Today’s tickers: DLTR, HPQ, CCU, STZ, WNR, CSIQ, FLR, FOSL, AIG

DLTR- Broad market action yesterday suggested that big-box retailer Wal-Mart would breeze through the quarter on ever-hastening consumer retrenchments, continued demand for bargains, and its own aggressive offer to cash government tax-rebate checks to traffic from other discounters in the retail space. But it was a cautious forecast – delivered with a sober warning on the impact of high gasoline prices on customer traffic to Wal-Mart’s sprawling store locations - that sent its share price lower, even despite relative strength in this morning’s retail sales number. Maybe these discount retailers aren’t in the catbird seat after all. We wonder if the newly circumspect rethink on the space is to blame for sudden wave of defensiveness in option activity of Dollar Tree, the discount variety store chain whose locations and clientele dovetail nicely with Wal-Mart’s, but whose merchandise is sold for $1 – a great price point for an ailing economy, but not so much for customers shelling out $4 per gallon of gas to get to the parking lot. Shares are down .70% at $35.25, and while the company isn’t due to report earnings until late-May, we observed an increase in option trading activity to some 4.5 times the normal level. This appeared to involve bearish ratio put spreads at the 32.50 and 35 strikes, with a trader selling twice as many June 32.50 puts for (appropriately enough) $1 apiece in order to buy puts at the 35 strike for $2.10. The strategy implies limited downside from current levels following its earnings report on May 28.

HPQ- Confirmation of the PC and printer maker’s acquisition of data systems operator EDS has Hewlett Packard shares ticking in 6.4% lower at $43.83 this morning. Implied volatility on its options remains elevated at 32.3%, suggesting 14% added price risk to its shares in the coming 30 days than has been proven historically. Early on we observed a hike in option trading volume to 6.5 times the normal level, with heavy trading in June 45 and 47.50 calls in excess of open interest. Volatility traders in Hewlett-Packard appear drawn to the August 45 line, where a 10,000-lot straddle may have gone through. The combined price of this position costs $5.35 this morning, and with both sides trading to the middle of the market we cannot establish directionality. Calls and puts in Hewlett-Packard as measured in its 608,000-strong open interest were evenly split heading into today.

CCU- An early-morning break in courtroom settlement talks concerning the buyout of radio broadcaster Clear Channel sent implied volatility momentarily higher by some 82%, but this quickly receded as talks presumably resumed. With shares 1.2% higher at $33.25 ahead of the noon hour, its option remain heavily trafficked, particularly in the July contract, where it appears that 5,000-lot spreads may be going through in the calls at strikes 32.50 and 35. Comparable volumes are going through in puts at the 22.50 and 25 strikes.

STZ- One day after its executives were slated to present at a Goldman Sachs consumer brands event, investors must’ve liked what they heard from Constellation Brands. Shares are 9.3% higher at $20.57 in the company, which owns Effen Vodka, Caravella Limoncello, Paul Masson VSOP Brandy, Corona and St. Pauli Girl beers and other brands. With options trading at more than 27 times the normal level, it looks like some traders were seeking to protect gains in the stock by buying puts at the May 20 line for 25 cents. The cheap price of the position offers economical insurance given the limited time value and depleted value of puts for a trader long the stock and hoping to protect gains.

WNR- Shares in Western Refining tanked more than 18% to $8.08, cratering below the prior 52-week low, as higher crude oil costs ate away at its earnings. The degree to which the market was caught wrong-footed by the enormity of Western Refining’s loss is apparent from a look at the implied volatility reading of its options, which at more than 109% continues to dwarf the 72% historic reading. Options are trading at nearly 9 times the normal level with more than twice as many puts trading as calls. Traders have made a jump-dive to protection in May and June 7.50 puts, with volume at both these strikes well in excess of prior open interest and despite the fact that this level of price insurance is more than twice as costly to obtain today as it was yesterday. Heading into today’s session, Western Refining’s 56,000-strong open interest showed twice as many open call positions as puts.

CSIQ- Canadian Solar Inc. – Shares in the Ontario-based maker of solar module products rose some 22.5% this morning, blasting past the standing 52-week high, after reporting better-than-expected Q1 numbers and offering bullish guidance for Q2. With options trading at more than twice the normal level, we observed a brisk 2-way traffic in calls at the May 35 and 40 strikes as prices on those positions swelled as much as 445% (in the case of the latter contract). Put buying at the May 40 strike in excess of open interest suggests willingness among traders to part with $1 in premium for protection against a quick retracement post-earnings euphoria for this extremely volatile stock.

