Record-breaking crude realities and financial anchors have the bulls’ schnitzeling a little from the market’s best levels since January. For the five-day period, the Naz’100 (QQQQ) and “SPYder” (SPY) are off 1.13% to 1.85% on distribution and some well-deserved profit-taking.  

THE WEEKLY NUTSHELL

Highlights for the confirmed rally’s bull continuing:

• Despite scary-sounding report and forecast, homebuilder Hovnanian (HOV) finds a bid. WSJ reports Deutsche Telecom (DT) interested in acquiring wireless operator Sprint (S).
• Tuesday’s early noise-maker, Fannie Mae (FNM) enjoys “news reversal” response on wider loss, dividend cut of .10 and raising $6B in capital. DR Horton (DHI) second-straight builder to tack on gains despite early woes. In total, climbing a wall of worry and accumulation day is the net result.First half strength Wednesday enjoys better-than-expected report on productivity (2.2% vs. 1.5% est.) and easing unit labor costs. Weekly mortgage applications see strong increase. Report of $14.5B WiMax network involving tech heavies. Disney (DIS) enjoys investors putting on the bull costume following its profit beat and optimistic outlook. Cash indices cling to fractional gainers Thursday. Out-the-gate cheerleading for positive same-store sales data at Wal-Mart (WMT), Costco (COST), Target (TGT), Kohl’s (KSS) and JC Penney (JCP). That being said, a final score heavily favoring the bears is apparent. Fifth straight crude jump spooked, but 2% to 2.75% gainers for the energy complex (XLE, OIH) keep investors looking confident. Weekly claims ease and below estimates. Friday’s easing trade deficit report, Activision’s (ATVI) “game the bears” bid and Priceline’s (PCLN) “The Shat” with bulls after beating estimates and guiding higher.

Highlights for keeping bears and cautious bulls in the mix:

• Noise of Microsoft (MSFT) pulling out of talks with Yahoo (YHOO). Broker doom and gloom writedown forecast for Dow components AIG (AIG) and BofA (BAC). Buffett warns of recession, housing market and banks as still in trouble and 64% net income decline for his Berkshire (BRK.A). Nigerian escalations and stiffening Greenback push crude up by more than 3% for second-straight day, causing more pump talk and investor concern.
• Financial drags Tuesday include rehashed BernankeSpeak on housing, UBS’ (UBS) wider loss and job cuts and Legg Mason’s (LM) first-ever quarterly loss. US Oil fund (USO) up for third-straight session on usual suspects and Goldman’s “Super Spike” forecast.Wednesday’s distributive reversal of faith and face spearheaded by fourth session of gains for crude on distillates drawdown. Separately, SEC announces new disclosure requirements for investment banks, sending financials (XLF) sinking lower and broader market following suite. Cisco (CSCO) offers cautious in-line guidance. Wider-than-prepped loss at AIG (AIG), asset sale at peer Citigroup (C) and yet another record for oil, but without the benefit of energy complex leadership.

ON TAP THIS WEEK

Immediately after Friday’s regular session close, economic barometer FedEx (FDX) confirmed some of traders’ fears over corporate profits being impacted by the pump. The global air and ground delivery goliath warned its fourth-quarter earnings are likely to fall well-below current Street estimates. Additionally, management said profit damage could worsen should energy prices continue to rise and in the direction of Goldman’s “Super Spike” proclamation made last week. In After Hours trading, shares of FDX lost roughly 3.5%.

For those taking the pulse of the market via the heavily-weighted, Wal-Mart (WMT) could be putting “smiley faces” or potential frown lines on investors. The retail giant reports Tuesday morning. Having recently hit four-year highs, the company, as well as shares, have benefited from the slowdown in the economy, as consumers find themselves gravitating towards staple purchases. First Call expects WMT to report earnings of .75 per share versus .68 per share from the year-ago period. Also likely to set the tone during the week, machinery giant Deere (DE) Wednesday morning and the trio of computer goliath Hewlett Packard (HPQ) and retailers JC Penney (JCP) and Nordstrom (JWN) on Thursday will all report their results.

Earnings hounds might also find clues as to whether the bulls can handle the bears by watching the state of growth stocks, as well as some sub-sector analysis. One stock of potential notice to growth traders will be Nuance Communications (NUAN). The highly-ranked stock has re-emerged in recent months as a technically and fundamentally strong story. Analysts expect the company to earn .18 per share versus last year’s profits of .05 per share. In front of the report, shares are carving out a handle within a deep “V-shaped” cup base.

Another spot which could influence how those same traders approach the current pullback in the broader averages is the solar arena. Both highly-ranked and currently soured but past favorites such as JA Solar (JASO), LDK Solar (LDK), Canadian Solar (CSIQ), HOKU Scientific (HOKU), Applied Materials (AMAT) and Yingli Green (YGE) all report throughout the five-day period.

