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Note: This week's Market Outlook was covered by Optionetics.com's Chris Tyler.

THE WEEKLY NUTSHELL

• Early and typical Monday cheer turns fractionally mixed by closing bell. Strong import / export data from China inspires out-the-gate bid spearheaded by the green shoots-inspired commodity complex. Pre-earnings (AA) season optimism. For the bears, large cap technical canary-like action (GOOG, RIMM, AMZN and AAPL) continues Monday. Market sentiment bordering on complacency as 16.86% low in VIX marks "stretchy" conditions into longer-term support.
• "Terribull Tuesday." Monday's cheers turn into jeers as China's central bank expresses need for higher rates to contain inflation and speculative buying. Earnings expectations dashed with Alcoa's (AA) disappointing profit miss and lack of upbeat guidance. Chevron (CVX) warns, adding to selling pressure. KB Homes (KBH) beats but offers out "uncertain" recovery in its outlook. Financials (XLF, GS and JPM) weak following report Obama administration is seeking levies on bank's bonuses. For the fewer bulls left roaming, Infosys (INFY) beat and guided higher, while Hartford (HIG) beefed up estimates well-above views.
• Bulls regroup in non-humping Wednesday. Following slight bout of profit-taking Tuesday and out-the-gate woes tied to Chinese central bank's plans to raise reserve requirements for local banks, stateside investors go bargain-hunting on light news. Financials (XLF) lead the way following beige book report of low but improving economic activity.
• More meager bullying of market takes SP-500 to fresh highs fractionally on Thursday. Weak and surprise drop in retail sales (-0.3% vs. 0.5% est) and higher claims of 444,000 are forgiven after opening weakness as bulls find "rate relief" validation to their liking. Pre-Intel (INTC) enthusiasm.
• Fizzling Friday as mixed catalysts receive uniform "Sell, Sell, Sell!" treatment. Strong all-around Intel (INTC) report complete with above-views guidance succumbs to profit-taking. JP Morgan (JPM) beats but weak revs, increased loan loss provisions and mere "standing pat" on dividend put pressure on financials. Slight consumer sentiment miss finds bulls continuing to sweat spending habits. Credit woes in Greece receive lip service.

ON TAP THIS WEEK

It's not a full week for US markets, but a wave of influential earnings reports spearheaded by financial and technology names should begin to yield strong clues for the Q4 season and what's in store for Q1 and beyond. Thus far light reporting has seen investors largely willing to take profits on a broad mix of results. Out-the-gate on Tuesday, indentured government servant Citigroup (C) is set to report, while technology linchpin IBM (IBM) will release its results that same evening.

As for the former, analysts expect Citi to post a much smaller loss of $0.33 per share compared to last year's $1.72 and amidst the darkest days of the credit crisis. For its part and more representative of estimated growth of about 8% year-over-year for the S&P500 according to Thomson Reuters, IBM is expected to earn profits of $3.47 per share versus 2009's Q4 results of $3.28.

Also on traders' radars is Tuesday night's Massachusetts Senate race for Ted Kennedy's spot on Capitol Hill. The implications for the market were declared by James Cramer on Friday night as the most important catalyst this week for investors. The vote has caught most political observers off guard. What was early on thought to be a lock for Democrat Coakley has turned into a coin toss situation. Should Republican Scott Brown win, a referendum on the Obama administration's programs could be at stake and might portend difficult mid-term elections for Dem's according to CNBC.

Weekly Calendar of Key Reports
Tuesday:
Economic LT TIC Flows ($27.5B)
Earnings Citigroup (C), Fastenal (FAST), Forest Labs (FRX), NOE&T (EDU), Parker H (PH), TD Ameritrade (AMTD), Cree (CREE), CSX (CSX), IBM (IBM), Wipro (WIT)
Wednesday:
Economic Housing & Bldg P's (575K, 580K), PPI & Core (0.0%, 0.1%)
Earnings ASML (ASML), BofA (BAC), Brinker (EAT), Coach (COH), M&T (MTB), Morgan Stanley (MS), No Trust (NTRS), State Street (STT), US Banc (USB), Wells F (WFC), eBay (EBAY), F5 (FFIV), Logitech (LOGI), Seagate (STX), Skyworks (SWKS), Starbucks (SBUX), Xilinx (XLNX)
Thursday:
Economic Weekly Claims (440K, 4.60M), Leading Ind's (0.7%), Philly Fed (18.8), Weekly Inv's
Earnings AMR (AMR), Continental (CAL), Fifth Third (FITB), Goldman (GS), Legg Mason (LM), SW Air (LUV), Taiwan Semi (TSM), Amex (AXP), Cap One (COF), Google (GOOG), Intuitive Surgical (ISRG), Synaptics (SYNA), Western Digi (WDC)
Friday:
Economic NA
Earnings Air Products (APD), BB&T (BBT), Exelon (EXC), GE (GE), Harley (HOG), Huntington (HBAN), Johnson Controls (JCI), Kim Clark (KMB), McDonalds (MCD), Schlumberger (SLB), SunTrust (STI)

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Daily Chart

The market's long-standing uptrend took an uncharacteristic early turn towards profit-taking to kick off the Q1 earnings season this past week. In conjunction with bearish sentiment studies in front of Friday's still light bout of profit-taking off highs and the market in the grips of negative seasonality for roughly another week according to pay-for content from sentimentrader.com, this strategist sees room for a bit more downside.

With a weekly decline of 0.78% to fresh intermediate highs, a bare bones correction of 2% to 3% would find the SP-500 (SPY) nearing a test of its 50-SMA and 50% Fibonacci retracement level, which had caused the market to consolidate its gains for a few weeks. Given the circumstances, a pullback of that small magnitude seems quite approachable and more likely than fresh highs without the benefit of such action having been secured. Bear or bull and in one strategist's opinion, premiums remain fair for both protecting open profits and worthy of consideration with fresh initiations as well.

MARKET LAB
Bullish Technicals

• Weekly Inverse H & S breakout from October lows. "MM" of 117 - 123.
• November thru April strongest six months for equities historically.
• Uptrend breakout 1.04.10 into large technical air pocket.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl
• Mostly long-term overbought market conditions/weak internals.
• Q3 "Recession is over" data confirmation.
• Statistically weak period according to sentimentrader.com.
• VIX lows of 16.86% within long-term support band.
• Highest equity long call-to-put ratio since September 2000 last week.

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler's Forum

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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