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Strong session Friday unable to completely erase bearish week. The major market indices all fell on the week, with the Dow ($INDU) down just 0.27 percent; the S&P 500 ($SPX) off 0.46 percent and the Nasdaq ($COMPQ) declining 1.54 percent. The fear indices actually fell as well with the CBOE Market Volatility Index ($VIX) down 3.54 percent and the CBOE Nasdaq Volatility Index ($VXN) off 0.62 percent.

Last week was an interesting one with a lot of volatility despite little net movement. Triple digit moves for the Dow were common this past week due to large swings in oil prices. Crude prices moved as low as $112 and as high as $121, ultimately closing the week at $114.59. On Friday alone, oil prices fell $6.59 a barrel on strength in the dollar.

Stocks rallied to end the week following comments from Fed Chairman Bernanke. Mr. Bernanke noted that economic growth will be below trend into 2009, but also stated that he expects inflation pressures to ease. This news sent oil prices lower and rallied stocks, although the Fed Chairman noted his concern with problems in the credit markets. This coming week will be full of economic news that could influence stock prices.

Weekly Calendar of Key Reports

Monday:
Economic Existing Home Sales (4.94M)
Earnings China Netcom (CN), CPI Corp (CPY)

Tuesday:
Economic Consumer Confidence (53.0), New Home Sales (525,000), FOMC Minutes
Earnings American Eagle Outfitters (AEO), Big Lots (BIG), Borders Group (BGP), Daktronics (DAKT), Dycom (DY), J Crew Group (JCG), Rio Tinto (RTP)

Wednesday:
Economic Weekly Crude, Durable Goods Orders (0.1%)
Earnings Dollar Tree (DLTR), Fuelcell Energy (FCEL), Jo-Ann Stores (JAS), Mens Wearhouse (MW), Talbots (TLB), Tivo (TIVO)

Thursday:
Economic Weekly Claims (427K), GDP (2.7%)
Earnings Aruba Networks (ARUN), Del Monte Foods (DLM), Dell (DELL), Dollar Financial (DLLR), Freds (FRED), Gnensco (GCO), Gerber Scientific (GRB), Kirklands (KIRK), Marvell Tech (MRVL), Novell (NOVL), Petsmart (PETS), Sears (S), Tiffany & Co (TIF), Williams Sonoma (WSM), Wind River Systems (WIND)

Friday:
Economic Personal Income and Outlays (-0.1%), NAPM-Chicago (49.8), Consumer Sentiment (62.0)

Earnings

Earnings could impact individual stocks, but there are very few key reports on tap. Retailers will continue to be in the spotlight with the S&P Retail Index ($RLX) approaching resistance at 400. The index did move above its 200-day moving average last Friday, closing at 397.64. However, 400 has rejected the index several times in the past few weeks. Overall, consumer spending has held up much better than one would expect given weakness in housing, a soft labor market and elevated energy prices. Many retailers have provided better than expected quarterly results, but have cautioned that the current economic environment is a difficult one.

Oil prices have fallen off their highs a few months ago above $147, but declines have failed to break below the key $110 level. Demand is easing, which has pushed crude prices lower, but maybe the biggest impact on oil prices has been strength in the dollar. Dollar denominated assets are impacted by moves in the currency. Consumers are impacted by oil prices in many ways including sentiment, which can impact spending. When gasoline prices at the pumps decline, it improves sentiment and this normally leads to increased spending.

Financials will continue to be a major focus of traders and the Fed this week. Fannie Mae (FNM) and Freddie Mac (FRE) have been a huge story of late on concerns the mortgage financers will be bailed out by the U.S. government. The problem is that this bail out will not include shareholders and this has pushed these two stocks down sharply with FNM at $5.00 and FRE trading at $2.81. Lehman Brothers (LEH) was in the news last week as well following reports Korea Development Bank was interested in buying the financial giant. Despite gains for LEH Friday due to this news, the stock is down 80 percent this year, which unfortunately is common for financial stocks.

The Dow broke above its 50-day moving average last Friday, so it will be interesting to see if this break holds to start the week. This moving average hasn’t really had much of an impact on the Dow and the 200-day moving average is much higher overhead at 12,400. The SPX is in a similar situation, trading above its 50-day moving average, but seeing resistance at 1,300 with its 200-day moving average at 1,360.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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