-earlier. Sales advanced 14% and same-store sales advanced 13.1%. The company topped analyst estimate for a profit of 4 cents a share.