FLR- Fluor Corp. - Shares in the country’s largest publicly traded engineering firm rose 12.3% in early trading to $186.80, blasting past the prior 52-week high, after the company served up bumper numbers for Q1 and bullish guidance for Q2. The company has registered handsome demand for energy-related projects such as refinery engineering, driven by spiraling oil prices. Trading in Fluor options quickly accelerated to more than 5 times the normal level, and the fact that implied volatility at 38.6% still shows some elevation above the 37.4% historic reading hints that the option market is still looking for settlement price levels. Fresh 2-way traffic was observed in newly in-the-money May 185 calls, while front-month puts at the May 175 and 180 strikes also attracted buyers and sellers. Calls at the June 200 strike were mostly sold, establishing at least a workable indication of a top for Fluor shares in the coming months.

FOSL- Fossil Inc. – Record Q1 profits for the accessories and watchmaker failed to sustain an early-morning rally as its Q2 guidance fell short of market expectations, and Fossil shares are showing an 8% decline to $34.19 ahead of the noon hour. With options trading at some 6.5 times the normal level, much of the action is occurring at the June 35 call line, where contracts were mostly sold for around $1.90 this morning. The implied volatility reading on all Fossil options at 44.7% continues to show an elevation above the 39.4% historic reading, suggesting additional share price fluctuation over the next 30 days above and beyond what has been recorded historically.

AIG- American International Group - Options in AIG are extremely active ahead of its annual shareholders’ meeting, just two days after its staggering $.7.8 billion Q1 loss was unveiled, and following news that it has newly raised $11.9 billion through a common stock offering. With shares flat-to-higher at $38.47 ahead of the noon hour, news of the stock offering may have driven call-buying activity at the May 35 strike for $3.65, while the 40 strike calls have traded to buyers and sellers. The August contract has attracted buyers at the 40 call strike.

Hi All - there are some new articles on the Phil’s Favorites backup site, and I’m posting this one since we need something newer in this space.

Sandisk (NASDAQ:SNDK): Moving into the seasonal sweet spot - Citigroup

Citigroup says mid-qtr check on Sandisk (NASDAQ:SNDK) fundamentals suggests positive EPS revision pressure is forming, in line w/seasonal norms which in yrs past have been ‘+’ for the stock. Demand risks exist (handset), though CIR thinks rising contract pricing from June to October is a reasonable outlook. SNDK is Citi’s mid-cap top pick on contract pricing and EPS revision catalysts.

Since 2003 Street EPS have jumped 22% and 43% in 2Q and 3Q, respectively (shares by 18% and 34%). Firm recalls that contract pricing risks shift to the upside from May to September (back to school and pre-holiday demand), though broader chip industry orders are most benign from June to August. NAND’s comparative seasonal strength should augur well for SNDK shares if fundamental and estimate trends emerge in 2Q08/3Q08 as they think possible.

Reits Buy.

Notablecalls: Worth maybe 1pt upside here.

NOW we get some real data!

I still can’t figure out what the market was so excited about yesterday and by the afternoon I felt like some crabby old man yelling at the kids who were playing on the lawn.  At 3:30 I said to members: "Does anyone remember the guy from Wal-Mart saying he was seeing his customer’s buying habits severely impacted at the end of the month as they run out of paychecks or was I dreaming about some market in an alternate universe where $125 oil was still considered expensive?"

It’s not like I’m a perma-bear - in fact, our Day Trading Portfolio jumped 32% yesterday (happy 300% by the way!) so I’d say we had things positioned just about perfectly as oil pulled back and Apple and Google went up while the things covered all pretty much behaved themselves.  Our LTP grinded out a point, the STP lost 5% because, as I noted on the Weekend Wrap-Up, we were over hedged to the downside with our DIA puts.  The $10KP held flat and the $25KP also dropped 5% as our callers there pretty much killed us (ANF, FIG, VLO, AAPL) as we played that portfolio more to protect than to win.  So it’s not that we are ALL bearish but we really need to see some evidence before we go all gung-ho bullish on the markets.

