Friday’s medal-worthy gap and swim maneuver finds a buoyant bull crossing the channel and nearing technical landfall.  For the five day period the SP-500 (SPY) is up 0.36% in continued, anything but lazy, dog days of summer fare as bulls, quickly and once more, claim fresh highs within a volatile uptrend.  

THE WEEKLY NUTSHELL   

• “Minding the Gaps Monday.” SP-500 displays modicum of profit-taking to the tune of 0.07% following last Thursday and Friday’s back-to-back bullish gaps on reinvigorated hopes for global monetary stimulus. Relative quiet from overseas with no policymaker confirmation and Wednesday’s FOMC decision allow bulls to breathe but not back off technically. Disappointing report from Dallas Fed assists in keeping lid on market as monthly manufacturing survey shows -13.2 reading versus 2.5 estimate. The iShares Bull ETF (AAPL) displays 1.69% relative strength gainer as Samsung patent trial begins, record downloads for its OS X Mountain Lion is announced and rumors of an iPhone5 / iPad mini event planned for September 12. Merger Monday allowance from Chicago, Bridge & Iron (CBI) and its $3.0B / 70% premium acquisition for Shaw Group (SHAW).
• “Turn Towards Profit-Taking Tuesday.” SP-500 finishes off 0.43% in mostly tight trade but confirming channel doji high after last week’s Olympic-sized gains. Pressuring bulls, German B-list official pooh-pooh’s additional ECB monetary support. Bittersweet, stronger-than-forecast Chicago PMI increase to 53.7, surprise first increase in Consumer Confidence in four months and Personal Income beat of 0.1% for 0.5% increase also prove potential agitates for the stimulus crowd. Coach (COH) shows a technical flair for some well-tanned bull with shares off 18.5% following soft FY13 guidance, while Cirrus Logic (CRUS) defies the Apple (AAPL) tree’s gravitational pull by raising its sales outlook well above views, sending shares up 23%.  
• “Two for Tea Wednesday.” SP-500 closes down 0.29% in two-day constructive test of prior channel highs as Fed disappoints with lack of fresh initiatives despite weaker economic outlook, but the ECB’s monetary policy meeting on tap for Thursday morning. Global PMI readings from China and Europe prove weak, but potentially worthy of monetary action. Private ADP payrolls see stronger-than-forecast increase of 163K vs. 125K estimate in front of Friday’s BLS report. ISM data for July narrowly misses views with 0.1% increase to 49.8 compared to Street’s 50.1, while construction spending comes up short with 0.4% increase versus 0.9% estimate.
• “Whatever Is Necessary Profit-Taking Thursday.” A two day simple pullback becomes more complex as third in-a-row 0.74% decline into channel support is challenged. Market pressure out-the-gate and massive pre-market about-face caused by ECB and President Draghi’s failure to implement new measures / policies in monetary announcement despite last week’s bullish dialogue to defend the Euro at all costs. Stateside, following Wednesday’s disappointing FOMC meeting, surprise dip of 0.5% vs. forecasted increase of 0.6% in June factory orders proves more worrisome than otherwise.
• “Bulls Back to Work Friday.” Stronger-than-forecast BLS July payrolls data stokes 1.9% gap and thrust gold medal performance to fresh closing intermediate highs for SP-500. By the numbers, 163,000 jobs are created vs. 100,000 forecast, while private payrolls jump 172,000 vs. 105,000 estimate. Uptick of one-tenth of a percent to 8.3% in unemployment underscores going nowhere fast labor market conditions but also potentially opens door to additional stimulus measures in the face of Wednesday’s disappointing FOMC meeting. ISM Services data beats slightly with modest uptick to 52.6 vs. 52.3 estimate and prior June 52.1 reading. VIX ($VIX) nears test of three month low, EUR/USD, oil (USO) and financials (XLF) lead market higher as “risk on” trade stimulates investors.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: NA. Ongoing potential credit market and other “stimulating” drivers for bulls and bears.

Earnings: AES (AES), Cognizant (CTSH), Sohu (SOHU), Tyson (TSN), Youku (YOKU), HCA (HCA).

After Hours: CF Ind (CF), Chesapeake (CHK), Boston Props (BXP), Manitowoc (MTW), McDermott (MDR), Vornado (VNO), WMS (WMS).

Tuesday:
Economic: Consumer Credit.

Earnings: Aecom (ACM), Beacon (BECN), Cablevision (CVC), Emerson (EMR), Fossil (FOSL), Marsh McLennan (MMC), MGM (MGM), Molson Coors (TAP), Office Depot (ODP), Pantry (PTRY), Vitamin Shoppe (VSI).

After Hours: Cree (CREE), Express Scripts (ESRX), Priceline (PCLN), Rackspace (RAX), Sotheby’s (BID), URS (URS), Disney (DIS), XL Capital (XL).

Wednesday:
Economic:  Productivity (1.5%).

Earnings: Alpha Natural (ANR), Avnet (AVT), BCE (BCE), Computer Sciences (CSC), DISH (DISH), Macy’s (M), Polo RL (RL), PPL (PPL), SkyWest (SKYW), SodaStream (SODA), Tidewater (TDW).

After Hours: CenturyLink (CTL), Continental Resources (CLR), Ed Mgt (EDMC), Jack (JACK), Kinross (KGC), News Corp (NWSA), Nuance (NUAN), SunPower (SPWR), Yamana (AUY).

Thursday:
Economic:  Weekly Claims (375K), Continuing Claims (3.3M), Wholesale Inventories (0.3%).

Earnings: Advance Auto (AAP), Brinker (EAT), Canadian NR (CNQ), Kohl’s (KSS), Novo Nordisk (NVO), Royal Gold (RGLD), Tim Horton’s (THI).

After Hours: CareFusion (CFN), DeVry (DV), Home Inns (HMIN), NVIDIA (NVDA), Nordstrom (JWN), Scott’s (SMG), Silver Wheaton (SLW).

Friday:
Economic: Import / Export, Treasury Budget.

Earnings: Brookfield (BAM), Harman (HAR), J.C. Penney (JCP).

TECHNICAL OUTLOOK

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

A somewhat complex three-day pullback into our previously estimated / eyeballed channel line was made a bit more complicated by yet another percentage gap higher by mindful bulls and now finds the SP-500 at marginal fresh highs. Technically, the action further confirms the existing trend but a substantial hurdle facing bulls is the 1400 – 1425 resistance zone denoted by whole number awe and prior highs with a couple points of slippage tacked on.

Making any potential challenges of resistance more prone to profit-taking, the VIX ($VIX) is currently challenging its July and multi-month lows near 15.5% and 14% below its mean-reverting 10SMA. Until this confident and bordering on complacency / fear of missing out behavior is neutralized / normalized, a circular feedback loop by investors suggests another Channel attempt to test support or a partial crossing—and bulls needing to be extra mindful of any upside gaps which might have the crowd performing an excited standing ovation.  

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.
• Third FTD signal on Thursday 7.26.12.
• Established 5 point uptrend off 30SMA and Channel line in SP-500.

Bearish Technicals

• Fibonacci based butterfly completion around test of 1400.
• SP-500 weekly bear flag-into-double top during Worst Six period?
• Historically weak June and July FTD signals.
• VIX nearing three month lows and closing in on complacency 10SMA signal.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
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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.