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Futures point to lower open ahead of a very busy week for economic data. The major market indices saw huge gains during the past five trading session, so some profit taking would not be a surprise. However, if economic news is worse than expected, we can’t count out a retest of prior lows. Of course, traders will be focused on consumer spending with the holiday shopping season kicking off last Friday.

Despite the largest five day gains in 75 years, the major market indices still lost ground in November. The Dow ($INDU) saw the smallest decline, losing 5.32 percent during the month. The S&P 500 ($SPX) fell 7.48 percent with the Nasdaq ($COMPQ) dropping 10.77 percent. The bulls are hoping that last week’s gains were the start of a Santa Clause rally, but given the current economic situation, it would seem volatility will continue.

Black Friday kicked off the holiday shopping season with the National Retail Federation estimating that shoppers spent 7.2 percent more than last year. However, it seems that shoppers were looking for bargains, which could hurt retailers’ bottom lines. Wal-Mart (WMT) shares are down in pre-market trading by more than one percent although the retailing giant saw huge traffic at its stores. Analysts in general feel that the traffic seen Friday is not likely to continue unless retailers continue offering deep discounts on items.

The automakers will remain in focus this week with the Big Three still trying to secure bailout monies from the government. The board of General Motors (GM) met over the weekend to go over a restructuring plan to cut costs so that the government will help the company out. GM would like to secure $12 billion in emergency funding. The company is set to present its case once again to Congress on Tuesday. GM shares are taking a hit in pre-market trading, down more than 10 percent.

Economic news could play a part in Monday’s session with the ISM Mfg. Index for November and construction spending for October due out this morning. The latter is expected to show a decline of 0.9 percent with the ISM Index set to fall further to a reading of 38.4. The manufacturing index hasn’t seen these types of lows since May 1982.

After such large gains this past week, we could see some profit taking. If this occurs, the Dow might test support at 8,000, closing Friday’s session at 8,829. This might seem like a huge drop, but the Dow hit a low at 7,506 a little over a week ago. As the stock market tries to find a bottom, volatility is often part of the equation, so it is imperative that option traders understand the risks of each and every trade they enter.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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