Earnings season turns up the heat this week as bulls bounce back Friday and reclaim control of the technical picture. For the weekly period the SP-500 (SPY) is up a rather ho-hum 0.16% in anything but doggish and lazy summer conditions as an uptrend reasserts itself off key support and a six day pullback.

THE WEEKLY NUTSHELL

• “Monday Mourning, Monday Mooing.” SP-500 challenges Friday’s key lows with further testing of 10SMA in first half before staging second half reversal to close off 0.16% in three day simple pullback pattern with hammer finish. Spurring bulls’ out-the-gate, core machine orders for Japan tumble 14.8% versus 3.3% forecast, triggering continued global growth concerns following Friday’s weak nonfarm payrolls data. Report and attached bearish sentiment assist Spain’s 10-Yr yield to climb back above 7.0%. Earnings season on tap with Alcoa (AA) kicking things off finds shares under modest pressure in front of report. Wellpoint (WLP) announces 42% premium, $4.9B cash takeover of managed healthcare provider Amerigroup (AGP).  
• “Terri-bull Tuesday.” SP-500 slumps 0.81% in an engulfing bearish candle while breaking 3-Day Simple Pullback pattern defined by 10SMA support. Early and rather solid gain and upside confirmation for bulls assisted by EU’s EUR30.0B recapitalization for Spain’s banks and widening trade surplus data out of China. For the bears, weak import growth within China’s trade surplus, weak EUR/USD as German lawmakers tackle legal compatibility of ESM bailout fund, warnings from semis (SMH) Advanced Micro (AMD) and Applied Materials (AMAT) and industrial giant Cummins (CMI) act as drags during second half. Alcoa (AA) kicks off earnings season unofficially with less-than-supportive “low bar” profit match of $0.08 per share and reaffirmed FY12 aluminum demand forecast.
• “Hedge Hog Wins-Day.” SP-500 finishes at 0.00% in volatile round turn testing of 50SMA. FOMC Minutes act as primary driver to downside which puts the SP-500 under pressure by 0.75% as report show little member support for more quant easing. However, technical pierce of the 50SMA with failure to break decisively incentivizes bargain hunting reversal bid from bulls. Report’s notice of “further policy stimulus likely would be necessary to promote satisfactory growth” and Fed needing to study “new tools” for easing possibly assist. Out-the-gate and background supports, Spain’s PM announced fresh austerity measures to cut its deficit by EUR65.0B with tax hikes and reduced spending at the heart of the plan. China’s Premier suggests reasonable growth in investment is important. May wholesale inventories increase by in-line 0.3%. Larger-than-forecast weekly draw of 4.7M barrels helps black gold (USO) to 2.60% gainer with influential energy service sector (OIH, XLE) in tow.
• “Hammer Time Thursday.” SP-500 closes off 0.50% on heavier volume, but reclaims 50SMA support by session end in potential bullish hammer and six days of lower lows. Goading bulls into further selling in first half, “We want more!” vote by investors following Wednesday’s FOMC minutes and no stimulus move from China, while Bank of Japan increases its asset purchase program but cuts GDP forecast by 10bps. Swept off the radar (initially at least), weekly claims beats views as filings fall convincingly to 350K from 376K. Import and export prices both fall in June by 1.4% and 0.3% respectively. EUR/USD hits fresh lows and Spain (EWP) dips 2.25% on concerns of policymakers failing to act strongly enough. Naz’ 100 constituent and IT Services shop Infosys (INFY) sheds 11% after its penny miss and reduced FY13 sales outlook.
• “Stimulating Friday the 13^th for Bulls.” SP-500 cruises 1.70% higher to confirm six day pullback as uptrend channel support. Bid driven by financial relief from better-than-expected and/or feared corporate confessionals from Anchor Bankers (XLF, GS, BAC) JPMorgan (JPM) and Wells Fargo (WFC). Also, narrow 0.1% miss and three year low for China’s Q2 GDP which shows 7.6% growth and stabilizing 9.5% industrial production data has bulls eyeing additional central bank stimulus. Being dismissed or all the more reason to see global policymakers taking action, Moody’s downgrades Italian debt two notches, while Michigan consumer sentiment comes in short of estimates at 72.0 versus 73.5 and PPI data runs at a hotter than forecast but tame 0.1%.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: Retail Sales (0.2% & 0.1% ex-auto), Empire (3.8), Business Inventories (0.2%). Ongoing wildcard Eurozone credit markets.

