Weekly Outlook: June 29, 2009
June 28, 2009
Bulls shook off an early case of severe June Gloom last week, but a sunny forecast is far from certain with Thursday's key monthly jobs data in the spotlight. For the five day period the S&P500 (SPY) registered a loss of just 0.22% on anything but doggedly tired price action.
THE WEEKLY NUTSHELL
- Classic "Monday Mourning" as S&P500 sinks 3%.Reduced economic outlook for developed countries by World Bank primary trigger. Report bulldozes commodity complex (GSG, USO, XLB, XOM, FCX, CAT). ArcelorMittal (MT) / Vale (VALE) agree to substantial cut in iron ore prices, compounding price weakness and worsening sentiment. Looming $107B in treasury auctions and Fed's two day FOMC meeting add to market pressure.
- "Tempered Tuesday" action ends in virtual "stallmate" for broader market. General carryover concerns from Monday. Mixed existing home sales report fails to award a victor with its subpar 2.4% month-over-month increase. Financials (XLF) lead for would be bargain-hunters with influential R. Bove plug for Citigroup (C). Weaker Dollar (UUP) and price shellacking of late bring buyers into commodity complex. Boeing (BA) grounds Dow (DIA) Theorists with test flight delay.
- "Non-Humping but Volatile Wednesday" for bargain-hunting bulls. Oracle's (ORCL) "b-t-e" and well-received report eases business spending concerns. Paris-based OECD somewhat rebukes World Bank's report with belief US should bottom (weakly) in 2009. Durable goods beat also helps set bid into broader market. Percentage gainer of nearly 2.00% finds investors "schnitzeling a little" following mostly reiterated FOMC policy statement. Rates to remain low during the current and foreseeable economic downturn, but officials fail to improve upon existing monetary tool chest program.
- "Follow-Thru Thursday" for bulls. Cautious start due to disappointing claims (627K & 6.73M) and slight beat but weak GDP data, Bernanke BofA's Congressional grilling and soured FOMC carryover gets shaken off. Early test of 200-Day MA in SP-500. Bullish reversal compliments of technical platform, lowest treasury yields (TLT) in month following well-received 7-Year auction, earnings traction at Bed Bath & Beyond (BBBY) and likely window-dressing.
- "Reconstituted Bull Friday." Fractional and mixed Doji action dictates the session other than massive and last minute volume surge tied to Russell Indices rebalancing. Surprisingly strong personal income and increasing in-line spending data (1.4%, 0.3%) countered by Thursday's percentage jump in market. Tech leads (relatively speaking) with better-than-expected results from Palm (PALM) and Accenture (ACN). Black Gold (USO) under pressure by 1.42% despite lower dollar (UUP) suggests a tank nearing empty of green shoots fuel.
ON TAP THIS WEEK
An overbought market could find a bit of extra relief as a notorious and near patriotic duty may attempt to find a bid in ultra-light and easily goosed conditions. It doesn't hurt that an exceptional second quarter finds itself not too far removed from highs. Due to that, end of quarter window dressing should act as an additional market support in the week's first half.
On the economic radar a fair load of substantial reports will be released in abbreviated workweek and compressed into three sessions. Spearheading for those still manning the trading desks is Thursday's monthly jobs data.
Has it really been a month already? The last release of nonfarm payrolls and unemployment data boosted futures initially but failed to stick. Trader cheer over much lighter layoffs turned to likely concern over a still hefty number of pink slips delivered, unemployment still marching towards ten percent and its worst levels since the early 1980's.
What will Thursday's reaction bring? Analysts expect a "small" uptick to -370K from the prior reading of -345K. Barring an outlier stabilization reading, with the end of quarter out of the way and an economy still not showing real improvement for those whose jobs have been impacted by the financial crisis-further green shoots in the market will be hard-pressed at current levels.
