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Potential catalysts continue to be mixed, but for investors the second-quarter is off to a great start. For the five day period the Naz’100 (QQQQ) and “SPYder” (SPY) are up 4.09% to 5.45% on a nascent bull that continues to make all the right moves.

THE WEEKLY NUTSHELL

Highlights for keeping a nascent bull rally looking constructive:

• Light Monday and further technical pause. Chicago PMI beats and stabilizes, but doesn’t persuade in front of ISM index. Regulators official address for long-term overhaul of financial system. “Financial Lite” session as Citi (C) may split units, UBS (UBS) lowers SIV values, Lehman (LEH) sues Japanese broker for financial fraud and BofA (BAC) looks to possibly shelve prime broker sale.“Terrific Tuesday” for start of Q2 as Lehman’s $4B oversubscribed preferred convertible offering extinguishes stability fears and market bears. Separate confirmation style report from UBS with its $19B replenish plan is cheered, while fresh writedown news is appreciated to mean the worst is behind the financials. Cisco (CSCO) says router sales up 9%, easing weak business spending concerns. Price slides / pressure in gold and oil seen as optimistic easing of inflationary thorns and unwinding / rotating of positions. “Stability” / better-than-feared ISM reading of 48.6 ease worries over escalating economic slowdown. “BTE” and good guidance in Best Buy (BBY) initially eases consumer-driven slowdown fears. Bernanke longer-term prognostications of economic pick-up in second half of 2008. ADP Survey comes in stronger-than-expected, points to upside surprise for Friday’s jobs data. RIM (RIMM) delivers strong report and Q1 guidance. ISM Services is third report of the week showing slightly better stabilization reading, but still contracting at 49.6.
• Worse-than-expected jobs showing increases rate cut hopes and optimism the worst is bad, but not “recession bad.” Pockets of sector strength from the energy complex (XLE, OIH), the “Aggies” (MOS, POT, CF, MOO) and solar (FSLR, LDK, TSL) rekindle the bulls interest on Friday.

Highlights for keeping bears and cautious bulls in the mix:

• Merck (MRK) and Schering Plough (SGP) deliver headache for investors as joint cholesterol-lowering drugs called into question by med panel.Auto / Truck sales report dismal figures Y-O-Y and no assurances from execs on Tuesday. Mild profit-taking Wednesday as Bernanke testimony states a recession is possible in first half of 2008. In-fighting at Anchor Bankers. Lehman cuts Merrill (MER), Goldman (GS) and Morgan (MS), while Goldie reduces Lehman. Separately, downgrade of Cisco (CSCO) to “Neutral” steals RIM’s potential business spending relief as report pressures large cap tech. Surge in weekly claims to 407K and 4-Week MA up 15,750 to 374.5K takes sentiment down a notch.
• Questions of the “R” word and if so, “how deep” courtesy of March’s third straight jobs contraction and worse-than-expected drop of 80K. January and February also revised lower by 67K total. Deutsche’s “Sell List” of bankers (C, STI, PNC and JPM) and JP cuts money center peers (BAC and WB). Fitch cuts MBIA (MBI) saw a cut to AA from AAA. “Dude, It’s a SELL.” Dell (DELL) removed from Goldie’s Conviction Buy List.

ON TAP THIS WEEK

Last week’s solid price action is going to be a tough act to follow, but a light calendar could help, if the adage “Never sell a dull market” holds true. For his part, former Fed Chief Greenspan is attempting to help make things a bit livelier. Over the weekend, comments about the likelihood for a recession being above 50% made the pages of a French newspaper. The interview is the latest in a series of press junkets over the past few months which continue to emphasize a cautionary tone. Ultimately, those thoughts should hold less influence over investors.

One of the first scheduled economic reports to come out in a rather light week is pending home sales on Tuesday. The data is viewed as a leading indicator of home sales as it reflects signed contracts. A decline of 1% from the prior month is expected, as the housing slump moves into its third year. Should analysts be on the money, it would mark a third drop out of the last four periods. A weakening labor market and record fuel prices aren’t helping matters. Neither is tougher lending standards. Falling prices might be a negative too, as the psychology surrounding the housing market continues to struggle from prior days when buzz words like “Land shortage” ruled the investment landscape and prices could only go higher per the consensus view.