Earnings: Citigroup (C), Gannett (GNI).

After Hours: Cintas (CTAS), JB Hunt (JBHT).

Tuesday:
Economic: CPI & Core (0.1% & 0.2%), IP & CU (0.3% & 79.2%), NAHB (30).

Earnings: Coke (KO), Goldman (GS), J & J (JNJ), M & T (MTB), Mosaic (MOS), State Street (STT).

After Hours: CSX (CSX), Intel (INTC), United Rentals (URI), Wynn (WYNN), Yahoo (YHOO).

Wednesday:
Economic:  Housing Starts & Permits (743K & 765K), Fed’s Beige Book.

Earnings: ASML (ASML), BofA (BAC), BlackRock (BLK), Stanley B & D (SWK), US Bank (USB).

After Hours: Amex (AXP), eBay (EBAY), F5 (FFIV), IBM (IBM), Noble (NE), Qualcomm (QCOM), Skyworks (SWKS), SLM (SLM), Stryker (SYK), Xilinx (XLNX), YUM! (YUM).

Thursday:
Economic:  Weekly Claims (365K), Continuing Claims (3.3M), Philly Fed (-10.0), Leading Indicators (-0.2%).

Earnings: AutoNation (AN), Danaher (DHR), Fifth Third (FITB), Genuine Parts (GPC), Johnson Controls (JCI), Morgan Stanley (MS), Philip Morris (PM), Safeway (SWY), Sherwin W (SHW), Travelers (TRV), UnitedHealth (UNH), Union Pac (UNP), Verizon (VZ).

After Hours: Capital One (COF), Chipotle (CMG), Google (GOOG), Intuitive Surgical (ISRG), Microsoft (MSFT), SanDisk (SNDK).

Friday:
Economic: NA.

Earnings: Baker Hughes (BHI), General Electric (GE), Ingersoll (IR), Schlumberger (SLB), Vodafone (VOD), Xerox (XRX).

TECHNICAL OUTLOOK

Figure 1: SP-500 ($SPX) Daily Chart

Four straight sessions last week to combine for a grand total of six lower lows quickly resolved itself as a confirmed uptrend on our daily chart in Figure 1 for the SP-500. The price action allowed a lower channel to continue its development as a third pivot low formed cleanly relative to last week’s drawn support line drawn from a discretionary first pivot using the oversold doji close from June 4 and a second pivot borrowing the intraday lows from late June.

Entering Monday, with Friday’s brawny price gains in place, the 1333 level becomes, in our opinion, a major level of support not to be broken for bulls. The “double level” from the March 2009 bottom now also incorporates the 30 and 50SMAs, as well as channel support, which makes its ability to hold, a critical-looking one.

In giving bulls technical leeway of around 1.7% from Friday’s close, we would stress not chasing potential further gains if the VIX ($VIX) breaks cleanly below 16% and becomes stretched below its 10SMA by 15% or more due to the sentiment index signaling too much likely complacency. That kind of aggressive behavior of course sets itself up for a bearish reversion back towards the mean. On the downside, we’d also consider possibly tightening key support to about 1340 based on last week’s trio of open and closes near that level and in trying to follow the upchannel’s slope with the passage of time.

MARKET LAB
Bullish Technicals

• 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 3 point uptrend off corrective lows in SPX.

Bearish Technicals

• Fibonacci based butterfly completion around test of 1400.
• SP-500 weekly downtrend established entering Worst Six period.
• Historically weak June and July FTD signals.
• Quick to hit distribution days following second FTD signal.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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.