Weekly Outlook: November 23, 2009
November 22, 2009
Hewlett, Deere and an abundance of economic trimmings being served will keep the condensed holiday work week a busy one. For the five day period the SP-500 (SPY) is off a mild 0.17% but key resistance and fleeting support prove too much for bulls to handle within an uptrend that also has the earmarks of a dastardly higher high double top formation.
THE WEEKLY NUTSHELL
- Bullish "Mad Money Monday." Bulls on offensive courtesy of surprise Japan GDP strength and Asian officials pledging support for economic stimulus and stateside green shoots based rally. Technical breakout of 1100 in SP-500 triggers likely wave of short-covering aided by expiration week bias. Intel (INTC) dividend boost helps sentiment. Bernanke speech causes intraday speed bump as dollar concerns attempt to derail fresh pledge of low rates. Whitney's latest mini financial bombshell of banks needing further capital raising pressures bulls from lofty perch. Mixed retail sales and disappointing Empire do little to dissuade bulls in a well-bid pre-market.
- "Tepid Tuesday" as bulls digest Monday's green shoots efforts. Bounce from fresh lows in US Dollar equates to out-the-gate "profit-taking." Remarks from session prior by Bernanke & Co. aware and watching the currency are cited as incentive behind the bid. Home Depot (HD) beats and guides higher but succumbs to fairly strong profit-taking. Aiding the bulls, news of Soros adding 1.0 million shares to Potash (POT) isn't lost on the green shoots crowd as material / aggie (XLB, MOO) stocks find a strong bid. PPI results come in weaker than estimates, though industrial production with an increase of 0.1% is shy of estimates.
- A fractionally mixed "non-humping" Wednesday for bulls. Mostly tepid inside candle action as continued investor appetite for commodity-based carry trade counters weak housing starts and permits data, hotter-than-expected CPI reading and disappointing guidance from tech shops Autodesk (ADSK) and Salesforce.com (CRM).
- "A Less Thankful Thursday" finds bulls and bears muscling below SP-1100. Coveted break of support on crowded carry trade woes as dollar bumps up off YTD lows highlights for broad-based pressure. Merrill downgrade of semi group (INTC, MXIM, TXN, MRVL) on inventory concerns puts Naz' in position of relative weakness. Economic data largely in-line or pleasant. OECD ups GDP growth for 2010 to 2.50%. "In-line" but still large weekly claims of 505K. Mostly in-line leading indicators with increase of 0.3% vs. 0.4% and Philly Fed beat and month-over-month increase of 16.7. For the bears, one out of seven homes in foreclosure or behind by one month's payment is a record for Q3 stat.
- "Dude it's a Sell" as bulls follow-through on profit-taking Friday. Dell's (DELL) disappointing results prompts relative weakness in NASDAQ and likely IT spending concerns. Bid Greenback highlights bulls hoofing it further below 1100 and 50% technical wall. Overseas weakness due to Asian policymakers considering imposing capital controls and talk of liquidity measure withdrawals from ECB also weigh in.
ON TAP THIS WEEK
In an abbreviated work week of three trading days and Friday's autopilot half session, it's all about piling in a smorgasbord of economic data into Tuesday and Wednesday's calendar. A report on existing homes out Monday morning will act as the appetizer. Analysts expect 5.70M annualized units for October versus a prior reading of 5.57M.
Of the economic trimmings being served; durable goods on Wednesday may prove to be the report with the most influence. According to Pimco's Tony Crescenzi, its results will be closely-watched after a couple recent reports showed a bit of "moderation" in factory activity on the heels of unusual strength. In comments obtained from Mr. Crescenzi on CNBC.com, "companies are still waiting for the pickup in final demand, now that inventories have been worked down. That part hasn't kicked in yet so durable goods is more in focus."
On the earnings front, retail confessionals continue to offer a potential theme trade for a third straight week. However, the severe drop in the number of reports and second tier but well-known outfits like American Eagle (AEO), J. Crew (JCG) and Barnes & Noble (BKS); the influence of those reports should be mostly limited to the names themselves.
Two names of likely greater interest are Monday night's Hewlett Packard (HPQ) report and Deere & Co (DE) on Wednesday. The Dow component and computing hardware giant is expected to post profits of $1.13 per share and up ten cents year-over-year. The state of the consumer and IT spending could come into play. With shares up about 14% since its last report and 100% since its March lows near $25 a share-investor disappointment could prove easy to come by barring strong outlook by management.
As for Deere & Co., last Tuesday the Mad Money's James Cramer called the farm machinery giant "the best pure play" in the aggie space (MOO, MON, POT) and an area determined to be a brand new spanking baby bull. The company reports Wednesday morning. Analysts are pegging estimates at $0.03 per share versus the year ago period's $0.81.
