Market Outlook
Thursday, May 13th, 2010

There are a couple of economic reports scheduled for today:-

• Weekly initial jobless claims and

• April's import/export prices report.

Also, once again, there will be plenty of action on the economic front with the following companies reporting their quarterly earnings:-

• Kohl's Corp. (KSS),

• Urban Outfitters Inc. (URBN),

• Wendy's/Arby's Group Inc. (WEN),

• Blockbuster Inc. (BBI),

• CA Inc. (CA),

• Nordstrom Inc. (JWN), and

• NVIDIA Corp. (NVDA).

The bulls certainly gained some territory yesterday with the Dow Jones Industrial Average (DJIA – 10,896.91) finishing with a gain of 148.7 points

There are several other items that could be beneficial in helping to prod the market forward which are:-

• A comment by James Bullard, the President of the Federal Reserve Bank of St. Louis, saying that the U.S. economic recovery is "robust, and it will continue." In remarks to the Tennessee Bankers Association, Bullard noted that five of the last six U.S. employment reports have been positive, and he expects that trend to continue into the spring and summer months. "We are facing risks" from the fiscal debt crisis in Greece, Bullard said, but contagion seems unlikely. Bullard said he didn't think Greece's debt woes and the worry they have caused in financial markets would have any effect on U.S. monetary policy. "We are watching the situation very carefully, and we'll make an assessment as the weeks go forward," Bullard said.

• Also, looking at sentiment readings that is the CBOE Market Volatility Index (VIX), which continued its retreat on Wednesday, as it shed nearly 10%. The index fell back below support at its 10-day moving average and is nearing potential support at its declining 50-week moving average.

• Equity options activity on the Chicago Board Options Exchange (CBOE) saw 1,639,510 call contracts traded on Wednesday, compared to 839,257 put contracts. Looking at these figures we now have a ratio, again, of about two calls to one put. Last week this figure had changed dramatically.

The futures on the Dow Jones Industrial Average (DJIA) and Standard & Poor's 500 (SPX), heading into the opening, are trading about 4 points down and 1.33 points up above fair value, respectively.

Other points to consider are:-

• Overseas trading is strong again with most major indexes trading in positive territory. In Asia, stocks rallied after Spain outlined measures to cut its deficit, easing fears that the Greek debt crisis could spread in Europe. Meanwhile, European stocks have pulled back slightly after hitting a one-week high early in the session, with a decline in banking stocks offsetting gains made in the mining sector.

• Crude futures are trading down by 50 cents at $79.65 per barrel, as investors digest Wednesday's U.S. petroleum supplies report and the continued negative media barrage over the spill in the Gulf of Mexico.

• The U.S. Dollar Index is stabilizing this morning rising only by 0.16% to trade at $84.97 in pre-market activity.

• Gold futures are down by $9.40 to trade at $1,233.70 an ounce in London.

Also several companies have announced their quarterly reports. These are:-

Jack in the Box Inc. (JACK) reported that its fiscal second-quarter profit fell to $17.7 million, or 32 cents per share, from $29.9 million, or 52 cents per share, in the year-ago period. Revenue dropped to $529.7 million from $578.4 million a year ago. Analysts estimated a quarterly profit of 40 cents per share on revenue of $513.6 million.

Whole Foods Market (WFMI) reported second-quarter profit more than doubled from a year ago, and the organic grocery chain boosted its sales and profit targets for fiscal 2010. Net income was $67.4 million, or 39 cents per share, compared with net income of $27.3 million, or 19 cents per share, in the year-earlier period. Sales rose 13% to $2.1. Analysts had forecast Whole Foods to earn 34 cents per share on sales of $2 billion.

Cisco Systems (CSCO) reported a fiscal third-quarter income of $2.2 billion, or 37 cents per share, compared with a profit of $1.35 billion, or 23 cents per share, for the year-earlier period. Revenue rose to $10.37 billion from $8.2 billion in the same period the previous year. Adjusted income was 42 cents per share, Analysts had expected earnings of 39 cents per share, on revenue of $10.2 billion.

