Business-Insider

Analysis written by NewstraderFX

Wal Mart (EPS $1.02) is reporting their sales and earnings for the quarter ending Jan 31 tomorrow, Feb. 19 and what they have to say is likely to set a strong tone for overall market direction. While no specific time has been given for the release, when Wal Mart last reported on Nov.13 it was before markets opened (BMO).

The Equity/Carry trade market responded with a strong overall gain for the day after the report beat estimates. The S&P gained nearly 2.4% as GBP/JPY gained about 200 pips (the market was also helped in the last hour by an upside surprise in pending home sales). The only other major profit report that day was the disappointing one from Home Depot, but that was likely already discounted because of the weak overall housing situation.

Other important reports will be given by Barclay's (BMO, no EPS est.), H-P (no time given, EPS est. $0.81) and OfficeMax (BMO, EPS est. $0.52).

As the U.S economy has slowed, Wal Mart has re-focused on a strategy of low prices and according to Citigroup analyst Deborah Weinswig, Wal mart is likely to report Q4 same store sales rose 1.5%. The stock gained 2.9% in 2007 after 3 years of declines and have advanced 4% amid the tough 2008 market.

Other news to be on the lookout for regards the ever-popular bond insurers. New York governor Eliot Spitzer set a tight deadline for MBIA and Ambac to find new capital due to difficulties in the Muni bond market.

As for what might happen this week, if you look at last week's price action you'll see what I believe to be a remarkable resiliency in spite of what on face value should be taken as a period of high anxiety as equities climbed 1.5 percent. Recent economic and financial data has ranged from weak to downright terrible: Q4 GDP barely above stall speed, negative NFP, seriously contracting services ISM, a bottomless housing market, weak retail sales and seriously downgraded consumer sentiment have dovetailed with fractured credit markets and a high degree of uncertainty regarding the hinge upon which the markets will ultimately swing: the bond insurers MBIA and Ambac.

Yet despite all that's happened, the fear gauges continued to calm down last week-the Ted Spread fell almost 13% to 88 and the VIX nearly 15% to 25.02 (both are still elevated above levels seen during calmer bullish markets, but the VIX is about about 33% off the panic highs while the Ted Spread is down over 58%). The intra day market movement seen on Friday was especially interesting, given the severely depressed consumer sentiment. Markets rose after the 15.00 GMT report, fell back to make its lowest closing price almost exactly at the 15.00 GMT level, then rose to finish just about at the daily high.

Other factors are are indicating better times to come as well. LIBOR has fallen dramatically since the August highs which means ARM's will reset with much smaller gains (around 8% on average, or about $182/month as opposed to August's 33%). The drop in rates should help support consumption and along with the Fed's aggressive easing and the government's Fiscal Stimulus Plan, Q3 GDP could see a return to a 2.5% annualized rate.

The MBA's refinancing index surged to 5,103.60 on Jan. 25, its highest level since June 2003, from 1,620.90 in the week ended Dec. 28, 2007. The average rate on a 30-year fixed loan fell to 5.48% on Jan. 24, according to Freddie Mac. That means a homeowner would save $81.40 a month on every $100,000 borrowed now compared with June, when rates rose to 6.74 percent.

There's also a strong bullish technical indicator for the S&P that was given at the close of trading on Friday, Feb 8-the Double Stoch indicator (seen on the daily chart). How this works is very simple:

The market closed on Jan 22 at an oversold condition. Price rose from there and eventually fell back on Feb 8 but the closing price on Feb 8 was HIGHER then Jan 22. At that point, the Stoch indicated that the S&P was still oversold, even after price had risen. That's another way of saying that after the rise in price, the market still considered price to be cheap and as we saw, the S&P did indeed rise last week. The same indicator was given on the daily DOW chart.

BTW-I tend to assume you know this but in case you don't, as the S&P moves, the JPY crosses (G,E,A,N/JPY) move right along with it.

Thanks for reading my post and please use the box to vote. If you're interested in joining my ten dollar a week trade room, you can do so on my blog: thenewstraderfx.blogspot.com

Sources: Bloomberg, Financial Times, Wall Street Journal, Morgan Stanley Global Economic Forum
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