Futures are trading lower this morning, which could lead to a potentially negative start this morning. The market rallied big-time on Thursday as the Dow managed to gain a little over 550 points, or nearly 7%, to finish at 8,835. The “snap-back” rally came on the heels of the market testing its 52-week lows. At one point, the Dow was trading at 7,947 and headed towards its October 10 low of 7,773. In fact, it was the first time the Dow had fallen below 8,000 since then.

The Dow had lost 14% in the week since Election Day and yesterday’s rally carried over to the other indexes. The Nasdaq rallied 100 points and finished at 1,596 while the S&P 500 closed higher by 60 points, to close at 911.

Intel (INTC, $14.43), General Motors (GM, $2.95) and Wal-Mart (WMT, $54.93) formed the three-headed monster that took the market lower in the morning as each had negative headlines. However, the market made a huge reversal, pushing stocks sharply higher after testing the lows reached last month.

I’m not buying.

The 1,000 point swing in the Dow is telling us something. The retest of the lows is telling us something. What that is remains to be seen. The next big battle for the bulls and bears will be the “G20″ meeting. The Group of 20 international leaders could bring decisions on how to help the troubled global financial system and there will be juicy details that bulls and bears will argue over which will move the market.

The cautious tone on Wall Street this morning could lead to another choppy session.

Rick Rouse
Rick@OptionsMentoring.com

Nvidia (NVDA, $13.00, up $0.74) is up 25% for the month despite reporting a lousy quarter. You know when the company CEO says their quarter was “disappointing” not too much good can come from that. However, it has.

Nvidia reported a 2Q loss of $121 million, or $0.22 a share, versus a profit of $173 million, or $0.29 a share, in the year-earlier period. Revenue came in at $893 million, down from $935 million. When you go from that big of a swing within a year, you can see why the stock has fallen from a 52-week high of nearly $40 to a low of $10. So why the recent bounce?

Although the company said it expects an increase in revenues and slightly higher gross margins in the coming quarters, it was the stock repurchase program that has bulls kirking. Nvidia upped its plans to buy back more of its stock by $1 billion and may purchase up to $3 billion of its stock in the future.

The company has a little over $1.5 billion in cash and said repurchases will be funded from working capital. They won’t be doing this all at once so it will take a year or two (or more) for the whole $3 billion. At current prices, that’s about 40% of the company’s market cap.

Nvidia is in the GPU business (graphics processing units) and makes chips that do cool things. The stock has seen its shares of ups and downs as you can tell from the chart. The company has even emerged from bankruptcy before. The business has been that volatile for Nvidia.

The earnings and buy-back news came Wednesday but on Thursday over 25,000 contracts of the September 12.50 calls (UVAIS, $1.28, up $0.44, or 50%) changed hands. It was 8x that of the September 12.50 puts (UVAUS, $0.70, down $0.30) which fell 30%.

It’s hard to go long with a company that is losing money and Nvidia just reported a loss of 22 cents. Yeah, that really makes you want to rush out and buy the stock or call options, right? I’m on the side of the fence that says the buy-back means nothing right now. It’s a nice gesture for management to say that but if you’re losing $125 mil a quarter, then you might want to hold off.

Nvidia has shown the ability to adapt in the past but when you step back and realize the company is losing money, it would be such a reach to hope for a quick turnaround. However, you have to respect the option action. For you diehard believers of the company, the January 20 2010 calls (KEVAD) are going for $4. That means the stock would have to be trading at $24 by January 2010, or post nearly a double from current levels for you just to break even on the options.

With competition coming from Intel (INTC, $24.36, up $0.24) and AMD Micro Devices (AMD, $5.30, up $0.15), it’s just too risky in my book. I’m not doing an apple to oranges comparision but the Intel January 25 2010 calls (WNLAE) are going for $3.70 which means Intel would have to be at $28.70 by the same time the Nvidia calls expire. I would much rather bet on Intel going from $24 to $29 than Nvidia jumping from $13 to $24.

I don’t have an “easy button” but the choice is clear. Don’t believe the hype with Nvidia, go witht the best in the industry, Intel.

