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Market Insider: Friday Look Ahead

Published: Thursday, 18 Jun 2009 | 10:48 PM ET

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By: Patti Domm
Executive Editor

Traders are already looking ahead to next week's Fed meeting as the next potential catalyst for stocks.

Even with the quadruple expiration of futures and options Friday, stocks showed little sign of the usual turbulence that goes along with "witching" days. The Dow finished Thursday up 58 at 8555, after a slow drift. The S&P 500 was at 918, up 7.

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"It's been an unbelievably quiet expiration," said Patrick Kernan from the Chicago S&P 500 options pit, just ahead of the close. "This is the lowest it's gone out in a long time. The S&P options are implying right now that we'll have a less than 1 percent move by tomorrow's open. All the options expire tomorrow morning. Everything we're seeing is calm."

"I imagine not only tomorrow being slow, but the next couple of weeks too," said Kernan, who trades with Cardinal Capital.

What to Watch

Looking ahead to Friday, there is no significant economic data. The Bureau of Labor Statistics does release a report on state unemployment data at 10 a.m.

Kansas City Fed President Thomas Hoenig and FDIC Chair Sheila Bair will appear on "Squawk Box" Friday at 8 a.m.

Tech should see action Friday as Apple [AAPL Loading... () ] starts selling its new iPhone, and traders react to Research in Motion's earnings. Research in Motion [RIMM Loading... () ] stock fell after hours after reporting an outlook that disappointed investors. RIM's better-than-expected earnings rose to $643.04 million, or $1.12 per share, up from $482.5 million, or $0.84 per share.

Tech was the worst performing S and P sector Thursday, losing about a half percent.

Stocks Stalled

Art Cashin, director of NYSE floor operations at UBS, said stocks got help form a better-than-expected reading on the Philadelphia Fed survey, which was minus 2.2 in June, compared to minus 22 in May.

Cashin said stocks didn't follow through though. "They're having difficulty getting the S and P above the 20-day moving average (around 922). That's where I called for resistance," he said.

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Cashin said while there was little action, there were rumors about a lot of expirations-related open interest in options market that could translate into volume in stocks.

"The market is trying to decide whether the March rally is over. That's the big question right now," he said.

As traders look ahead to next week, the Fed's two-day meeting is generating the most interest. There's been plenty of speculation all week about the contents of the Fed's Wednesday statement. Cashin said traders expect the Fed to play down that it will hike interest rates any time soon. There was also talk about the Fed tweaking its quantitative easing program.

The Action Was in Treasurys

While stocks were quiet, bonds were anything but. Yields jumped as Treasurys came under selling pressure on supply concerns and better than expected data. The Treasury announced a record $104 billion in new issuance in next week's auction of 2-year, 5-year and 7-year securities. Some of the selling Thursday was attributed to mortgage-related trading. At the end of the day, the 10-year was yielding 3.831 percent, and the 2-year was at 1.249 percent.

Michael Franzese, head of the Treasury desk at Standard Chartered, said the focus in the bond market is shifting to the auctions and the Fed's meeting. "I'm expecting some quiet sessions in the next couple of days," he said.

Franzese speculated the Fed may say something about quantitative easing with regard to mortgages, which are part of its purchase program. He said the Fed could expand the mortgage program to include other securities that impact the mortgage market, including longer dated Treasurys.

Dollar Dilemma

The dollar finished higher Thursday, gaining a half a percent against the euro [$$USDEUR Loading... () ]. Oil traders sold crude against the dollar's move.

Traders continue to watch the situation in Iran, but so far there has not been impact on prices. Traders see events there as resulting in status quo, or the continued presidency of hard liner President Mahmoud Ahmadinejad.

But if the situation changes, focus will shift quickly. On Friday, Iran's supreme leader gives his first address to the nation since the contentious presidential election a week ago. Ayatollah Ali Khamenei has urged Iranians to stand behind Ahmadinejad, but still supporters of Mirhossein Mousavi continue to hold huge rallies in protest. Mousavi has called for a new election.

Oil fell $0.34 to $71.37 per barrel Thursday.