Elsewhere, traders can expect those intertwined markets of influence to act as catalysts for equities as well. Last week, treasury prices as represented by the 20-Year pushed yields to one month lows. The action is net, net good for equities due to easing borrowing costs for businesses and consumers, as well as enabling stocks to appear more attractively priced.
Black Gold (USO) as represented by its listed proxy managed to finish lower on Friday despite the US Dollar (UUP) hitting a two week low. The weakness could be an early technical tell of the broader market nearing empty of green shoots fuel. Technically, last week's action broke a long-standing uptrend from April and sets up a bearish flag pattern.
Weekly Calendar of Key Reports
Monday:
Economic NA
Earnings Apollo (APOL), H & R Block (HRB)
Tuesday:
Economic Consumer Confidence (55.1), S&P/Case-Shiller HPI (-18.75%), Chicago PMI (38.5)
Earnings Schnitzer (SCHN), Sealy (ZZ), Synnex (SNX)
Wednesday:
Economic Weekly Crude, Construction (-0.5%), Pending Homes (1.1%), Truck & Auto
Earnings Constellation Brands (STZ), General Mills (GIS), Lindsay (LNN), UniFirst (UNF)
Thursday:
Economic Weekly Claims, Factory Orders (0.2%), Monthly Jobs Report (-370K, 9.6%)
Earnings Acuity Brands (AYI)
TECHNICAL PICTURE 
Figure 1: S&P500 (SPY) Daily Overbought Topper
From a confirmed corrective trend pullback pattern, the S&P500 saw fit to put bulls through the wringer before a "doggish" -0.22% for the week made its way into the historical ledger. Of course, for anyone with an active vested interest in the market knows, the see-saw action was anything but lazy and gentle as the means to an end.
Entering Monday and an abbreviated holiday period, the price action of the past week sets up an interesting contrast in the technical landscape. For bulls, a second and deeper confirmed pullback within the established uptrend exists.
Investors with an eye on the higher highs of the past two months, as well as higher lows just sealed this past week will likely use that evidence as a reason to emphasize the bullish delta. Once and if last week's "higher low" is broken, technically inclined bulls would be left without a primary support or reason for being-other than hope and a re-emergence of green shoots.
On the flipside and given more consideration from this market observer, technically the higher low is now extended into what's likely a key resistance area up to 93.30 thereabouts. In conjunction with a mostly overbought condition, the distinct possibility for a lower high pivot to develop sets up nicely. Looking to the left and with those prior higher highs in mind-and the uptrend is turned into the classic Head & Shoulder topping pattern.
Personally, while the directional edge is seen going out to the bears, it is a holiday week and a time when aggressively lighter volume and tendencies do add up to an upside bias. That being said, should price action find itself even closer to upper zone and pattern resistance near 93, I'd suspect some "red chutes" profit-taking to emerge and a decent spot for bears to reload.
One caveat, the expectation is for some volatile and loose price behavior due to the "very" abbreviated work week. Its likely false starts of promise for both overly hard-positioned bulls and bears will occur in a market still viewed as a "Wild Bore" and a better place for spreading and premium collection.
MARKET LAB
Bullish Technicals
- Historic corrective low.
- Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
- Oodles of multi-day pullback patterns to support zones and 'beyond.'
- Extreme support zone test SPY 89.25 - 91.25 and 8.50% correction fulfilled.
- Corrective uptrend intact with recent lows.
- Trend support 88.85.
Bearish Technicals
- Technically, "lower highs" weekly still in place DIA from Sept 2008.
- First 100 Days cycle & "Best Six Months" complete.
- Historically low insider buying vs. selling.
- Key weekly resistance for S&P500 in place after historic run.
- Recent momentum loss and failure to run with headline trophy wins for bulls.
- Breakdowns of technical support in green shoots commodity arena.
- SPY near likely resistance zone 92 - 93, short-term overbought conditions.
- Head & Shoulder topping SPY nearing completion?
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 88.85, 85 | 92 - 93, 96 - 96.50, 100 |
Chris Tyler
Senior Staff Writer & Options Strategist
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.
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