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Dow Swallows 167-Point Loss as Traders Flock to Bonds

Wal-Mart Stores, Inc. and Cisco Systems, Inc. took diverging post-earnings paths

by 5/15/2014 4:18:36 PM
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"The markets were weak again today, due to lackluster price action overseas and worse-than-expected earnings from Wal-Mart Stores, Inc. (NYSE:WMT) and Kohl's Corporation (NYSE:KSS)," said Schaeffer's Senior Equity Analyst Joe Bell, CMT. "This also comes as the S&P 500 Index (SPX) faces overhead resistance from its former all-time high, and the Russell 2000 Index (RUT) struggles to maintain support from its previous 2014 low." Against this backdrop, the Dow Jones Industrial Average (DJI) logged its second straight triple-digit drop, erasing its month-to-date gain.

Continue reading for more on today's market, including:

  • Recall woes continue to plague General Motors Company (NYSE:GM), but the reaction in the options pits might surprise you.
  • Bullish betting has run rampant on Sprint Corporation (NYSE:S) of late, as the company continues to push for a takeover of rival T-Mobile US Inc (NYSE:TMUS).
  • In case you missed it, Schaeffer's contributor Adam Warner gave a lesson on maximizing your winners, as "getting the call right is only half the battle."
  • Plus ... Home builder confidence plummets, the Federal Communications Commission (FCC) stirs up controversy, and Cisco Systems, Inc. (NASDAQ:CSCO) takes the road less traveled.
Trading Topic of the Week -- Ways to Interpret Short Interest: Eye the stock's price action. By considering the stock's performance, you can determine the bears' motivations -- and see whether they've been on the right side of the trend in the past.

The Dow Jones Industrial Average (DJI - 16,446.81) was flirting with a triple-digit deficit within the first hour of trading -- down as much as 216.5 points at its session nadir -- but settled with a loss of 167.2 points, or 1%. Just Cisco Systems, Inc. (NASDAQ:CSCO) and AT&T Inc. (NYSE:T) escaped the wrath, advancing 6% and 0.4%, respectively. WMT led the declining majority, shedding 2.4% after a poorly received earnings report.

The S&P 500 Index (SPX - 1,870.85) also plunged out of the gate, giving up 17.7 points, or 0.9%, by the bell. The Nasdaq Composite (COMP - 4,069.29) was down almost 65 points at its intraday low, but pared its loss to 31.3 points, or 0.8%, by the close.

The CBOE Volatility Index (VIX - 13.17) shot higher at the opening bell, but trimmed its lead to 1 point, or 8.2%, by the time the dust settled. The market's "fear gauge" finished north of its 10-day moving average for only the second time in a month.



A Trader's Take:

"Bonds continue to be the big winners in this volatile market," continued Bell, as yields on the 10-year Treasury note breached the psychologically significant 2.5% level in intraday trading. "With everyone assuming rates were just going to skyrocket, the opposite has happened over the past several months."

5 Items on Our Radar Today:

  1. Confidence among home builders slipped to a one-year low in May, according to data from the National Association of Home Builders, while consumer prices in April increased by the most since June 2013. Meanwhile, Wall Street shrugged off upbeat factory activity in the New York region, as well as a drop to pre-recession-low territory for initial jobless claims. (CNBC; Reuters)
  2. The Federal Communications Commission (FCC) voted to propose new net neutrality rules, which could allow streaming content providers like Netflix, Inc. (NASDAQ:NFLX) to pay for prioritized traffic on Internet "fast lanes." The FCC will take final action on the highly controversial proposal in about four months. (USA Today)
  3., Inc. (NASDAQ:AMZN) -- a vocal opponent of net neutrality -- was popular among eleventh-hour option bears.
  4. Cisco Systems, Inc. (NASDAQ:CSCO) bucked the broad-market trend lower, scoring a slew of bullish brokerage attention in the wake of a stellar earnings report.
  5. GM wasn't the only automaker swimming in red ink today; Ford Motor Company (NYSE:F) also retreated, drawing a fresh crop of long-term bears.

For a look at today's options movers and commodities activity, head to page 2.

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