Opening View: Stocks Look South, But May Options Expiration Could Mean a Roller-Coaster Session

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Stocks are pointed lower ahead of the bell this morning, with the major market indexes set to snap their two-session winning streak. Weighing on pre-market sentiment is the latest batch of earnings reports, with retailers Aeropostale ( ARO ) and Gap Inc. (GPS) both missing the proverbial mark. However, as we noted in this week's edition of Monday Morning Outlook , May options expiration week is notoriously unpredictable. That, combined with a lack of economic fodder to provide a compass for investors, could mean the session is still anybody's game. At last check, the Dow Jones Industrial Average (DJIA ) is trading about 32 points south of fair value, while the broader S&P 500 Index (SPX ) is headed for a 4.5-point drop out of the gate.

Dow, S&P and Nasdaq futures

In equities news, BP plc (BP - 43.89) is headed about 2.5% higher ahead of the bell, after one of the British oil giant's partners agreed to contribute to the cost of the Deepwater Horizon disaster. Specifically, MOEX USA Corp. -- a co-owner of the Macondo oil well in the Gulf of Mexico -- said it will pay more than $1.07 billion to settle claims. The payment will be applied to the $20 billion trust established last year to pay spill-related claims, Dow Jones reported.

On the earnings front, Aeropostale (ARO - 21.34) said first-quarter profit fell a year-over-year 64% to $16.4 million, or 20 cents per share, in line with the consensus estimate on the Street. However, sales increased 1% to $469.2 million, falling short of analysts' expectations for net revenue of $478 million. "Based on current business trends and uncertainty surrounding the retail environment in the back-half of the year," ARO declined to reiterate or update its full-year guidance, but said it expects second-quarter earnings of 11 cents to 16 cents per share -- lagging analysts' forecast for earnings of 27 cents per share. At last check, ARO is poised to sink about 10% at the open.

Meanwhile, fellow retailer Gap Inc. (GPS - 23.29) earned $233 million, or 40 cents per share, in its first quarter, marking a year-over-year drop of 23%. Meanwhile, net sales for the quarter docked at $3.3 billion, surpassing the Street's prediction for revenue of $3.26 billion. However, thanks to escalating cotton prices and production costs, the firm slashed its full-year profit outlook to a range of $1.40 to $1.50 per share, from its previous guidance for per-share earnings of $1.88 to $1.93. In pre-market trading, GPS is down roughly 16%.

Elsewhere, Intuit Inc. (INTU - 55.90) said fiscal third-quarter net income rose to $688 million, or $2.20 per share, from $576 million, or $1.89 per share, in the year-ago quarter. Excluding items, INTU earned $2.33 per share, besting analysts' consensus estimate for adjusted earnings of $2.27 per share. Revenue jumped 12% to $1.84 billion, roughly in line with expectations for sales of $1.82 billion. For the current quarter, the firm expects its bottom line to range from a 2-cent loss to a 2-cent profit on sales of $567 million to $587 million, compared to the Street's forecast for a loss of a penny per share on revenue of $587 million. However, INTU upped its fiscal-year guidance to a range of $2.45 to $2.50 per share on sales of $3.83 billion to $3.85 billion, from its previous expectations for earnings of $2.41 to $2.48 per share on revenue of $3.74 billion to $3.84 billion. At last check, INTU is set to surrender about 2.5%.

Finally, Liberty Media Corp. offered $1.02 billion to purchase struggling Barnes & Noble (BKS - 14.11). The offer, which includes the assumption of $450 million in debt, translates to about $17 per share -- a premium of 20% to BKS' closing price of $14.11 on Thursday. Ahead of the bell, BKS has skyrocketed more than 27% to hover just shy of the $18 level.

Earnings Preview

Today's earnings docket will feature reports from Ann Inc. ( ANN ), Camelot Information Systems ( CIS ), Donaldson ( DCI ), E Commerce China Dangdang ( DANG ), and Yingli Green Energy (YGE), just to name a few. Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

There are no notable economic reports scheduled for release today.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,051,710 call contracts traded on Thursday, compared to 748,618 put contracts. The resultant single-session put/call ratio docked at 0.71, while the 21-day moving average inched higher to 0.64.

NYSE and Nasdaq summary

Volatility indices

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Overseas Trading

Stocks in Asia ended mixed today, as weak U.S. economic data kept many traders on the sidelines. Traders in Japan seemed unsurprised by the central bank's decision to keep interest rates unchanged, but uncertainty over a possible government breakup of utilities weighed on stocks -- even though sector black sheep Tokyo Electric Power gained ground ahead of its quarterly earnings release. However, the well-received initial public offering of LinkedIn (LNKD) provided a halo boost for Internet stocks in the region, while equities in South Korea bounced back from the previous day's drubbing. By the close, South Korea's Kospi added 0.8%, and the Hong Kong Hang Seng tacked on 0.2%. On the other hand, China's Shanghai Composite dipped 0.04%, and Japan's Nikkei gave up 0.1%.

European shares are also searching for direction at midday. Energy stocks are rising in step with rebounding crude prices, and BP is in focus after its Macondo well partner, MOEX, agreed to chip in toward the cost of last year's catastrophic oil spill. Banking stocks are also on the upswing, with Standard Chartered leading the way after an upgrade to "buy" at UBS. Familiar financial worries continue to lurk in the background, though, with The Wall Street Journal warning that this weekend's elections in Spain could lead to the discovery of "piles of 'hidden debt.'" At last look, the German DAX is down 0.5%, the French CAC 40 is off 0.2%, and London's FTSE 100 is up almost 0.2%.

Overseas markets

Currencies and Commodities

The greenback is trading higher this morning, with the U.S. dollar index up almost 0.3% at last check. Elsewhere, black gold has bounced back, though the front-month contract is still trading shy of the century mark. At last check, June-dated crude futures are up $0.07, or about 0.1%, to flirt with $99 per barrel. Meanwhile, gold futures have erased yesterday's slide, with the front-month contract up $4, or roughly 0.3%, at $1,496.40 an ounce.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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This article appears in: Investing , Options

Referenced Stocks: ANN , ARO , CIS , DANG , DCI

Schaeffer's Investment Research

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