Market Outlook
Wednesday, May 5th, 2010

• Weekly U.S. petroleum supplies,

• The ISM Services Index for April and

• The ADP employment report for April.

Also, once again, there will be plenty of action on the economic front as we have many companies reporting their quarterly earnings. These are:-

• Allegheny Energy Inc. (AYE),

• Alpha Natural Resources Inc. (ANR),

• American Financial Group (AFG),

• BMC Software Inc. (BMC),

• Brightpoint Inc. (CELL),

• CBS Corp. (CBS),

• Vale S.A. (VALE),

• Prudential Financial Inc. (PRU) and

• Quest Software Inc. (QSFT).

which indicates that we, once again, will have an interesting day on the markets, with plenty of ups-and-downs. I hope that we have some ups today after the dramatic downs we suffered yesterday.

Overseas Markets

It appears that overseas markets today, are still on the down as investors are worried that Europe’s debt crisis may spread. Greece is also in the throes of expecting another wave of strikes.

Asian markets are suffering as investors react to the sharp declines recorded Tuesday in Europe and the U.S. Also, markets in Britain, Germany and France are still falling.

World markets continued to fall Wednesday, particularly in Asia, as investors worried that Europe's debt crisis would spread, as Greece braced itself for another wave of strikes.

The main reason behind the selling pressure continues to be the Greek debt crisis — the weekend's euro 110 billion ($143 billion) bailout package for Greece has done little to assuage market fears that the crisis will spread to other countries like Portugal and Spain.

Futures Trading

Not much relief will be present when trading on the U.S. markets opens this morning as the Dow Jones Industrial Average (DJIA) futures were trading down by 14 points, at 10,880, while the broader Standard & Poor's 500 (SPX) futures have risen 0.5 point at 1,172.90.

Company Reports

Also several companies have announced their quarterly reports which seem to be supporting or surprising analysts’ predictions. These are:-

In earnings news, Time Warner Inc. (TWX) reported first-quarter adjusted earnings of 61 cents per share, as revenue rose to $6.32 billion. Analysts were expecting earnings of 49 cents per share on $6.38 billion in revenue. The company said it expects 2010 adjusted earnings to rise between 14% and 17% over its 2009 adjusted earnings of $1.83 per share. TWX shares are up nearly 3% in pre-market trading. (Refer to Options News for Tuesday, 4th May, 2010)

• Chesapeake Energy Corp. (CHK)

Chesapeake Energy Corp. (CHK) posted first-quarter earnings of $524 million, or 82 cents per share, excluding items. Revenue increased to $2.8 billion from $2 billion. Analysts had forecast the natural gas company to earn 68 cents per share on revenue of $2.05 billion. In electronic trading, CHK has edged nearly 1% higher.

This company did not meet analysts’ expectations:-

Garmin Limited (GRMN) said that its first-quarter earnings were 38 cents per share, on a pro forma basis, with revenue falling 1% to $431 million. Wall Street was looking for earnings of 42 cents per share. Following the report, GRMN has plummeted nearly 13% in electronic trading.

Other factors which need to considered are:-

• Gold futures have dropped by $2.30 to $1,166.90 an ounce in London.

• Crude futures are headed lower, due to a stronger U.S. dollar and concerns over today’s supply report, falling by $1.10 to $81.64 per barrel.

• The U.S. Dollar Index is up 0.38% at 83.62, once again due to the decline of the euro because it is becoming devalued with being subjected to the continued debacle in the EU.

There is still a bullish feel to the market, but pessimism is becoming a bit rampant as observed with the narrowing gap between call options contracts to put options contracts being traded. Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,892,800 call contracts traded on Tuesday, compared to 1,263,154 put contracts.

Trading with caution today, particularly with the EU situation still in the forefront, and the concern that overseas markets are in the red, is advised. With so many negative events occurring at the moment, the “fear” factor, the CBOE Market Volatility Index (VIX), will certainly be prominent again.

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