Cramer called Deere still one of the most hated stocks due to its constant earnings disappointments and analyst coverage which maintains 11 buys, 12 holds and one sell on shares of DE. Technically speaking, Cramer's sponsorship Tuesday night was enough to break shares out to the upside. The price action cleared two weekly chart inverse cup with handle patterns about six months and a year in length. More recent, Friday offered a successful test of the neckline area on its two day pullback and lows around $50.
And finally, the whereabouts of the still lowly but slightly firmed up US Dollar should continue to hold influence on global equities. The associated carry trade with its trumped up bid into commodity-related assets and currencies remains a mostly popular but very crowded vehicle of choice for trend traders. Minutes of the Fed's last meeting to be released on Tuesday could shed more light on what would cause policymakers to move its commitment from a low rate environment and / or disrupt the dollar's year-to-date downtrend, which has been acknowledged as being carefully monitored.
Weekly Calendar of Key Reports
Monday:
Economic Existing Homes (5.65M), Treasury Auction $42B 2-Year Notes
Earnings BJ Services (BJS), Campbell's (CPB), LDK Solar (LDK), Tech Data (TECD), Tyson (TSN), Analog Devices (ADI), Atwood (ATW), Citi Trends (CTRN), Hewlett P (HPQ), Nuance C (NUAN)
Tuesday:
Economic Q3 GDP Prelim (3.0%, 0.8%), Case Shiller (-9.10%), Consumer Confidence (47.5), FHFA Home Price Index (0.3%), Treasury Auction $42B 5-Year notes
Earnings American Eagle (AEO), Barnes & Noble (BKS), Brocade (BRCD), Cracker Barrel (CBRL), Dollar Tree (DLTR), Heinz (HNZ), Medtronic (MDT), Blue Coat (BCSI), J. Crew (JCG), TiVo (TIVO)
Wednesday:
Economic Inc & Spend (0.2%, 0.5%), PCE & Core (NA, 0.1%), Weekly Claims, Durable Orders (0.5%, 1.0%), Michigan (66.5), New Homes (414K), Weekly Crude, Treasury Auction $32B 7-Years
Earnings Deere (DE), Tiffany (TIF), Vimpel (VIP)
Thursday: (Holiday)
Economic NA
Earnings No bull being served
Friday: (Unofficial Holiday Half Session)
Economic NA
Earnings Frontline (FRO), Ship Finance (SFL)
TECHNICAL PICTURE
Figure 1: S&P500 (SPY) Weekly Chart
Entering Monday, a "Fifth-Fifth" i.e. fifth attempt at an EW5 top is in motion but not yet confirmed by PS' EBOT signal line. However, that type confirmation hasn't worked all too well in the prior four attempts. Within what other technicians would simply call an uptrend with its higher highs and lows, fading strength and buying weakness has proven a much better strategy.
Will five times prove the charm for bears? Bears are up against historically bullish seasonal winds, but Thursday and Friday did offer a relatively strong short set up from a risk-to-reward perspective. The sympathetic nod for the bears is based on stop loss management using either a close above the closely-watched and now broken 1100 level or the highs of 111.69 (SPY) versus a minimum and reasonably conservative corrective move of 105 - 107.50. That area contains the 50-SMA, prior highs / congestion support and would equate to a corrective move of about 4% to 6%.
As noted in Friday's Growth Stock Option report, a break above recent highs or a higher volume closing thrust through 1100 would be viewed bullishly. As shown above, a large air pocket above the 50% retracement level exists. So, while we may not agree with the hype behind the bid, it is anticipated that should the bulls come charging back it would nonetheless bode well for year-end momentum to the next area of technical resistance.
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 117 – 123.
- FTD on day six of rally per outfits like IBD.
- November thru April strongest six months for equities historically.
- One man’s bearish “Fifth-Fifth” is another’s uptrend.
Bearish Technicals
- 1930 Bear Market Rally repeat states EW Intl
- At 68%, market’s run has “Come a long ways, baby.” Green Shoots priced in.
- Mostly long-term overbought market conditions/weak internals.
- Q3 “Recession is over” data confirmation.
- Estimated minimum corrective support zone 99.50 – 102 testing.
- “Fifth-Fifth” SPY W5 stalls out at 1100 & 50% retracement, divergent oscillator and distribution.
- Last week’s VIX Stretch finds lowly double bottom retest on Wednesday.
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 105 - 107.50, 100 - 102 | 110 - 111.70, 115, 117 - 123 |
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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