Elsewhere, for economic watchdogs and as FedEx can attest too, the sometimes crude realities of Black Gold will continue to impact conditions. Of course, when weighing investor sentiment, the US Dollar and the whereabouts of the influential energy complex (XLE, OIH); interpreting (ahead of time) the daily meaning of what’s actually good or bad for the broader market, can be a difficult affair.

On the officially-sanctioned front, reports will once more take on increased importance with traders. One likely highlight will be retail sales, an expected market mover Tuesday morning. Wall & Main will be looking for clarity as to how consumers are spending or crimping away from the pump. Separately, prices at the consumer level come into focus Wednesday as the CPI and core are reported. And on Thursday, regional manufacturing conditions will be factored in with the Empire Index and Philly Fed. The most recent reports have begun to show signs of some stabilization. Hence, it’s not a stretch to think the bulls will be anxious to find further confirming evidence to support the market.  

Weekly Calendar of Key Reports

Monday
Economic: Treasury Budget ($157.5B)
Earnings: CryptoLogic (CRYP), Holly (HOC), Hecla (HL), JA Solar (JASO), MBIA (MBI), Sprint (S), XM Satellite (XMSR), Clearwire (CLWR), Fluor (FLR), LDK Solar (LDK), Time Warner Tcom (TWTC), McDermott (MDR), Nuance (NUAN)

Tuesday
Economic: Import / Export, Retail Sales (0.0%, .2%), Biz Inventories (.5%)
Earnings: Camico (CCJ), Canadian Solar (CSIQ), DISH (DISH), Fossil (FOSL), GigaMedia (GIGM), HOKU (HOKU), Liz Claiborne (LIZ), TJX (TJX), VeraSun (VSE), Wal-Mart (WMT), Applied Materials (AMAT), Electronic Arts (ERTS), Home Inns (HMIN), MercadoLibre (MELI), Pan Am Silver (PAAS), Whole Foods (WFMI)

Wednesday
Economic: Weekly Crude, CPI & Core (.3%, .2%)
Earnings: Deere (DE), Diana Ship (DSX), Freddie (FRE), Jack Box (JBX), Macy’s (M), Agilent (A), Brocade (BRCD), Ctrip.com (CTRP), Sina (SINA), Teekay (TK)

Thursday
Economic: Weekly Claims (365K), Empire (1.0), CU & IP (80.2%, -.2%), Philly Fed (-20)
Earnings: Blackstone (BX), Blockbuster (BBI), Daimler (DAI), JC Penney (JCP), Urban Outfitters (URBN), Yingli Green (YGE), Autodesk (ADSK), BMC (BMC), Focus Media (FMCN), Hewlett Packard (HPQ), Nordstrom (JWN), Salesforce (CRM)

Friday
Economic: Housing Starts & Build P’s (940K, 912K), Michigan (63)
Earnings: Abercrombie (ANF)

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Weekly

Last week’s Technical Picture and its emphasis on daily chart overhead resistance in the S&P 500 (SPY) served bulls well, all things considered. That being said, and after five sessions of mostly pulling back from overbought short-term readings, it would be a reasonable assumption to think it’s time to cozy back up to the intermediate uptrend. However, as written about in more recent commentaries such as HOTSHOTs, for this market observer an eye-opening epiphany via the weekly chart is stressing caution.

Shown above, the weekly picture shows a rising wedge pattern within an uptrend that’s been mostly a pleasant affair the last four or five weeks. The reason for giving more emphasis to the bearish wedge pattern at this juncture is some of our recent intermediate supports such as the 20-week bull cycle and a Super Bowl Rally (mostly factored in percentage wise) have been fulfilled. Additionally, fresh factors such as the “sell in May” historic tendency, an eight-week up cycle from the March lows and six-month lows in the VIX all work towards a more neutral-minded approach.

Entering Monday, should the 50-Day Moving Average be afforded a test this week as prices work their way lower by 1.5% to 3%, traders would be presented a good opportunity. “Good opportunity” is all relative of course. But, on a risk-to-reward basis, with a leaner and more likely, bit meaner bull being served, it wouldn’t take much to realize if the current confirmed rally has real legs to stand on.

MARKET LAB

Bullish Technicals

• FTD in place, confirmed uptrends NDX, SPX & DJ-30.
• Consensus survey.
• Five-day pullback offers neutral to short-term oversold conditions.

 
Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”
• 20-week bull phase until late April.
• Sentimentrader.com Dumb $$ cross.
• VIX test of December lows.
• “Sell in May” market lore tendency.
• 8-week cycle off March lows.
• AAII Sentiment Survey.Distribution count one month @ four days for SPX. Concern over consistency of growth triggers out of bases.

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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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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