Following a full week of testing key resistance, will a bevy of retail reports have bulls shopping or dropping? For the five day period the SP-500 (SPY) is up 1.07% but in lackadaisical summer trade only a hedgehog might truly appreciate.

THE WEEKLY NUTSHELL      

• “Minding the Technical Monday.” SP-500 closes up 0.21% in narrow trade in first technical rendezvous with the 1400 level and zone resistance of 1400 – 1422. Imbuing bulls to grasp at the brass ring, follow-through for Friday’s BLS jobs data, attached unemployment stimulus hopes and desirable comments from China’s central bank suggesting it will beef up its own monetary policy in 2012’s second half. Intraday, word of the IMF pushing Euro Zone to lighten Greece’s bailout obligations and forgive some the country’s debts assists in bulls’ quest as well. iShares Bull ETF (AAPL), “other” basic materials (XLB), EUR/USD and country ETFs (EWG, GREK, EWI and EWP) lead broader market.
• “Turnaround Tuesday?” SP-500 gains another 0.51% to penetrate lower zone resistance and finish narrowly above 1400 while sporting a bearish daily hangman candle. Helping bulls gorge on thirds, optimism surrounding central bank stimulus measures grow after weaker-than-forecast -2.5% dip in Italian GDP and word Germany’s Merkel will concede her hardline stance and back the ECB’s bond purchase program. VIX ($VIX) remains near multi-month and yearly lows for third straight session with 10SMA differential shrinking from sketchy 14% to 11.5%.
• “Dithering Doji Wednesday.” SP-500 turns in narrow inside day 0.06% doji gain still flirting with hold of 1400 level. Light, modestly mixed and very much secondary reports from overseas and stateside allow bulls to maintain a bid. US productivity beats by one-tenth with 1.6% increase, German industrial production falls by 0.9% and one-tenth worse than -0.8% forecast. And Bank of England’s top dog notes country’s headwinds while stating lower taxes aren’t the solution.
• “Another Dithering Doji Thursday.” SP-500 chalks up another tight indecisive doji of 0.04% in and around 1400 level on mixed economic data. China produces “stimulating” weaker-than-forecast retail sales, industrial production growth of 9.2% vs. 9.8% estimate and benign consumer inflation of 1.8%. Bank of Japan keeps rates flat and fails to announce any fresh monetary action as core machinery data misses views. Trade balance data produces upside surprise for Italy and bearish grimace for U.K., while U.S. sees improved claims reading of 361K compared to views of 375K but surprise 0.2% dip in wholesale inventories. EUR/USD displays “risk off” movement with 0.69% decline, while Apple (AAPL) delivers yummy $2.65 ex-dividend day action in finishing up 0.58% for its shareholders in first quarterly payout in 17 years.  
• “Friday Financial Shutout.” SP-500 manages to buck opening pressure and reverse to close up at fresh highs but gainer of 0.22% amounts to fourth straight shutout for both bulls and bears within key resistance zone of 1400 – 1422. Out-the-gate profit-taking tied to China’s wide trade surplus miss with exports rising just 1% vs. 8% forecast. Bulls appear to take cue to bid market off lows in quiet afternoon trade with nary another report of interest but as EUR/USD sets up a reversal hammer candle off 50% retracement and four day pullback. Manchester United (MANU) debuts following $233M IPO but rather flat opening day performance leaves bulls and bears at a loss. VIX breaks 3.5% to 14.75% and lowest readings since March and leaving the sentiment gauge stretched confidently but not complacently below its 10SMA by 11.4%.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

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

Earnings: Sysco (SYY).

After Hours: IAMGOLD (IAG), Groupon (GRPN), InterOil (IOC).

Tuesday:
Economic: Retail Sales (0.2% & 0.3% ex-auto), PPI (0.2% & 0.2% core), Business Inv’s (0.2%).

Earnings: Dick’s (DKS), Estee Lauder (EL), Home Depot (HD), Michael Kors (KORS), TJX (TJX), Valspar (VAL).

After Hours: Bob Evans (BOBE), JDS Uniphase (JDSU), Pan Am Silver (PAAS).

Wednesday:
Economic:  CPI (0.2% & 0.2% core), Empire (5.0), IP & CU (0.6% & 79.3%), NAHB (35).

Earnings: Abercrombie (ANF), Canadian Solar (CSIQ), Deere (DE), Citi Trends (CTRN), Staples (SPLS), Target (TGT).

After Hours: Agilent (A), Applied Materials (AMAT), Cisco (CSCO), Limited (LTD), NetApp (NTAP), Netease (NTES), PETsMART (PETM), SINA (SINA).

Thursday:
Economic:  Weekly Claims (368K), Continuing Claims (3.3M), Housing Starts & Permits (763K & 770K), Philly Fed (-5.0).

Earnings: Buckle (BKE), Children’s Place (PLCE), Dollar Tree (DLTR), Ross (ROST), Sears (SHLD), Wal-Mart (WMT).

After Hours: Aeropostale (ARO), Brocade (BRCD), Gap (GPS), Marvell (MRVL).

Friday:
Economic: Michigan (72.2), Leading Indicators (0.2%).

Earnings: ANN (ANN), Foot Locker (FL), J.M. Smucker (SJM).

TECHNICAL OUTLOOK

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

After a week of gaining ground but action involving a good deal more chop and slop consolidation work than momentum, bulls remain in a testing position of key zone resistance defined by 1400 and April highs of 1422.  Coupled with the VIX near its March and multi-year lows and maintaining a fairly wide 10% to 12% spread relative to its 10SMA, what might otherwise be viewed as a serious and well-constructed challenge of resistance in the SP-500, has us much more cautious in our outlook. Until the VIX can neutralize relative to its short-term average, we’d be inclined to view selling into strength as maintaining the directional edge or waiting to buy on weakness with 138.50 and 136 critical support levels to the bull within the current up-channel.  

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• 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 near March and multi-year 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.