Stock Futures Tumble on Debt Fears. Stocks to Watch: AMR, AAPL, BAC, BRCD, HPQ, NEM, SLW, WMT

Published on Monday, 21 November 2011 07:53 Written by Christopher Lynn

New York, November 21^st (TradersHuddle.com) – Stock futures were pointing to sharply lower open amid jitters following the lack of progress from the Congressional Super Committee for debt reduction. As the deadline looms, it appears that the Committee has failed to come to an agreement on a plan that will cut the debt in a significant way, risking further downgrades to the U.S. credit rating. Market sentiment was also under pressure from weak overseas performance on concerns over the EU debt crisis, amid Warren Buffet expressing doubts on the future of the euro and Moody’s warning that France’s credit rating could be under threat.

In Asia, stocks closed with significant losses after participants kept a weary eye on the European debt crisis and as reports started to emerge over the weekend that U.S. lawmakers has so far failed to agree on deficit reduction. The Japanese yen climbed higher against the Dollar, with the Nikkei falling to its lowest closing level since March 2009. Automakers and other exporters suffered sharp losses on concern the strength in the yen will further impact their bottom line.

In Europe, equity markets were sharply lower as now debt worries in the U.S. with the congressional committee failing to come up with a plan that will cut the country’s ballooning debt were impacting market sentiment. European markets had seen increased downward pressure amid rising borrowing costs in the euro zone and particularly in Italy and Spain, where bond yields have traded very close to the 7% threshold. Spain held elections over the weekend, yielding a landslide victory for the Conservative Mario Rajoy’s Popular Party. Spanish yields were moving higher this morning, despite Mr. Rajoy winning a mandate to slash the country’s budget deficit.

The euro was falling, trading below the 1.35 level. Crude oil was losing 1.90% to $95.81, its lowest level in a week. Gold was dropping 1.30% to $1702.7 an ounce, while silver was tumbling 4% to $31.05 an ounce. Meanwhile, copper was falling 2.87%.

M&A was active this morning, with Pharmasset (NASDAQ:VRUS) being acquired by Gilead Sciences (NASDAQ:GILD) for $137 per share in cash. Pharmasset’s Board of Directors unanimously approved the transaction, which values Pharmasset at about $11 billion. Gilead plans to finance the transaction with cash on hand, bank debt and senior unsecured notes, expecting it that when completed, to be dilutive to Gilead's earnings through 2014 and accretive in 2015 and beyond.

On economic news, at 10 am, October Existing Home Sales data will be released.

Today’s Stocks to watch: AMR Corp. (NYSE:AMR), Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), Brocade Communications (NASDAQ:BRCD), the Hewlett Packard (NYSE:HPQ), Newmont Mining (NYSE:NEM), Silver Wheaton (NYSE:SLW), and Wal-Mart (NYSE:WMT).

AMR Corp. (NYSE:AMR), the parent of American Airlines, will be under likely pressure amid the weak tape and after Ticonderoga reiterated its neutral rating on the shares. The firm said after their meeting with the Allied Pilots Association (APA), a contract between AMR and APA is not imminent. Given recent weakness, investors appear to be expecting a Chapter 11 filing, with a lack of progress in pilot contract talks a likely catalyst for that expectation. Ticonderoga added that it does not view the pace of pilot contract talks as significantly affecting the probability of such a filing at this point.

Apple (NASDAQ:AAPL), the maker of iPads and iPhones, was falling 1.39% to $369.71, extending its last week decline of 2.5%. The stock was feeling the pressure of a weak tape, taking the stock to a level, which is closer to its 200day moving average at $363.21. Apple has been able to trade above its 200day for most of the year, with only a brief drop below it in mid June. There are reports around suppliers in Asia that the tech giant might be adjusting its iPad 2 supplies in anticipation of the start of the build process for the iPad 3, with some speculating the new model will be unveil early next year. Also, several surveys show Apple products like the iPad and iPhone topping the holiday gift list, which could bode well for the quarter. Last week, Amazon’s Kindle Fire began shipping. The new Android tablet is expected to become the best selling Android tablet and it’s seen as a major threat to Apple’s iPad dominant market share. Brokerage houses had mixed views for the stock after Barclays said that the firm expects iPad fourth quarter growth and iPhone strength. Barclays added that Apple still has significant holiday momentum with the iPhone, Macs and it explosive growth in China. The firm believes the iPad will remain as the industry standard and that the jury is still out on how much share could the Kindle Fire take away from the iPad; however later in the week, Oppenheimer cut its cut its estimates on the tech giant, with the firm citing a more cautious iPad ramp that reflects product cycle, macro headwinds and rising competition. Oppenheimer slashed its iPad shipment forecast for the holiday quarter by 2 million units, while cutting its 2012 EPS estimates to $3.64, just shy of consensus of $3.65.

