Bulls set their sights on global monetary stimulus and learn a couple technical tricks to combat doggish behavior in front of the Fed. For the five day period the SP-500 (SPY) is up 1.71% in anything but lazy, dog days of summer fare as bulls claim fresh highs within a volatile uptrend.
THE WEEKLY NUTSHELL
- “Monday Mourning.” Continued Spanish credit market inquisition and escalating Debt PIIGS risks send bulls scurrying into bearish opening gap of nearly 2.0% in SP-500 before finishing off 0.88% after test of channel and 50SMA support in bullish hammer formation. In the spotlight, Spain’s Murcia region may seek aid helping send yields on 10-Yr to record highs near 7.5%. Germany’s Der Spiegel says IMF readying to pull plug on Greek aid raising the specter of default in front of meeting between Troika and Greece to examine progress on existing bailout conditions. Spain and Italy implement short selling ban. McDonald’s (MCD) gets fried by 2.88% after six cent profit miss and light revenues tied to global headwinds and rising costs. In passing, Canada’s Nexen (NXY) is ready to walk down the aisle with China-based energy giant CNOOC (CEO) for $15.1B. NRG Energy (NRG) spikes up by 8.14% following acquisition of GenOn Energy (GEN), reaffirmed guidance through 2014 and first-ever quarterly dividend of $0.09. VIX ($VIX) soars 25% intraday to test 20% and 50SMA in largest price spike of 2012 before settling up 14.44% at 18.60% in fearful short-term stretch relative to 10SMA.
- “Hammer Time Tuesday.” SP-500 breaks Monday’s hammer low while finishing off very similar 0.90% in a second, late day quick-to-develop hammer off “fresh” support of 50SMA but in more suspect and fearful uptrend. Behind the distributive selling pressure, Moody’s “negative watch” for Germany, Luxembourg and Netherlands “AAA” ratings. Worse-than-forecast contraction reading in German PMI data and on-the-mend but still weak 49.5 HSBC flash PMI out of China. Final hour buzz of Fed considering action in its August or September meeting per the WSJ reverses SP-500 off session lows and piercing of 50SMA to cut losses nearly in half. VIX finishes up nearly 10% and back above 20% and prior session highs in second session sporting a fearful short-term overbought differential.
- “Make or Break Wednesday.” Despite one bad Apple (AAPL) missing, warning and seeing a gravitational pull of -4.32%, SP-500 manages a flat doji, inside candle finish off 50SMA support. Caterpillar (CAT) finishes up 1.44% but roughly 3% from out-the-gate highs as profit beat and guidance lift are tempered by management’s warning of familiar and undesirable weakness in US, Europe and China. Semis (SMH) display relative strength on the back of better-than-expected results from Altera (ALTR) and Broadcom (BRCM). Tech also receives lift in the face of Apple’s disappointment from strong and well-received reports out of Symantec (SYMC) and Juniper (JNPR). Relative quiet across-the-pond leads to modest bargain hunting in EUR/USD and country indices (EWG, EWP and EWI). New home sales see trimmed down, below views result of 350,000 vs. 373,000 estimate. The US Oil Fund (USO) finishes flat after pressured first half on surprise inventories spike of 2.7M barrels compared to estimated draw of 1.0M. And gold (GLD) finds 1.4% bid and first move above 50SMA in three weeks as expectations for Fed stimulus increase.
- “Follow-Through Thursday.” Bulls triumph with 1.65% heavier volume gain in SP-500 after surprise ECB Prez’ Draghi holds court with message of its constituents “sharing national sovereignty to come” and policymakers standing “ready to do whatever it takes to preserve the Eurozone” from collapse. Gains driven by equity bids overseas (EWP, EWI, GREK and EWG) and spike in EUR/USD. US data comes in mixed with total durable goods topping views with 1.6% increase versus 0.3% but ex-transport seeing a troubling 1.1% decline compared to modest 0.1% uptick forecast. Weekly claims soothe with 35K drop to 353K, but pending home sales fall unexpectedly by 1.4% versus 0.9% consensus increase.
- “Fry-day for Bears.” SP-500 tacks on additional 1.91 to bring weekly tally to 1.71% and fresh intermediate highs as momentum chasers fearful of missing out become increasingly convinced of global monetary stimulus waiting in the wings. Shared dialogue from Germany’s Merkel and France’s Hollande stating the Europe’s largest economies are committed to keeping the Euro together and reports of the ECB readying to purchase debt drives bulls higher out-the-gate. Technical breakout for EUR/USD underpins market, while Euro country ETFs assist with strong gains of 2.5% to 5%. “Have their cake and eat it too” optimistic mindset allows stronger-than-expected 1.5% increase for Advance Q2 GDP to “stimulate” bulls. Consumer Sentiment shows modest 0.3 uptick to 72.3 versus flat 72.0 forecast. Afternoon reports citing ECB’s Prez’ Draghi is mulling bond purchases, cutting rates and new LTRO program spur bulls to additional gains and close Friday’s session near their highs.