Urban Outfitters Inc. (URBN) said that its first-quarter net profit rose 72% to $53 million, or 31 cents per share, as sales for the quarter rose 25% to $480 million. Analysts had expected earnings of 30 cents per share. In electronic trading, URBN has rallied roughly 0.5%.

Some Interesting news items:-

1. SAP AG (SAP) announced late yesterday that it will acquire Sybase (SY) for $65 per share, or about $5.8B. The price is a 56% premium to Sybase's shares before news of the negotiations became public. SAP is trying to beat out Oracle (ORCL) on software for wireless internet transactions, and is hoping to reverse a sales slump via acquisitions. Though many analysts see the deal as a win-win, there are still some risks, as "SAP does not have the most stellar history of buying companies and then maximizing its investments in the technologies it has acquired." Sybase climbed 35% during regular trading yesterday on rumors of the deal.

2. Banks targeted in criminal probe. New York Attorney General Andrew Cuomo has reportedly opened a criminal investigation into whether eight major banks provided misleading information to ratings agencies in order to get higher ratings on certain mortgage-related products. The SEC is said to be participating in the investigation as well and has issued civil subpoenas. The targets of Cuomo's probe are: Goldman Sachs (GS), Morgan Stanley (MS), UBS (UBS), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Credit Agricole (CRARY.PK) and Merrill Lynch (BAC).Alternate reports also place JPMorgan Chase (JPM) on the list.

3. Prudential (PUK) will likely launch its delayed $21B rights issue next week after it reportedly received preliminary approval from regulators for its deal to buy AIG's (AIG) Asian unit.

4. BP (BP) said the Gulf of Mexico oil spill has cost it $450M so far, a $100M increase from the figure reported earlier this week. Analysts' estimates of the total spill-related costs have varied widely, from a few hundred million dollars to more than $12B. Complicating any estimates is the legislation being sent by the White House to Congress which would raise oil companies' liabilities from the current $75M cap and which would apply retroactively to BP. White House officials said they don't yet have a figure in mind for what the new cap will be, but proposals already in Congress would raise the ceiling to $10B.

5. The New York Stock Exchange fined Goldman Sachs (GS), UBS (UBS) and Cantor Fitzgerald for various violations. Goldman was fined $450,000 for several rule violations, though the firm will pay less than that because of a separate settlement with the SEC. UBS was fined $350,000 for 21 violations, including trading along with or ahead of a customer's order without consent to do so. Cantor Fitzgerald was fined $250,000 for failing to reasonably supervise the accounts of the then-CEO of one of its business units.

6. Senate investigates home health-care firms. The Senate Finance Committee has launched an investigation into four home health-care companies to determine whether the firms deliberately increased the number of home therapy visits to trigger higher Medicare reimbursements. The targets of the probe are Amedisys (AMED), the country's largest home health-care company, LHC Group (LHCG), Gentiva Health Services (GTIV) and Almost Family (AFAM).

7. HTC sues Apple. Taiwan's HTC, maker of Google's (GOOG) Nexus One phone, filed a complaint with the International Trade Commission to stop the importation and sale of Apple's (AAPL) iPhones and iPads in the U.S. The move further escalates the showdown between the two firms, as Apple had filed a patent infringement suit against HTC in March.

8. The number of households facing foreclosure fell 2% in April from the year before, marking the first annual decline in five years, reported RealtyTrac Inc.

9. Wal-Mart in talks with Russian retailer. Wal-Mart (WMT) is said to be in preliminary talks to acquire Russian retailer Lenta as part of its search for new growth markets. Lenta has become a major hypermarket chain in Russia, and had $1.86B of sales in 2009.

10. Ford, Mazda want to end China JV. Ford (F), Mazda (MZDAF.PK) and Chongqing Changan Automobile Co. are reportedly seeking approval from Chinese authorities to end their three-way joint venture. If the break-up is approved, Ford and Mazda both plan to set up their own individual joint ventures with Chongqing Changan Automobile, giving both companies more leeway in crafting their own China strategies.

For all options tradings please check out the Call and Put Skews based on the International Securities Exchange (ISE) buy-to-open data.

Trade cautiously again today.

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