Bank of America (NYSE:BAC), the largest U.S. lender, was tumbling 3.11% to $5.60 in pre-market, extending its last week decline of 6.5%. Market sentiment was under pressure on concern over a further downgrade to the U.S. credit rating amid the lack of political leadership amid brinkmanship that is preventing for any meaningful debt reduction package to be agreed and implemented before the 2012 elections. Last Friday, BofA declared its quarterly dividend of $0.01 per share to be paid on December 23^rd to shareholders of record on December 2^nd. S&P also announced that it issue its credit rating on major global banks within 3 weeks, with several downgrades maybe lining up amid the rating agency’s overhaul of its rating system method. Bank of America posted a multi-year low of $5.13 on October 4^th of this year.

Brocade Communications (NASDAQ:BRCD), the provider of switching solutions for storage area networks, is unchanged in pre-market ahead of its quarterly results due out after the close. On average analysts expect the company to earn $0.10 per share on revenues of $527.09 million. Last quarter, Brocade posted a 12.5% upside earnings surprise, as it posted a profit of $0.09 per share. Mizuho raised its target price to $6 from $5 ahead of the results, as the firm expects a favorable report and upside to consensus, boosted in part by more reasonable targets as well as strength from federal and service provider Ethernet. Brocade has calculated support at $4.35 and resistance at $5.

Hewlett Packard (NYSE:HPQ), the world’s largest PC maker, will be in focus during the day, as participants adjust their positions ahead of its quarterly report due after the closing bell. Analysts on average are expecting a profit of $1.13 per share on revenues of $32.06 billion. Last quarter, the company posted a profit of $1.1 per share, slightly beating consensus; however shares dropped sharply on concern over the outlook and news the company was considering selling or spinning off its PC division. Last week, HP gained 1.41% on the back of a strong gain on Friday’s session as participants cheered the naming of Ralph Whitworth from Relational Investors to its now expanded board of directors. Relational is known as an activist investor and based on the latest regulatory filing, the fund owns close to 1% of the company. The ISI Group reiterated its Buy rating and target price of $32, while Sterne Agee upgraded the stock to a Buy from Neutral. Hewlett-Packard has calculated support at $26.25 and resistance at $28.59

Newmont Mining (NYSE:NEM), the largest gold producer, will likely be under pressure following gold prices lower. The bullion might continue to be under pressure during the session, amid Dollar strength. The precious metal was trading near its psychological level of $1700 an ounce, which might be breached during the session on further weakness. The lack of progress on the debt reduction congressional super committee along with ongoing EU debt crisis jitters were spooking markets and spurring a risk off trade. Gold was being sold as the Dollar moved higher and as participants used profitable gold positions to cover losses elsewhere. Last week, Newmont tumbled close to 7%, closing below calculated support at $67.93. The stock posted an all-time high of $72.42 earlier in the month.

Silver Wheaton (NYSE:SLW), the largest metal streaming company in the world, was tumbling 3.26% to $31.18 in pre-market, as silver prices continue their slide from the prior week amid Dollar strength. Last week, the stock closed with more than a 10% loss, closing below calculated $33.76. Earlier in the month, the company reported a weak earnings report that missed on both the top and bottom lines, while raising its quarterly cash dividend to $0.09 per share, as it adopted a new dividend policy that links quarterly dividend payouts to operating cash flows.

Wal-Mart (NYSE:WMT), the world’s largest retailer, was falling 0.73% to $56.81 in pre-market. The weakness came despite JPMorgan upgraded the stock to Overweight from Neutral. Wal-Mart lost 3.3% last week after the company posted earnings that missed by a penny on revenues that were above consensus, while providing inline fourth quarter EPS guidance.