Weekly Outlook, June 9
June 9, 2008
Bears look to extend their control of the markets this week with data on inflation and retail sales on tap. The major market indices all took hits this past week: Dow ($INDU) -3.39%, S&P 500 ($SPX) -2.83%, Nasdaq ($COMPQ) -1.91%. Fear soared during the week as well with the CBOE Market Volatility Index ($VIX) up 32.14% to 23.56 and the Nasdaq Volatility Index ($VXN) gaining 24.89% to 26.04.
Oil prices soared during the week with the commodity gaining more than $11 on Friday alone. Prices hit an intraday high of $139.12, ultimately closing the week at $138.54 a barrel. Worries about possible attacks by Israel on Iranian nuclear installations and bullish comments about oil prices at Morgan Stanley led to the sharp rise in prices. Morgan stated that oil prices could hit $150 by the first week of July.
Oil prices did have a hand in Friday’s 300 plus point drop for the Dow, but the employment report was a major factor as well. Nonfarm payrolls did fall less than expected, down 49,000 compared with estimates for a decline of 60,000. However, this data wasn’t what garnered the attention with the unemployment rate grabbing the spotlight. The unemployment rate was expected to rise a tenth to 5.1 percent, but actually spiked 5-tenths to 5.5 percent. It had been 23 years since the unemployment rate had jumped at least half a percentage point in one month’s time.
ON TAP THIS WEEK
Besides keeping a close eye on oil prices, traders will also get some important economic data. The Fed is trying to keep the economy from falling into a recession, while simultaneously keeping a close eye on pricing pressures. Data this week will provide some further insight, especially the retail sales report on Thursday and the CPI on Friday. The fact is that despite widespread calls that the U.S. economy would officially enter a recession, recent data has provided a less bearish outlook. Bullish traders would like to see the CPI show benign pricing pressures with consumer spending solid. The chain store sales data released last week was definitely better than expected, raising hopes for solid retail sales. However, economists wonder if spending will continue longer term after rebate checks are a thing of the past.
Weekly Calendar of Key Reports
Monday
Economic: Pending Home Sales Index
Earnings: Krispy Kreme Doughnut (KKD), Ashworth (ASHW)
Tuesday
Economic: International Trade ($-59.5B)
Earnings: Pep Boys (PBY), Sonic Solutions (SNIC)
Wednesday
Economic: Weekly Crude, Beige Book, Treasury Budget ($-155.0B)
Earnings: Casey’s General Store (CASY), Cybertronics (CYBX), Piedmont Natural Gas (PNY)
Thursday
Economic: Weekly Claims (365K), Retail Sales (+0.5%), Import and Export Prices (+2.0%), Business Inventories (+0.3%)
Earnings: Capstone Turbine (CPST), Catalyst Semi (CATS), Finisar (FNSR)
Friday
Economic: Consumer Price Index (+0.5%, +0.2%), Consumer Sentiment (59.8)
Earnings: N/A
TECHNICAL PICTURE
The fear indices broke above resistance levels this past week, which could lead to some further gains. This means that we could see some further selling in stocks. Both the VIX and VXN moved above their 200-day moving average for the first time in two months. At the same time, the Dow continues to move further below both its 50-day and 200-day moving averages. This means the Dow could now move to support between 11,800 and 12,000.
The Naz has been holding up better than blue chips with the index still above its 50-day moving average. In fact, the Naz is still holding above support at 2,450. Eventually something will have to give with the 50-day and 200-day moving averages narrowing. The daily chart of the SPX is similar to the Dow, so it will be interesting to see if the Naz can hold up the broader market or if the Naz is brought down to meet the other indices.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Jody's Forum
Email This Article
View Full HTML
Digg This
Delicious
Subscribe© Copyright 1995-2010 Optionetics. All rights reserved. This material is for personal use only. Republication and re-dissemination, including posting to newsgroups, is expressly prohibited without the prior written consent of Optionetics. Optionetics is a registered trademark of Optionetics, Inc.