Upcoming data from MF Global

Price Outlook

Stocks are expected to trade sideways to higher. The ability of the market to handle the pricing of GS’s secondary will be critical to direction. If GS can maintain levels above the price of the secondary, the equity market is likely to perform well. GS’s lack of need for TARP is a bullish sign. The one downside might rest in the government not allowing repayment. This could create fears of socialism and excess government control. Stocks have traded well given the profit warnings from BA and CVX. Enthusiasm toward the financial sector and stability in technology are likely to drive prices higher. Moreover, M&A excitement has increased slightly with ESRX buying WLP’s NextRX and speculation that a group of Middle Eastern investors will buy TXT. The main downside risk is a wave of profit taking after companies release profits. GS and INTC will provide two tests of this theory. Best guess for today’s range in SPM 842 to 870.

Support & Resistance

	SPM9	NDM9	DJM9
R2	870/75	1362	8227
R1	862	1343	8080
S1	842	1317	7840
S2	830	1305	7745

The market will focus on earnings from GS, CBSH, JNJ, and GWW while it digests retail sales and PPI. CSX, ADTN, and INTC release after the close. JBHT may also get a look or two. The market will be examining the details from GS and CBSH. The trade will be trying to understand the positive impact, if any, from the change in accounting rules and pre-buying of assets in front of the PPIP. Moreover, the trade will be looking at default rates at CBSH. March Retail sales are likely to provide support for both bulls and bears given strength in auto sales and weakness in clothing and general merchandise, while PPI should show tame inflation. Retail sales are expected to rise 0.3% total and be unchanged ex-auto. PPI is forecast to be up 0.1% and unchanged excluding food and energy. Lastly, the market will have one eye on GM as speculation of a bankruptcy filing swirl. Psychologically, bankruptcy may seem negative, but it is probably the best option for the company. It will likely come out a new and leaner company with its costs better aligned with industry competition. Late yesterday, the Administration said that it might convert loans into equity. This is dilutive to current shareholders and smells of socialism. Looking at profits:

· GS earned $3.39 per share verses expectations of $1.64/share. The book value was unchanged at $98.82 compared to an estimate of $.99.53. GS also cut its dividend to $.35 from $.47 per share and said it would issues $5 bln in common equity in the hopes of paying off TARP. Tier 1 capital was strong at 14.3%. In recent months, GS has gone from trading below book to about 1.32 times book value. GS has rallied sharply into earnings rising about $30 since the end of March. If the stock can hold above the level of the secondary offering, it will be a sign of strong demand and bullish for the overall equity market.

· CBSH is forecast to earn $.51/share and post a book value per share of $21.09. The stock is trading at 1.85 book and has held up relatively well to some larger banks. It did trade under book in 1990.

The graphic below displays the trend in the BKX. There appears to be a breakout of the head and shoulders bottom or base pattern. The next major resistance level is just above the 40 level. A test of the low 30’s is possible, but this level should hold if the market is likely to continue higher.

The risk to the financial sector may come on equity. GS will sell equity to pay off of TARP. Additionally, CBNC reported a bank analyst sees WFC raising an additional $50 bln in capital. If the charts are poised to provide insight, capital raising announcements with the BKX at 40 is likely. These equity raises could push prices back to the $30 and set up a test of the breakout. If the BKX can hold the base, it will be bullish into the early summer.

Just Quickly on INTC

INTC will provide a strong look at PC and semiconductor demand. Data points have been suggesting a pick up in activity and lean industry inventories. The graphic displays the sales growth rate of INTC. Notice that sales are expected to drop 27% y/y in Q1 2009 and the dip will be consistent with the trough in sales which occurred after 2001 post the technology bubble melt down. The market will be looking for signs that inventories are clean and demand is picking up. Last quarter, the INTC may extremely cautious statements and seemed to be working to set up a bottom. Gross margin is likely to fall sharply consistent with past troughs in the mid 40’s.

The graphic displays the SOX index. Note the sector is approaching the top of a possible channel.

JBHT released mixed numbers. At face value, there was no indication that volumes were picking up significantly. The company did make some company specific statements which seemed friendly. Loads, revenues per truck and miles were down.

Retail Sales Preview

March retail sales are expected to rise 0.3% m/m. Sales excluding auto are forecast to be flat. MFGR is looking for retail sales to be unchanged as strength in gasoline station sales and auto sales should balance weakness in clothing and general merchandise. Bottom up data for March was mixed. The Bloomberg same store sales index contracted 2.41% y/y in March. In contrast, domestic unit auto sales rose 0.7 mlu to 7.1 mlu. Statistically speaking retail sales plunged about $40 bln from July 2008 to December 2008. Sales have crept higher sequentially the last few months bouncing from the sharp decline. The major drop in the last half of 2008 has allowed sales to stabilize in January and February. The stability may overstate the true health of the retail sector. To put the level of sales in perspective, sales were $340.987 bln in December 2008 compared to $381.578 bln in July 2008. Here are some factors to think about:

· Overall, the March retail sales seasonal factor is restrictive compared to February. This may provide some pressure on sales. The seasonal factor is 0.991.

· Motor vehicle sales are likely to snap back sharply from February. February sales were down 4.3%, but March unit sales rose sharply. The auto seasonal factor is very restrictive at 1.075 and will provide a light headwind.

· Clothing and general merchandise store sales were robust in February rising 2.8% and 1.3% respectively. There could be some payback given the sales numbers in March. Profitability in the sector is exceeding expectations, but sales are still sluggish.

· Gasoline station sales have a slightly additive seasonal factor in March at 0.971. Gasoline prices rose 6.8% unadjusted and the season argues for an overall gain of 7.0%. Gasoline station sales could be a key factor in generating an upside surprise.

· There is a chance that food service sales are strong. Recent color and stock price movements in restaurant names have been constructive.

· Statistically speaking, building material sales are usually stronger in April than March. Building material sales were down 0.2% in February. Home Depot and Lowe’s have rallied sharply in recent weeks and may be discounting better sales.

The graphic following displays the relationship between the growth rate in new home sales and retail sales. Notice that retail sales usually do not make a bottom until home sales trough. New home sales have yet to make a low and may stay under pressure until the inventories of existing homes are better aligned.

There was a poll by AP noting that 45% of Americans receiving tax refunds intend to pay off debt or pay bills. A year ago 35% expected to use their refund to do the same a year ago. Consumers appear cautious in the spending patterns given employment trends.