Weekly Outlook: October 12, 2009
October 12, 2009
Note: This week's Market Outlook was covered by Optionetics.com's Chris Tyler.
With a daily "drive for five" and 13-week up cycle complete, poor reactions to strong earnings thus far hint at profit-taking ahead. For the five-day period, the SP-500 (SPY) is up an out-the-ballpark 4.65% in a performance worthy of being called Mr. October.
THE WEEKLY NUTSHELL
- Technical Monbacky Monday platform leads to percentage gainer for SP-500. Corrective 5.55% low and test of VIX 30% and 50-DMA set up bargain-hunting for bulls. Goldie aids with upgrade of "Attractive" to money center (WFC, JPM and BAC) banks. "On the block" reports for Brocade (BRCD) inspires, as does better-than-expected 50.9 ISM Services expansion reading. Lower Dollar (UUP), weaker treasuries (TLT) help replenish green shoots bid in commodity complex.Terrific Tuesday for bulls as follow-through confirmation takes hold on the major indices. Driving the bid, surprise 0.25 rate hike by Australia on economic confidence. Linked green shoots efforts and pressured Greenback (UUP) finds leadership in commodity complex (GSG, MOO, OIH, SLX, XLB) with gold (GLD) hitting all-time-highs through $1000.
- Best back-to-back performance off corrective Monbacky leads to listless but non-humping Wednesday for bulls. Slightly stronger Greenback gives pause to investors, as does some likely jitters in front of Q3 earnings season to begin with Alcoa's (AA) results after the close. For bulls, financial sector (XLF) on no real catalyst nonetheless finds a relative strength bid. Comex Gold (GLD) manages fresh all-time-highs.
- The bull is back Thursday. Positive bias out-the-gate as Alcoa's surprise profit beat and outlook beef up investor sentiment regarding economic recovery. In turn, lower Greenback aids and abets the commodity complex's (GDX, SLX and OIH) leading green shoots efforts. Better-than-feared but still weak claims and same-store sales (ANF, KSS and M) data receives investor favor.
- Late inning hit by bulls sends market from the fractional doldrums to a completed five in a row on the daily. Stronger Greenback off technical lows prompted by Bernanke comments keeps bulls in "profit-taking" mode during most of Friday's session on otherwise very light news. Continued profit-taking i.e. rotation out of treasuries (TLT) benefits the broader market and suggests increased confidence by bulls.
ON TAP THIS WEEK
Can earnings bulls have their cake and eat it too? With the Q3 earnings season just underway, reaction to a very limited number of reports suggests the market's green shoots have gotten ahead of itself. Despite Dow component Alcoa (AA) and NASDAQ 100 constituent Infosys (INFY) producing surprisingly strong profit beats complete with encouraging outlooks / raised guidance late last week, investor reaction in both names succumbed to some form of profit-taking.
The price action is all the more interesting and potentially worrisome for companies that wind up merely matching expectations or worse yet, missing views. The fact is bulls typically have their easiest time pushing stocks higher during the initial couple weeks of the earnings cycle as pleasant surprises are fresh and can be treated as such. Hence, the inability to produce that type of reaction after a historic seven month run in the market infers investors should be extra vigilant for potential downside risks.
On tap this week, the crop of corporate confessionals is still relatively light, but filled with its share of influential market heavyweights. In the week's first half, Intel (INTC) on Tuesday and JP Morgan's (JPM) results on Wednesday will be in the spotlight and afford some potential tone-setting for the market. However, Thursday is when the proverbial fireworks really begin. Pre-market reports include Citi (C), Goldman (GS), Nokia (NOK) and Harley Davidson (HOG). After the close, results from both IBM (IBM) and Google (GOOG) will be announced, followed by Friday's BofA (BAC) and General Electric (GE).
In those sometimes intertwined markets of influence, last week's green shoots and daring do efforts by equity traders was largely confirmed by the aggressive rotation out of treasuries (TLT), optimistic price lift in black gold (USO) and the ever slumping pin action to fresh lows in the dollar (UUP). That said and with the expectation for those relationships, relative to the broader market, to persist; watching those products for price clues may prove important.
Weekly Calendar of Key Reports
Monday:
Economic NA
Earnings Fastenal (FAST)
Tuesday:
Economic NA
Earnings Domino's (DPZ), J & J (JNJ), Altera (ALTR), Intel (INTC), Linear Tech (LLTC)
Wednesday:
Economic Import / Export, Retail Sales (-2.1%, 0.2%), Biz Invs (-0.9%), FOMC Minutes
Earnings Abbott (ABT), Host Hotels (HST), JP Morgan (JPM), Progressive (PGR), Crown Hldgs (CCK), Landstar (LSTR), Polycom (PLCM), Xilinx (XLNX)
Thursday:
Economic Weekly Claims (525K, 6.06M) CPI & Core (0.2%, 0.1%), Weekly Crude
Earnings Amphenol (APH), Citigroup (C), Cypress (CY), Goldman (GS), Harley D (HOG), Nokia (NOK), Safeway (SWY), Southwest Air (LUV), Google (GOOG), IBM (IBM)
Friday:
Economic Net Long Term TIC Flows, CU & IP (69.7%, 0.1%), Michigan (73.5)
Earnings AO Smith (AOS), BofA (BAC), GE (GE), Genuine Parts (GPC), Halliburton (HAL), Mattel (MAT)
TECHNICAL PICTURE 
Figure 1: S&P500 (SPY) Weekly Chart
It was a nice week to be a bull, especially since the pullback down to last Friday's lows were very approachable from the context of "buying the dip." In fact, the situation was detailed as much that day as well as in this weekend column. In saying that though, in the here and now and with bulls over-indulging or gorging themselves to the hilt off the corrective move-a more severe cycle down could be in the offing.
Aside from the existing and well-documented bulleted points shown below which favor a more cautious delta from investors, Fibonacci-based time analysis on the weekly time frame is the latest factor which puts this strategist on guard for a larger corrective pullback. Shown above we can see that from the March lows the market went up for 13 weeks, corrected for 5 weeks and has now proceeded to move up for a mirror-like 13 weeks in finishing out Friday's daily chart "Drive for Five."
With the price action of the SPY extending itself into overbought territory short-term and an equally impressive drop in the VIX to match its year-to-date closing lows occurring; this market strategist sees the platform for one of those infamous gut-wrenching October bottoms to materialize. And while it might not, the risk-to-potential reward looks to favor the countertrend directional strategist.
MARKET LAB
Bullish Technicals
- Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
- Weekly Inverse H & S being breakout from October lows. "MM" of 113 - 120.
- Two-thirds of October's "positive" when September shows gains.
Bearish Technicals
- 1930 Bear Market Rally repeat and "W" pattern SPY?
- Weak calendar month of October.
- Consistent weekly breakouts suspect.
- Third time the charm? Potential W5 Daily and W4 Weekly in SPY.
- SP-500 > 20% above 200-Day MA.
- Test of 5.5% midway into "healthy" correction but just scratching support zone test of 97 - 102.
- Technically-extended market leaders (GE, AAPL and GS).
- At 62%, market's run has "Come a long ways, baby."
- "Drive for Five" on daily extends SPY technically with potential lower high pattern setup.
- Fib Weekly cycle 13-5-13 completes 10/9.
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 97 - 102 | 106 - 108 |
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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