WEEKLY CALENDAR OF KEY UPCOMING EVENTS
Economic: NA. Bulls currently in control of Eurozone drivers with belief in aggressive global stimulus measures imminent.
Earnings: Arrow (ARW), CNA (CNA), Franklin Resources (BEN), Roper (ROP), UDR (UDR).
After Hours: Anadarko (APC), Fiserv (FISV), Herbalife (HLF), Jacobs (JEC), Seagate (STX).
Economic: Income & Spending (0.4% & 0.1%), Case Shiller (-1.8%), Chicago PMI (52.5).
Earnings: Aetna (AET), Archer D (ADM), BP (BP), Coach (COH), Deutsche (DB), Foster Wheeler (FWLT), Goodyear (GT), TRW (TRW), Tyco (TYC), US Steel (X), UBS (UBS), Valero (VLO).
After Hours: Allstate (ALL), BMC (BMC), FMC (FMC), Life Tech (LIFE), Ternium (TX), PolyOne (POL).
Economic: ADP (125K), ISM (49.9), Construction (0.5%), FOMC Decision.
Earnings: Allergan (AGN), Avon (AVP), Energizer (ENR), Garmin (GRMN), Harley (HOG), Hyatt (H), MasterCard (MA), Owens Corning (OC), Time Warner (TWX), ICE (ICE).
After Hours: Avis (CAR), Boston Beer (SAM), CVR Energy (CVI), First Solar (FSLR), FTI (FCN), Green Mtn Coffee (GMCR), Hartford (HIG), Intrepid (IPI), Murphy (MUR), Tesoro (TSO), Transocean (RIG), Walter (WLT), Weight Watchers (WTW), World Fuel (INT).
Economic: Weekly Claims (365K), Continuing Claims (3.29M), Factory Orders.
Earnings: CBOE (CBOE), CIGNA (CI), DIRECTV (DTV), Duke (DUK), GM (GM), OfficeMax (OMX), Parker Han (PH), Sealed Air (SEE), Sony (SNE), TW Cable (TWC), Western Refining (WNR).
After Hours: Agrium (AGU), AIG (AIG), Fluor (FLR), Kraft (KFT), Liberty Global (LBTYA), MasTec (MTZ), Public Storage (PSA), SandRidge (SD), ON Semi (ONNN), SW Energy (SWN), ZAGG (ZAGG).
Economic: BLS July Jobs Report (8.2%, 100K & Private 105K), ISM Services (52.2).
Earnings: Alliant (LNT), Health Net (HNT), ITT (ITT), NYSE (NYX), P&G (PG), Warner Chalcott (WCRX).
Figure 1: SP-500 ($SPX) Daily Chart
Entering Monday, a back-to-back gap-and-thrust rebuttal to last week’s bearish opening act has bulls back in control of a volatile uptrend that’s managed to shake off multiple distribution days, slim pickings within the growth stock universe and historically weak seasonals to score fresh intermediate highs. Where do we go from here? Looking above 1400 - 1420 area where whole number and up-channel resistance come into play looks possible given the bullish momentum and sentiment as measured by the VIX ($VIX) still near 17% and not too far removed from its mean-reverting 10SMA.
Now for the likely wake-up call. As 1400 is just a hair more than 1% from Friday’s close, a test of zone resistance could happen quickly and if recent history is any indicator, that action could come compliments of another, somewhat frustrating price gap. That all said it would be easy enough for the VIX to challenge its lows and put itself into a more fragile position of being oversold short-term. Together, bulls would be presented with a decent opportunity to unload long deltas and allow bears a chance to establish more approachable counter-trend positions.
For bulls on the sidelines and eyeing long delta positions, we’d suggest waiting. Given the possibility of limited upside before profit-taking likely shows up, we’d like to see some modest and constructive backing and filling within the uptrend before more serious consideration and 1356 our current line in the technical sand as far as giving the bulls the benefit of the doubt or umm, the channel.
- 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.
- Third FTD signal on Thursday 7.26.12.
- VIX back into historically “normalized” levels with MA alignment.
- Established 4 point uptrend off 50SMA and 1333 “double” level in SPX.
- 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 and lack of growth leadership.
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