Alcoa (AA) will enjoy its typical pole position in ushering in a brand new earnings season. The aluminum giant and Dow component stock is pegged to earn .48 per share according to First Call estimates. Those profits are .31 below last year’s results of .79. Nonetheless, over the past week and in front of the report, bulls made Alcoa a large cap favorite and jettisoned the stock about 12% above where it sat in April 2007. Bullish and bearish technicians will likely be watching 39.67 – 40.70 very closely, as a weekly chart “W” or double-bottom with slightly low handle attempts to reclaim the stock’s prior uptrend. 

More than a few growth traders will have large cap biotech, Genentech (DNA) on their radar. Analysts expect .82 per share versus last year’s .68. As is typical for the company, reaction to the report will be impacted by not only the headline number, but also by how key drugs such as Rituxan and Avastin sold during the first-quarter and the company’s outlook. For its part, Lehman maintains an “Equal Weight” on shares. It’s their belief DNA is bid optimistically and sporting a premium valuation based on anticipated surprise strength from those products. DNA maintains a “Best In Group” designation for its fundamentals at IBD, while the stock forges a “short” ascending base pattern on the weekly.    

Weekly Calendar of Key Reports

Monday
Economic Consumer Credit ($6.0B)
Earnings Alcoa (AA)

Tuesday
Economic Pending Homes (-.5%), FOMC Minutes

Earnings Chattem (CHTT), Sealy (ZZ)

Wednesday
Economic Weekly Crude, Wholesale Inv’s. (.5%)

Earnings Circuit City (CC), Progressive (PGR), Shaw (SGR), Bed Bath & Beyond (BBBY)

Thursday

Economic Weekly Claims (380K), Trade Balance ($-57.4B)

Earnings FC Stone (FCSX), Pier One (PIR), WellCare (WCG), Genentech (DNA),

Friday
Economic Import / Export, Michigan (69.4)

Earnings Fastenal (FAST), General Electric (GE)

TECHNICAL PICTURE

 

Figure 1: NASDAQ 100 (QQQQ) Daily

From our last report, a described 3-Day “SPB” or simple pullback turned into a 4-Day SPB before capturing the wallets of bulls and bears. With the confirmation day for the pattern turning in the second best Q2 start in seventy years for the market, that’s not too shabby.

Entering Monday’s session, a similar situation is setting up as the market has enjoyed, depending on a trader’s perspective, three days of highly-constructive consolidation work. With the last of those sessions having followed the jobs report and what very well could have been a technical distress call in-the-making, the bulls remain in control until proven otherwise.

The VIX is one instrument to watch as a press lower into 20% would be an easy excuse for the bull to turn tail. That level hasn’t been tested since the very end of 2007. That said and as expressed most recently in the Growth Stock report, 44.50 – 45 is where determined support within the markets “confirmed rally” should hold prices in the NASDAQ 100. PS Elliott somewhat agrees, as a break of that band would generate a W4 Sell signal. Until that time or if the bull simply gets too far ahead of itself, there are plenty of good-looking bases out there to keep bulls busy in a healthy market climate.

MARKET LAB

Bullish Technicals

• FTD in place.
• Short-term mostly neutral indicators.
• PS Elliott shift of W4 Buys > W4 Sells.
• Long-term indicators unilaterally point higher per sentimentrader.com
• 20-week bull phase until late April.
• Super Bowl indicator: NFC win = +13% yearly gainer on robust 86% historical tendency.
• Jan / Feb +15 / 21 sessions with 1% or greater range in SPX historically points at gainers across all time frames, with 89% track record of yearly 16% gainer.
• AAII, Investors Intelligence, Market Vane & Consensus readings.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”
• VIX test of 200-day, Bollinger and “15% stretch.”

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum


 
The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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