Investor attention turns towards earnings season but can it counter a back-at-work bear following Friday’s dismal jobs data? For the weekly period the SP-500 (SPY) is off 0.51% and in need of some financial or technical fireworks to keep a nascent bull in good standing.
THE WEEKLY NUTSHELL
- “Poof-It Taking Monday.” SP-500 experiences modest bout of first-half profit-taking as weaker-than-forecast and surprise drop into contraction territory for June ISM manufacturing data [49.7 vs. 52.2] attempts to rattle Friday’s 2.50% gainer and test of June highs. Alarming color coating of report reveals first drop below 50 since mid-2009 and largest drop in new orders since 2001 and allowing “R” word or recession to be heard from chirping Street canaries. EU jobless rate inches higher to 11.1% also providing profit-taking incentive after Friday’s over-the-top “Summit” bid. Secondary better-than-expected 0.9% increase in construction spending versus 0.2% estimate receives little attention, as does mostly priced in / in-play “Merger Monday” (LNCR, QSFT, CELL, AMLN, BBY) activity. First of month inflows and seasonal holiday tendencies likely assist bulls in picking up bootstraps to secure equally mild closing doji gainer of 0.25% around June key pivot high as VIX ($VIX) puts in doji “near stretch” 12.5% 10SMA differential.
- “Fireworks Tuesday.” SP-500 gains another 0.62% on pre-holiday bias with better-than-forecast 0.7% increase in factory orders versus 0.4% consensus and massive gap gainer of 4.8% in black gold (USO) tied to at-risk crude shipments for China from Iran following freight disputes and building concerns of Iran blocking Strait of Hormuz which in turn assists energy sector (XLE, OIH) to provide technical leadership for bulls despite bearish economic implications. China’s non-manufacturing PMI hits three month high and buzz of additional reserve requirement cuts by China’s central bank also support Tuesday’s bid.
- “July 5 Financial Fireworks Dud.” SP-500 finishes off 0.47% in inside reversal pattern on varied monetary action from across both ponds and mixed stateside economic data. For the bulls, ADP data proves much stronger than forecast with gain of 176K versus estimated job creation of 105K. Weekly claims dip desirably to 374K versus 385K consensus and prior 388K reading. China surprises with speed of second 0.25% interest rate cut in less than a month. For the bears, as expected but “not enough” reaction to ECB’s 0.25% cut to record low 0.75% and BoE’s asset purchase expansion as EUR/USD craters 1.17%, while Italy (EWI) and Spain (EWP) gap lower to sharp losses of around 4.75%. ISM Services data falls to 2.5 year low of 52.1 compared to 53.0 estimate and May’s 53.7 reading. June same-store comps show meager 0.1% increase versus 0.5% estimate as two-thirds of 20 store roster (COST, TGT and BKE) miss.
- “Fry-Day for Bulls.” SP-500 cracks immediate support of 1364 and prior June highs after surprisingly weak BLS jobs report of 80K versus 100K forecast. Private payrolls similarly soft. May data for overall payrolls sees modest upward revision, while unemployment remains at 8.2% and matching Street views. Large cap tech warnings from Informatica (INFA) and Seagate (STX) also act as early drags with former citing “the changing macroeconomic environment, especially in Europe.” Overseas disappointment to jobs report sees EUR/USD slumping to retest of critical June 1 pivot low. Black gold (USO) sees “demand-related” sympathy pressure of 3.16% to fill in bullish price spike gap from Tuesday.
WEEKLY CALENDAR OF KEY UPCOMING EVENTS
Economic: Consumer Credit. Ongoing wildcard Eurozone credit markets.
Earnings: Aluminum outfit and Dow constituent Alcoa (AA) unofficially kicks off the Q2 earnings season after the close. Analysts expect profits of $0.06 per share compared to the prior year’s $0.32 per share on revenues of $5.82B. Technically, PS Elliott is flashing mixed signals with AA nearly triggering a daily chart W4 EBOT sell. Longer-term, a nine-month double / triple bottom has completed its fifth wave and produced an EBOT buy signal.
Earnings: Shaw (SHAW), Wolverine (WWW).
After Hours: ADTRAN (ADTN).
Economic: Trade Balance (-$48.9B), Wholesale Inventories (0.3%), FOMC Minutes.
Earnings: Marriott (MAR).
Economic: Weekly Claims (375K), Continuing Claims (3.3M), Import / Export, Treasury Budget.
Earnings: Fastenal (FAST), Infosys (INFY), Progressive (PGR).
After Hours: Google (GOOG).
Economic: PPI & Core (-0.6% & 0.2%), Michigan Sentiment (73.5).
Earnings: JPMorgan (JPM), Wells Fargo (WFC).
Figure 1: SP-500 ($SPX) Daily Chart
Last week we discussed at length the market’s “EU Summit and end-of-quarter” inspired follow-through day “FTD” signal for bulls. A determined suspect FTD managed to eke out a higher high to confirm an uptrend channel off the June corrective low and presumably adds a bit more support for the bull case with its defined series of higher highs and higher lows. Also supportive in our view, the VIX ($VIX) managed only a matching test of Thursday’s highs and its 10SMA before reversing to close slightly lower and back near 17%.
Impressively, traders confidently, but not complacently opted to sell premium in front of the weekend despite Friday’s jobs-related weakness in the broader market and ongoing credit market uncertainties with the EUR/USD testing its critical June pivot low. Entering Monday and to further establish the bull case, ideally we’d like to see Friday’s lows hold which found the ETF (SPY) just breaching the FTD low, as well as a mid-channel line shown in Figure 1.
Not surprisingly, there are “key” supports not far removed from those lows. Both the 10 and 50SMA could quickly be in play and then the “double” level of 1333 from the March 2009 bottom and now up-channel support might also be seen as critical. However, we’d prefer not to get into serial bottom-picking and looking too aggressively at every push lower as automatically being a buying opportunity. If fear levels justify such contrary optimism via the VIX, we’d reconsider. Barring that type behavior though, distribution so close to a FTD signal coupled with historically weak June and July signals and the seasonally bearish “Worst Six” period dictate not buying into the bull wholeheartedly.
- First Week Effect 2012.
- Corrective “closing” low into key 1278 – 1300 support for SPX.
- 8-week correction with weekly Kings & Queens candle reversal low pattern.
- Second FTD signal Friday 6.28.12.
- VIX back into historically “normalized” levels.
- Established uptrend off corrective lows in SPX.
- Fibonacci based butterfly completion around test of 1400.
- SP-500 daily downtrend established entering Worst Six period.
- Historically weak June and July FTD signals.
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