Weekly Outlook: July 21, 2008
July 20, 2008
A hoisting of financial anchors on better-than-expected results and a precipitous easing of past crude realties has resulted in a confidence booster for bulls. For the five-day period, the “Naz’100 (QQQQ) and SPYder” (SPY) are up 1.12% to 1.56% on continued heavy volatility and expiration-related cheers and jeers.
THE WEEKLY NUTSHELL
- Familiar and weak gap Monday “Rally Attempt” fails. Early bullish props dedicated to Government’s three-step bailout for Freddie & Fannie (FRE, FNM), M&A news (BUD, RSG) and relative quiet in ‘da patch (USO). Bearish fade and lower unsettling prices pointed at other financial anchors still lurking / whispered (WM, NCC), disturbing (MTB) and already problematic (IMB) failure.Volatile and ultimately lower Tuesday rooted in more “F & F” related hostilities on Moody’s downgrade, Oppenheimer bombshell pointed at Wachovia (WB) and general unrest / concern over bank failures (IMB). Bernanke notes significant risks to growth and “intensified” inflation risks. PPI data looks to confirm, while retail sales data disappoints. Intraday countertrend price spikes and “hurrahs” tied to March-worthy oversold conditions and ‘bte’ reports (STT, DNA, and JNJ). WaMu (WM) defends capital position. Crude spirals lower on profit-taking / technical breakdown, easing fears of Brazilian strike and reduced Israel and Nigeria hostilities. “All is Wells” with bulls on Wednesday. Wells Fargo (WFC) beats and single-handily restores investor confidence in financials (XLF) and broader market with surprise dividend increase. Move emphasizes solid financial position despite credit crisis. Secondary drivers include further oil schnitzeling / rotating on surprise oil supply increase, $10B / 35% premium deal for Alpha Resources (ANR) and “bte” reports from Anchor Bankers (NTRS, MI and SCHW) and chip giant Intel (INTC). Rightfully lost in the bull’s newfound sense of confidence, disappointing CPI data and stale FOMC Minutes.
- A second financial rescue like the good ol’ days from the House of Morgan (JPM) and “bte” results (NOK,HOG, UTX and ITW) spearhead follow-through for market bulls. Additional ‘profit taking’ / rotation out of Black Gold, as well as better-than-feared housing data and soothing weekly claims act as solid secondary catalysts.
- Mixed Friday as financials attempt bullish trifecta on better-than-feared results from Citi (C) and news of Freddie (FRE) considering $10B secondary rather than bailout. “BTEs” (IBM, HON, SLB) and optimistic reactions (MER and COF) and steady oil also help. Bears focus on mini Tech Wreck reactions (GOOG, GILD and MSFT) to disappointing guidance and / or results.
ON TAP THIS WEEK
Financials should continue its reign as traders’ favorite reason to see better days ahead or, once more, prompt the turning of sentiment and prices for the worse. Spearheading a torrent of earnings reports from an array of industry groups is BofA (BAC) Monday morning, which should qualify as a tone setting report of notice.
Analysts expect .53 per share from the banking giant. However, traders will likely be expecting more from BofA as it follows better-than-expected results from Wells Fargo (WFC) and JP Morgan (JPM) and a better-than-feared report out of Citigroup (C). Per Briefing.com, the liquidity situation, risk weighted assets and delinquency rates in BofA’s credit card business are amongst the key factors in how traders will likely react to the release.
The economic calendar will attempt to strip the financials of some of their thunder. To close out the week, existing and new home sales and durable goods are three key reports that economic watchdogs will be on guard for. Analysts expect the combined housing data to show a decline of 1.3% as tightening credit stemming from lessons now apparently now learned but still being digested, continues to impact the worst housing market in a generation. Separately and related, a report on durable goods, which measures orders on longer-lasting products, will be closely-watched for signs of consumer strain due to the fore-mentioned slump and still fragile overall economy.
Weekly Calendar of Key Reports
Monday:
Economic Leading Ind’s (-0.1%)
Earnings BofA (BAC), Badger (BMI), Hasbro (HAS), Merck (MRK), Apple (AAPL), Forward Air (FWRD), Logitech (LOGI), SanDisk (SNDK), Steel Dynamics (STLD), Tex Inst (TXN), Woodward Governor (WGOV)
Tuesday:
Economic NA
Earnings Biogen (BIIB), Caterpillar (CAT), DuPont (DD), BJ Service (BJS), Halliburton (HAL), Jacobs (JEC), KeyCorp (KEY), Stanley (SWK), SunTrust (STI), United Health (UNH), UPS (UPS), Wachovia (WB), Broadcom (BRCM), Intuitive Surgical (ISRG), Sigma Aldrich (SIAL), WaMu (WM), Yahoo (YHOO)
Wednesday:
Economic Weekly Crude, Fed’s Beige Book
Earnings Air Products (APD), Alleghany (ATI), AT&T (T), Boeing (BA), Genzyme (GENZ), Conoco (COP), Peabody (BTU), WellPoint (WLP), Whirlpool (WHR), Agnico (AEM), Amazon (AMZN), Amerigroup (AIG), Baidu (BIDU), Chipotle (CMG), Core Labs (CLB), MEMC (WFR), Ryland (RYL), Terex (TEX), Varian Med (VAR)
Thursday:
Economic Weekly Claims (372K), Existing Homes (4.95M)
Earnings 3M (MMM), Bunge (BG), Burlington (BNI), D.O. Shore (DO), Dow (DOW), Ford (F), Invitrogen (IVGN), Kennametal (KMT), L-3 (LLL), Newmont (NEM), Potash (POT), Smith (SII), Terra Ind (TRA), Chubb (CB), FMC (FTI), Juniper (JNPR), NetLogic (NETL), Trimble (TRMB), Varian Semi (VSEA), Western Digital (WDC), Wynn (WYNN), YRC Worldwide (YRCW)
Friday:
Economic Durable Orders (0.1%), Michigan, New Homes (505K)
Earnings Arch Coal (ACI), Barnes (B), Black & Decker (BDK), Ceradyne (CRDN), Coventry (CVH), Fortune Brands (FO), Netflix (NFLX), T.Rowe (TROW)
TECHNICAL PICTURE
Figure 1: S&P500 (SPY) Weekly
From a “sick and twisted oversold” condition worthy of a panic low, the bulls are now two days into a head-butting situation against technical resistance within a still-qualified bear market. That being said, shorting opportunities abound for those bears looking for less-risky position reloading and a likely good spot for bulls looking to schnitzel a little appears appropriate.
Longer-term, this corner has turned cautiously bullish. Bottom-line, indicators by and large point at last week’s early cleansing as being sufficient for an actual intermediate bottom. But, in considering the short-term percentage rally and one heavily-aided by short-covering and expiration week machinations: a follow-through day signal (higher volume percentage thrust) in one or more of the broader averages is desperately needed. Should that technical event confirm the low this week, directional traders will have much stronger evidence of last week’s reversal being something other than a bull trap and one worthy of intermediate-minded positioning.
MARKET LAB
Bullish Technicals
- Extreme indicator action worthy of intermediate low being established.
- Day 3 and 4 of rally attempt count with “FTD” typically days 4 – 7.
Bearish Technicals
- Bear Market.
- Slightly overbought market and technical overhead tested.
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 122.50, 120 - 121 | 126 – 127, 129 – 131.50 |
NASDAQ100 | (QQQQ) | 43.25 – 44.25, 41 | 45.75 – 46.25, 47 - 48 |
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.
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.