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March 15, 2010
Note: This week's Market Outlook was covered by Optionetics.com's Chris Tyler.
Consumers pleased analysts with their latest shopping spree but after ten straight, Friday’s failure to shop by investors suggests some returning of financial merchandise entering the week. For the five-day period, the SP-500 (SPY) is up 1.06% as bulls continue to cheer on a less-than-maddening March thus far.
THE WEEKLY NUTSHELL
- Bulls pay tribute to a historic March Bottom by forging a quiet and light volume historic double top. Aiding market’s fractional ennui at / near retest of Jan highs, Merger Monday report of AIG’s (AIG) second asset sale with Alico unit being sold to MetLife (MET) for $15.5B. RIM (RIMM) upgrade to “Outperform” and target of $88 and Cisco (CSCO) raise. Better-than-expected same-store sales of 4.8% at McDonalds (MCD).
- Tuesday’s anniversary sees celebrations and “sell-e-brations” with fractional engulfing doji close for the SP-500. “Sell the news” reactions in large cap techs TI (TXN) and Cisco (CSCO) on bullishly-tweaked mid quarter guidance and highly-anticipated CRS-3 router product announcement. Slack taken up in the financials (XLF) driven by Anchor Banker Citigroup (C) and government indentured AIG (AIG) as technical breakouts pay homage to bottoms gone by.
- Non-humping Wednesday as bulls test in and around recovery highs. Select financials (AIG, ZION) drive market higher for second straight day. Citi’s (C) $2.0B trust preferred cheered, rumors of Barclay’s (BCS) “in the market”, and positive comments from analyst Dick Bove on dividends in financials (XLF) and Whitney on Visa (V) and MasterCard (MA) assist bulls efforts. Recently lagging semis (SMH, MU, BRCM and AMD) and Google (GOOG) [China talks and online App Store news] aid and abet as bargain hunting rotations force failure of gravity in SP-500 as nine out of nine is logged.
- More terrific bullish testing on Thursday with late buying spree fueled by additional sector “bargain-hunting momentum.” Early slip of investor confidence on hotter-than-expected inflation spike in China and slight but disappointing 6,000 drop in weekly claims. For the bulls, Cramer jumps on board financials (XLF) with Wednesday’s Mad Money episode. Devon (DVN) keeps M & A arena in spotlight with $7.0B asset sale to BP (BP).
- Despite fashionable retail sales shopping data, investors ring the register with Friday’s flat finish for the SP-500. Out-the-gate fresh recovery highs aided by better-than-expected European industrial production report, closure for well-worn M & A three-way in Aggies (AGU, CF, TRA) and surprise gainer of 0.3% for “sneak peek” February retail sales data. Intraday slight miss on declining consumer sentiment and disappointing business inventories data enables bulls to take profits after string of ten straight gains, while select profit-taking in financials (KEY, C, AIG and BAC) hints at potential higher-high double top in the SP-500.
ON TAP THIS WEEK
Will investors be greeted by another round of fresh corporate “I do’s” as the work week gets underway? Bulls will have to hope so as other catalysts worthy of propping up the market are getting harder to come by.
On the earnings side, a light incoming crop of reports realistically boils down to reports from Nike (NKE) on Wednesday evening and economic barometer FedEx (FDX) Thursday morning. Shares of Nike recently moved onto Goldman’s Conviction Buy List and bulls have quite literally “run with it” in a technical bee-line. As much, expectations of the company earning $0.88 per share will need to be handily improved upon or otherwise be more prone to a bout of profit-taking at a minimum.
In the case of FedEx, a less special earnings package might more easily do the trick for bulls. Technically speaking, the stock has been carving out a nifty-looking handle within a three month cup-shaped base and its 200-Week SMA acting as pattern resistance. Known for conservative guidance, an optimistic forecast by the ground and air giant could send shares of FDX flying higher without too much effort.
On the economic front, the five day calendar is full of key reports worthy of satisfying headline watchers and watchdogs in need of catalysts. Kicking off the week is the first of two regional manufacturing surveys, the NY State Empire Index. Also that morning, industrial production could be an important metric on the economy’s recovery. Analysts expect a flat reading.
Tuesday morning will offer housing starts and building permits data but it will be that afternoon’s FOMC decision on interest rate policy that should prove to be the week’s most closely-watched report.
It’s likely a bit more attention will be given to the Fed’s rate announcement and attached policy statement on the heels of last month’s “telegraphed” but surprisingly quick nudge to the discount rate. Wall Street doesn’t expect a shift in the fed funds rate just yet, but many analysts are on closer guard for any subtle changes in official’s language regarding when maintaining rates for “the foreseeable future” becomes clouded due to inflation and / or growth.
Weekly Calendar of Key Reports
Monday
Economic: Empire (23.45), Net LT TIC, CU & IP (72.3%, 0.0%)
Earnings: AAON (AAON), Houston Wire (HWCC), Sterling (STRL), Overstock (OSTK), Athena (ATHN), Sequenom (SQNM)
Tuesday
Economic: Housing Starts & Permits (587K, 614K), Import / Export, FOMC Decision
Earnings: China F & S (CFSG), DSW (DSW), FactSet (FDS), TBS Intl (TBSI), AMBAC (ABK), Discover (DFS), Focus Media (FMCN), KongZhong (KONG), rue21 (RUE)
Wednesday
Economic: Weekly Crude, PPI (-0.1%, 0.1%)
Earnings: Actuant (ATU), General Mills (GIS), SmartHeat (HEAT), CLARCOR (CLC), Guess (GES), IHS (IHS), Nike (NKE)
Thursday
Economic: Weekly Claims, CPI (0.1%, 0.1%), Lead Inds (0.2%), Philly Fed
Earnings: FedEx (FDX), Gamestop (GME), Ross (ROST), Vimpel (VIP), Cintas (CTAS), Palm (PALM), Sunpower (SPWRA)
Friday
Economic: NA
Earnings: Perry Ellis (PERY)
TECHNICAL PICTURE
Figure 1: S&P500 (SPY) Daily Testing
An investor can be a bull long-term, but short-term those optimistically-suited folk need to realize the chase isn’t on; it’s more likely to have already run its course. Last week bulls finished off a ten day streak of higher prices in the SP-500 (SPY) by essentially “selling the news” on the heels of Friday’s much stronger-than-expected retail sales data.
Not all of the buoyant green-filled sessions during the ten day stretch were created equal. In fact, some of closing gainers were very negligible. Nonetheless, with prices in the majors also setting up within various types of double top formations and the CBOE Volatility Index giving enough evidence suggestive of a pause in the action—at a minimum the option to protect looks both affordable and technically correct.
MARKET LAB
Bullish Technicals
- November thru April strongest six months for equities historically.
- Corrective activity of roughly 9.10% for SP-500 with 38% test July lows.
- Late FTD on 3.1.10.
- Increased market leadership from growth issues.
Bulls say “Cup Breakout!” to SP-500 pattern.
Bearish Technicals
- 1930 Bear Market Rally repeat states EW Intl
- Weak institutional support during rally attempt off lows.
- Mixed and late FTD on historically late Day 16 of rally attempt.
- VIX “10% Stretch” / YTD lows on radar similar to 2007 rally top.
- Ten out of ten and 19 out of 25 suggest a stretched V bottom has become a stronger double top with two-step (AB = CD) confirmation.
- Bulls chant “M & A! M & A!” to get sow their wild oats.
- Bears spy higher high double top in SP-500.
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 110 – 111, 108, 105 | 115 - 116 |
Chris Tyler
Senior Staff Writer & Options Strategist
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