Rick Rouse
Rick@OptionsMentoring.com

Here’s a look at some of the bigger companies that will be reporting earnings today. Quotes are from Monday’s close.

Intel (INTC, $20.47, down $0.17) is expected to post earnings of $0.26 a share on revenue of $9.3 billion. This time last year the company reported $0.22/ $8.9 billion. There are “whispers” that the company could beat by a penny. The company’s new chip could be a hit. If the market likes what Intel says and it beats earnings then we could get some kind of rally in the Tech sector. Low-cost laptops are growing big-time and Intel’s second generation of its Centrino chip technology could do wonders for its bottom line.

Wall Street is expecting Johnson & Johnson (JNJ, $66.41, up $0.15) to report earnings of $1.12 a share on revenue of $16 billion for the quarter. There seems to be a shift into drug stocks and J&J is a safe play. The stock set a 52-week high of $68.85 back in May and has held up like Clint Eastwood in a Western. The stock is only a couple of bucks off its high and a good earnings report could take the stock higher. J&J has also been buying back its shares in the open market like mad. In under a year they have repurchased $5 billion in stock with another $5 billion available. It’s too late to buy these options but let’s see how the July 65 calls (JNJGM, $1.55, unchanged) and the August 65 calls (JNJHM, $2.30, up $0.05) trade today.

U.S. Bancorp (USB, $23.33, down $2.41) is actually expected to post a profit of $0.60 a share on revenue of $3.8 billion. The expected outlook is down from a profit of $0.65 a year ago. Some talking heads are saying a few of the regional banks are great value plays but there wasn’t much confidence in this one yesterday.

Rick Rouse
Rick@OptionsMentoring.com

8:00AM

Intel (INTC, $20.91, up $0.22) meet Wall Street’s average expectations after the bell on Tuesday by announcing 1Q earnings of 25 cents a share. The company warned in early March that it wouldn’t match estimates because its profits were going to come in slightly below expectations. Analysts then lowered their sales and earnings estimates for the quarter.

The stock moved higher last night in after-hours trading when Intel also reported that it had record sales for the quarter of $9.67 billion which were slightly higher than estimates of $9.63 billion. In after-hours trading the stock was up 8%, or $1.69, to $22.56 at 6PM. However, by 8PM, the stock was down $0.22 to $20.69.

As you can see, after-hour trading (from 4pm to 8pm) can be more volatile and less liquid than regular trading because there are no brokers or market makers. Everything is done using electronic communications networks, or ECNs. For those of you unfamiliar with “after-hour” trading, it is simply the trading of stocks after the market closes. As you know, traditional or regular stock trading takes place from 9:30am to 4pm EST.

Of course, this does not affect the stock’s closing price for the day and the next day gains or losses are quoted from the previous day closing price. This is why I said it would be difficult to figure out what direction the market will take Intel after they reported earnings. This is why it is also risky to buy options around earnings announcements.

Rick Rouse
Rick@OptionsMentoring.com

Delta (DAL, $9.97, down $0.51) and Northwest (NWA, $11.27, up $0.05) announced they will merge to create the world’s largest carrier. I mentioned over the weekend that the Airline sector could eventually trade higher but needed to consolidate to offset rising jet fuel cost and other expenses. The deal between Delta and Northwest could get the ball rolling for other companies to merge. Early word is that United (UAUA, $22.91, down $0.71) and Continental Airlines (CAL, $21.87, down $0.02) could be next. All of these stocks were positive at the opening bell but are mixed as trading gets underway.

Crocs (CROX, $11.67, down $6.12) is getting hammered after cutting first quarter guidance. Analysts had expected the company to report earnings of 46 cents a share. Crocs is now saying earnings will come in between $0.08 and $0.13 a share after announcing plans to shut down its Canadian plant. Drum-roll please…Crocs use to be a $75 stock (52-week high).

Intel (INTC, $20.65, down $0.04) reports earnings after the bell today. Expect a 5%-8% move on Wednesday but calling the direction could be tricky. On March 3 the company warned about weakness in its memory chip business. However, shares could get a pop if Intel continues to take market share away from AMD (AMD, $5.63, down $0.23) which is sitting at 52-week lows.

Rick Rouse
TheOptionInvestor@yahoo.com