I know I started the day saying that the people saying "sell in May, go away" were idiots, giving terrible advice and I was more bullish than the MSM in the morning but - Not THAT bullish!  I wanted to slowly overcome resistance and grind forward as we move through this week’s data and earnings, forming a nice base that we could trade off.  Yesterday’s trading was madness and what goes up for no reason can, unfortunately, go down for no reason as well.

WMT did, in fact, announce a good quarter today but they are guiding to a miss, saying there will be little (if any) US same-store sales growth and the stock is being punished in pre-market trading.  So that’s WMT and FDX guiding down in the past two days - I suppose if TGT and UPS give us bad news we can ignore that too???

Another bleak outlook came from Nissan, who expect profits to fall 30% for the year, about the same as TM’s 27% slide and HMC’s 18% projected drop.  "It’s going to be a tough year for the industry," said Carlos Ghosn, who is chief executive of both Nissan and alliance partner Renault.  All the auto companies are suffering from the weak dollar, which lowers their collections, as well as rising commodity prices, which are driving their costs sky-high.  Despite this, Nissan is working with Bajaj Auto in India to produce a $2,500 car for Asian markets as well as a line of electric cars for the US, which Ghosn is aiming for the city driving market.

Nissan’s bleak outlook didn’t stop Asian markets from having a party though, as the Nikkei popped 210 points and the Hang Seng picked up 489 points on the same no news in particular that took our markets higher.  The Shanghai Composite did fall 1.8% but they did have a major earthquake so we’ll have to forgive them for not being in a buying mood yesterday.  Trading was halted in the 66 companies based in the Sichuan province, where the earthquake was centered so look for more damage tomorrow and anyone clever enough to pick a few of those companies to short the ADR will probably do quite well when trading resumes.  Korea had a field day led by Samsung and LG so we should get some good SOX action today.

Europe is off slightly ahead of our open with Credit Agricole looking for $9Bn to stop the sub-prime bleeding and Airbus announcing another 3 months of delays in A380 deliveries and SocGen posting a 23% drop in Q1 profit and ANOTHER $1.8Bn in write-downs.  As we expected, UK’s CPI was bigger than big, with a 3% rise - right at the level that will require a mandatory letter from the BOE as to what they intend to do about it.  The CPI for the month climbed 0.8% after rising 0.4% in March so this is hardly looking like it’s under control!

Retail sales numbers fell in April but the decline was led by Autos (down 2.8%), who we knew were going to suck so the markets are focusing on a surprisingly good ex-autos increase of 0.5%, well above the 0.3% expected.  Sure it might occur to someone that the massive amount of money NOT spent on autos may have found it’s way into other consumer purchases but that is no reason not to be alarmed by an overall 0.2% decline in overall retail sales DESPITE the fact that gasoline sales (a major component) were up 0.4% leaving even the ex-auto group down 0.2% if you measure it ex-gasoline, but that would require thinking - so there’s no danger of that happening in today’s market reaction.

So it’s looking like it’s "Sell in May, miss the rally" so far but I still can’t buy it with Import prices up another 1.8% along with March being revised up to 2.9%.  A 1.6% increase was expected so inflation is still worse than we thought on both sides of the Atlantic.  Import prices are up 15.4% since last April and last month alone, petroleum prices jumped 4.4%, posting a 57.2% gain for the year.  Excluding petroleum, import prices were up 1.1% for the month, the worst since 1988, when George’s Dad was running the economy.  Our export prices were up just 0.3% as we are unable to pass our rising costs on to the rest of the world, despite the weak dollar.

I’d love to be able to flip bullish but I am maintaining a cautious outlook ahead of tomorrow’s CPI report as we still need a real fall in oil prices, a sign that the Fed will stop debasing the dollar and something concrete to be done about the housing crisis, which is still throwing 7,000 consuming families onto the street every single day.  Bernanke spoke this morning and said that market conditions "are still far from normal."

On the bright side this morning, the IEA has lowered it’s oil demand outlook for the year to 1.2% growth, down from 1.5% last month and down from 2.4% that was projected last fall.  The areas of increasing demand, China and the Middle East, are places where oil is heavily subsidized while US demand is off 2.1%, now 20.4Mbd - still about 1/4 of the entire world’s oil consumption by 5% of it’s people.

Crazy day ahead - be careful out there!