A serving of Greek diplomacy is back on the menu this week as bulls challenge the April highs. For the five day period the SP-500 (SPY) is up 0.95% with the adage, “never sell a dull market” making its impact felt as one trader's double top is more than a few other's, bullishly-designed cup.

THE WEEKLY NUTSHELL 

• “Window Shopping Monday.” SP-500 closes off tight 0.13% for fourth session of inside conditions with bulls and bears not touching the merchandise in front of key retail reports. Weaker-than-forecast, but stimulus-worthy GDP increase of 1.4% for Japan vs. 2.7% causes modest out-the-gate pressure. Germany’s Economy Minister voices disappointment with Greece’s financial progress. Secondarily, Finland’s Prime Minister is against banking license for European Stability Mechanism and unsure of additional ECB bond purchases. The EUR/USD supports the “risk on” crowd with bullish reversal gain of 0.42% off 50% retracement and channel support. The iShares Bull ETF (AAPL) “handles” bears with its 1.34% breakout. Merger Monday entertainment includes $3.5B buyout of Focus Media (FMCN), Tesoro’s (TSO) purchase of BP (BP) assets for $2.5B and Sears (SHLD) spin-off plans for 1,200 of stores. The VIX ($VIX) makes a surprising confident push lower of 7% to retest the March lows with short-term oversold differential of 15% vs. 10SMA.
• “Turnaround Tuesday?” Out-the-gate strength and fresh marginal highs are countered in second-half as SP-500 finishes off 0.01% in bearish hangman doji in sixth session of testing of 1400 level for support. Initial bid spurred by “just right” or “stimulating” European GDP data featuring 0.3% beat for Germany, 0.00% vs. -0.1% for France and matching -0.2% dip for the broader Eurozone. ZEW sentiment survey slides unexpectedly for fourth month in a row. Stateside, stimulus is provided by surprisingly strong retail sales data rather than increased prospects for Fed monetary action. Total sales jump 0.8% vs. 0.2% forecast, while ex-autos shows similar 0.8% vs. 0.3% beat. Home Depot (HD) provides above-views FY13 earnings outlook. Producer prices for July prove slightly hot with 0.3% increase vs. 0.2% forecast, while core levels spike by 0.4% and double 0.2% estimate.
• “Quickly Expiring Bulls and Bears Wednesday.” Investors put in another narrow range performance of just 0.11% and further “risk on, risk off” testing of 1400 with SP-500 up 0.20% at close. Ennui or at-odds catalysts keeping the game a no hitter finds traders passing on rumored reserve requirement cut for China’s banks. U.K. sees improving labor picture with 8% unemployment, while its central bank minutes reveal members in favor of additional stimulus. In the U.S. consumer inflation proves cooler-than-forecast with total prices flat vs. 0.2% estimate and core levels up 0.1% vs. 0.2%.  Empire survey falls without warning to -5.9 compared to milder analyst views of 5.0 from 7.4. Industrial production is spot-on with forecasts of 0.6%, while the Housing Market Index betters the Street with a reading of 37 vs. flat consensus of 35. EUR/USD comes under pressure after failing at 50SMA resistance, while a slightly more complex “Fed ain’t raising”, but “risk on” mentality sends the 20-Yr. (TLT) to a three month low.
• “Thursday is Wins-day for Bulls.” SP-500 advances 0.71% to close within half percent of April highs. Supporting the bid, flirtatious Premier Wen hints strongly at increased stimulus effort by China’s central bank. “Sweet something’s” from Cisco (CSCO) on better-than-expected results topped with 75% dividend hike and stronger-than-forecast building permits of 821K vs. flat Street estimate of 770K. Additional “risk on” support from EUR/USD strength as currency pair snaps back 0.51% to hold channel support, while the 20-Yr. continues its slide by 0.85% into test of 200SMA. Weekly claims come in happily a tad below views at 366K vs. 368K, while housing starts miss with result of 746K compared to 763K and Philly Fed drops but remains in negative territory and comes in shy of estimates of -5.0 with figure of -7.1.
• “Expiring Bulls and Bears Friday.” Expiration for the August contract and virtual unchanged 0.13% performance for SP-500 finishing at April highs. Keeping bulls content but not indulging their appetites further, Merkel’s “heard it before” and pledge-stealing line of “doing whatever it takes” to save the Euro and tamer-than-expected German producer prices. Also, a pair of better-than-forecast stateside reports on consumer sentiment and leading indicators looks to give a resting bull some support. For bears eyeing a top, a bearish reversal and failure to move above 50SMA resistance in the EUR/USD and Greece’s ability to service its debt with key meetings next week.                                                              

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: NA. After modest summer lull in overseas credit matters, shuttle diplomacy begins with Greece meeting Eurozone finance minister head and Germany and France’s top dogs this week.

Earnings: Corinthian Colleges (COCO), Lowe’s (LOW).

Tuesday:
Economic: FOMC Minutes.

Earnings: Best Buy (BBY), DSW (DSW), Medtronic (MDT), Tech Data (TECD), Trina (TSL).

After Hours: Analog Devices (ADI), Dell (DELL), Intuit (INTU), Williams-Sonoma (WSM).

Wednesday:
Economic:  Existing Home Sales (4.55M).

Earnings: American Eagle (AEO), Chico’s (CHS), Toll Bros (TOL).

After Hours: Guess (GES), HP (HPQ), Intl Rectifier (IRF), Synopsys (SNPS), Vanguard Health (VHS).

Thursday:
Economic:  Weekly Claims (365K), Continuing Claims (3.29M), FHFA, New Home Sales (368K).

Earnings: Big Lots (BIG), Hormel (HRL), Patterson (PDCO), Signet (SIG), Toro (TTC).

After Hours: Aruba (ARUN), Autodesk (ADSK), Micros (MCRS), rue21 (RUE), Salesforce (CRM).

Friday:
Economic: Durable Orders (2.5% & 0.5% ex-trans).

Earnings: NA.

TECHNICAL OUTLOOK

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

Following Thursday’s one session price spike in the SP-500 to challenge its April highs and action assisted by the VIX’s ($VIX) short-term, neutralizing test of its 10SMA before reversing lower, bulls are once more at likely greater risk of profit-taking and quite possibly, more sizable consolidation work.

Potential technical resistance of a double top and prior weekly Fib-based butterfly in the SP-500 are primary concerns on the price chart. At the same time, historically weak, “Worst Six” seasonality, the approaching bearish September / October period and the VIX below its 10SMA by a fairly too confident 10% while at fresh five year lows, round out a concerning market landscape.

Entering Monday, our view is that for bulls to continue to plow ahead technically with lasting authority, a likely correction of 2% to 5% will be necessary first. As our estimate relates to the current up-channel, the action would be quite healthy. Were this kind of backing and filling to occur, sentiment would be allowed to make a more meaningful uptick and diffuse potential complacency, while key supports such as a mid-channel level of 139 or lower support area of 135.50 – 136 would be allowed to be successfully challenged.

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 March / April.
• SP-500 weekly bear flag-into-double top during Worst Six period.
• Historically weak June and July FTD signals.
• VIX breaks to five year lows with worrisome 10%, 10SMA differential.

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.