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

Abercrombie & Fitch (ANF, $53.62, up $32.36) and Kohl’s (KSS, $48.85, up $1.26) have been all over the map this week as both companies prepare to announce earnings over the next 24 hours. Kohl’s will announce after the bell today, ANF before the bell Friday.

ANF has been trading between $50 and $55 all week and Kohl’s started the week at $51 and has traded as low as $46 (told you I didn’t trust Kohl’s). The volatility shows the 10% swings both stcoks can make so as I mentioned Monday, there’s no compelling reason to try and trade the retailers right now.

Wal-Mart Stores (WMT, $58.74, up $0.86) beat estimates by two cents today but issued the “cautious” word again. The stock is right where it started the week and Wall Street has once again kept Wal-Mart under $60.

JCPenney (JCP, $37.68, up $2.16) also reports before the bell Friday.

Rick Rouse
Rick@OptionsMentoring.com

The market is always looking ahead. Even after a solid 1Q on higher sales and profits, Wal-Mart Stores (WMT, $56.65, down $1.37) spooked Wall Street after giving cautious 2Q guidance. The company reported income of $3.02 billion for the quarter, up nearly 7% from $2.82 billion, versus the same period last year. Revenue increased 10%, to $94.12 billion from $85.39 billion. Wal-Mart beat by a penny with earnings of $0.76 while analysts’ pegged estimates at $0.75 a share.

That was the good news. What Wall Street didn’t like was the company’s 2Q guidance in earnings of $0.78- $0.81 a share which was below earnings of $0.81 a share analysts had forecast. Wal-Mart said it was “unable to predict how the U.S. government stimulus checks will impact the marketplace.”

While this is true, Wal-Mart basically gave conservative guidance to cover itself in case consumer spending dips. If that were to happen, then Wal-Mart could miss next quarter’s numbers. Perhaps this was the thinking today as investors sold-off the stock. However, I believe the sell-off wasn’t warranted especially for a company that reported a quarter this good.

I had mentioned a week or so ago that Wal-Mart was trying to push through some key resistance levels at $60 but has failed each time it has gotten near this level. Today was no different although it should have been.

Rick Rouse
Rick@OptionsMentoring.com

With tax refunds hitting consumer pockets over the next few days and weeks, Wal-Mart (WMT, $57.96, up $0.61) could be the “Retailer of Choice” as people spend their rebates on the 800-pound discount gorilla. The company is offering to cash the checks for free and said no purchase will be necessary.

Wal-Mart offers the best of both worlds. It’s a one-stop hub for all of your household, grocery and even your gas needs. It’s no coincidence the company is cutting prices on key grocery and other items to coincide with the distribution of the rebates. Wal-Mart really wants to grab a bigger piece of the grocery segment although margins aren’t that great. However, Wal-Mart has superior cost-cutting structures in place that they are able to pass on to the customer.

Option traders are placing bets on the May 57.50 calls (WMTEY, $1.43, up $0.30) and the May 60 calls (WMTEL, $0.44, up $0.12) which are up 26% and 37%, respectively, that the stock continues higher.

Wal-Mart usually doesn’t make big, dramatic moves in its stock price but the bulls seem to want to push this one up to the $60 level. If Wal-Mart can get to $61 by May 16th then the May 57.50 and 60 calls would double from current levels with the 57.50’s returning slightly more. Either way, this is a very aggressive play on a stock that Wall Street has fallen back in love with.

Rick Rouse
Rick@OptionsMentoring.com