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Before The Bell: Wachovia Outlook, Retail Game, Futures Head Lower


Wachovia gives a bleak outlook. Retail is suffering. Futures are pointing lower.


Morning Perspective: The Perfect Storm

Wachovia (WB) provided color on financial results for the month of October stating certain markets experienced further deterioration particularly the markets for subprime residential mortgage-backed securities (RMBS) and for collateralized debt obligations collateralized by RMBS (ABS CDOs). Rising defaults and delinquencies in conjunction with rating agencies downgrades led to an unprecedented decline in the ABX subprime indices. Total losses related to market disruption for 3Q came in at $1.3 bln pre-tax, which included $347 mln of subprime-related valuation losses. Read Professor Depew's Five Things You Need To Know and Toddo's Level 3 Assets Broken Down.

From the Bull Pen: Contrarian players take a look at Merrill Lynch (MER) for a play in the financial sector. Analysts believe MER's accounting and disclosures related to subprime losses are more forthcoming and well ahead of the rest of Wall Street; sell-stops below $50.

From the Bear Cave: Financial Bears may play the inverse ETF, Ultrashort Financials (SKF); sell-stops below $95.

The Retail Game

After providing results for same-store sales for the month of October, retailers are suffering from a number of downgrades this morning. JC Penney (JCP) and Nordstrom (JWN) were both downgraded by Bear Stearns both to Peer Perform from Outperform.

Research firm Friedman Billings gave Chico's FAS (CHS) a rating of Market Perform but lowered the price target for the stock from $13 to $11. For more analysis, read retail specialist Professor Macke's article, October A Month To Forget For Retail. Also get an idea of consumer spending in Professor Depew's Five Things You Need To Know from Nov. 1.

From the Bull Pen: Contrarian investors with more risk tolerance may play the Retail HLDRs ETF (RTH), sell-stops below the 52-wk low ($92.07)

From the Bear Cave: Those believing the actions of the research firms may look to play those companies on the downside: JCP (buy-stops above $54), JWN (buy-stops above $36), and CHS (buy-stops above $13).

Click on Minyanville's Stocks To Watch for more company-specific ideas.

Quick Check Around the World

Freaky Friday pulls up to the window and orders a mixed bag of foreign markets.

Asian trading closed with the Hang Seng +0.08%, Nikkei -1.19%, Taiwan +0.37% and Shanghai -0.27%.

A quick check across the pond finds the CAC -1.03%, DAX +0.29%, FTSE -0.73%, ATX -0.88%, Swiss Mkt. -1.33% and Stockholm -1.60%.

A Look At Commodities

Crude oil is lower by –0.36 to 95.10. Gold is weaker by –6.1 to 831.40. Silver is down as well –0.33 to 15.195 and copper is down –0.02 to 3.184. The dollar index (DXY) is down –0.06 to 75.395.

As of 8:30 AM EST, S&P futures are lower by –15.20 points and Nasdaq futures are down by –28.25 points.

On the Radar

  • Import prices year-over-year: +9.6% vs. 9.0% cons.
  • Import prices month-over-month: +1.8% vs. +1.2% cons.
  • Trade Balance: -456.5 bln vs. $58.5 bln cons.
  • Michigan Sentiment-Prel is due out at 10:00 AM EST.

Click here for Minyanville's full Trading Radar.

Happy Friday, Minyans! Have a great day!

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No positions in stocks mentioned.

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