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May

15

Market Preview for Week of May 12, 2008

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After a week that saw downside in the major US equity indices for the fist time in quite a while, the markets are posting some modest early gains this morning.  Weakness echoed again last week in the financial sector globally and domestically with negative bias from AIG, UBS and C shaking markets overseas, especially Asia, as well as here in the states.  The dollar saw an end to its recent strength, trading this morning with 1 Euro buying $1.5493 and 1 British Pound fetching $1.9609.  Crude is trading off its highs from last week this morning, at $124.78 last and the May contracts for Gold were last seen at $879.40.

With mainly stronger than expected economic data last week, and the ECB and Bank of England deciding on a “no move” in their monetary policies, remaining at 4% and 5% respectively, it would seem as if conventional wisdom would expect the FOMC to lean towards the status quo at the end of June meeting, and that is what the fed fund futures are saying as well.  However, although the official GDP designation of a recession has not yet to be declared, two pieces of economic data from last week caught my eye.  The Consumer Credit number was a whopping $15.3 Billion versus $6.0 Billion expected and $6.5 Billion from the previous period.  In addition, the monthly trade deficit was less than expected (-$58.2B vs. -$61.3 expected).  Although some may think that the improvement in that number is due to the weak dollar making US goods more competitive (we are still talking about -$58.2B in a month!), the logical assumption can be made that the obscene amount of Consumer Debt can be attributed to the fact that credit is being used to subsidize necessities like the egregiously priced food and energy (which allegedly shouldn’t count towards inflation) and the only real reason why the deficit decreased was because the US consumer is buying less foreign goods, because the US consumer is buying LESS OF ALL GOODS.  It’s kind of sad when that is the only way that the US can chew into that deficit, with the $ still hovering around historical lows.

Regardless, the forthcoming week should be very active from earnings and economic data to technical and volatility scenarios.  Tomorrow before the open, retail giant Wal-Mart is announcing with $.76 per share expected. There has been strong guidance from Arkansas as of late and many analysts are expecting a robust number there.  In addition, French financial kingpin Societe General will report before the bell, perhaps shedding some light on the murky European financial picture, and Whole Foods is expected to announce $.30 per share after the bell.  Wednesday will see results from John Deere, Macys, and Freddy Mac before the open with much scrutiny to be applied to the latter, as inauspicious results from Fannie Mae last week were not received well by the markets.  Thursday, JC Penney will continue the retail sector’s announcements, as it is expecting $.50 per share before the open, and Kohl’s and HPQ will publicize their earnings reports after the close.

From the macro economic calendar, Tuesday will see retail sales for April and business inventories for March.  Wednesday, we have the all important consumer price index for April.  Thursday, industrial production for April, and the recently dire Philly fed index for May will be announced.  To finish up the week, Friday is the day for building permits and housing starts for April, as well as the preliminary University of Michigan sentiment for May.

From a technical aspect, the INDU had a difficult time breeching its 200 day SMA last week and both the COMP and SPX met resistance as well.  The CBOE Volatility Index was 18.85 last, still languishing at levels not seen since late December which came before the significant sell off that occurred in the ensuing months.  The apparent lack of fear or demand for front month options is being reflected in the very cheap relative implied volatility in issues that will announce this week, namely the aforementioned WMT and HPQ. Lastly, keep in mind that Friday is the expiration date for all individual May contracts.

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