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

Cisco and nonfarm payrolls will hold traders' attention later this week, but Obama's out-the-gate $3.8 trillion budget plans and a bearish-looking market are front and center. For the five-day period, the SP-500(SPY) is off 2.80% and further confirming its recent top.

THE WEEKLY NUTSHELL

• Following market's worst two-day price shellacking since the March bottom, a few bulls go bargain-hunting Monday. Temporary reprieve from bank "no hedge fun" proposal and quieted Asian monetary woes assist technical platform which includes stretched VIX > 35% above 10-SMA. Keeping bulls contained, break of 50-SMA in SP-500, worse-than-expected 17% drop in existing home sales, looming FOMC, Bernanke confirmation vote and State of Union address.
• Volatile down, up and downward finale to fractionally lower close Tuesday. Initial pressure on confirmed reserve tightening for banks in China, weaker-than-expected GDP data from England and Japan's sovereign debt downgraded by S&P. Meager intraday rally in SP-500 on stronger-than-expected consumer confidence data and background earnings (AAPL, EMC, DD). Late day slump on unexpected word of Senate hearing on bank reform next week and likely jitters of looming ever-closer FOMC Decision and employment status of Bernanke & Geithner.
• Chop and pressured slop turns into late day bid effort courtesy of FOMC. Unsurprising message of flat rates and economic trends continuing to strengthen induces modest bargain-hunting in SP-500 for gain of 0.49% near sometimes significant 1100 level. Bullish low establishes "Attempted Rally or Rally Attempt Day" per IBD. More of the same mostly disregarded corporate "b-t-e" confessionals mostly prone to profit-taking. Mixed outlook from Caterpillar (CAT) bulldozes the green shoots crowd. "Sell-the-news" response to Apple's unveiled and christened "iPad" gadget. Latest back and forth housing data on new home sales leads to jeers with surprisingly weak 7.6% monthly decline.
• A well-received State of the Union Address, some follow-through for FOMC Decision and an enticing technical "Attempted Rally Day" low for SP-500 finds bulls' wallets out-the-gate Thursday. Opening festivities get quickly brushed aside as Qualcomm (QCOM) below views guidance sends shares reeling, while weighing in on tech and sentiment. Mixed durable goods and weak claims data receive second and worried look intraday. And uncertainty regarding Bernanke re-appointment and general existing bearish sentiment in front of Amazon (AMZN), Microsoft (MSFT) and GDP data likely stop bulls in their tracks and forging a "Not-So-RAD" close.
• Bulls "Sell-e-brate TGIF" with a bearish market breakdown of range supports despite trio of better-than-expected reports from Amazon (AMZN), Microsoft (MSFT) and Q4 GDP data. Some trader concern over Kohn FedSpeak suggesting sooner-than-expected rate hike following 5.7% annualized growth for economy.

ON TAP THIS WEEK

It's another heavy week of corporate confessionals. The trend thus far has been to "sell the news," despite the majority of companies beating estimates and guidance enjoying a more bullish bent than not. Bottom-line: even strong reports from the largest of industry titans have failed to help bulls mount a serious challenge to the market's existing correction.

Should market conditions once more start flashing another round of oversold signals, investors could finally decide to collectively take notice of those companies "beating and boosting." Given an extreme enough situation, "profit-taking" could even be replaced by "bargain-hunting" in companies delivering less-than-great results.

For now and opting to not rely on the crystal ball to aggressively, Cisco (CSCO) on Wednesday night with its ability to shift investor attitude regarding business spending, looks to be the most influential report in the coming earnings parade.

Analysts expect the networking giant to post a profit of $0.35 per share versus the year-ago period's $0.32. Technically speaking, shares are in lockstep with the broader market. For now that's not a very good thing, but in saying that a well-received report would likely prove to be just what the doctor ordered for bulls.

On the economic front, it's also a busy schedule with one report looking much more influential than the rest. Friday's monthly nonfarm payrolls will be the week's most anticipated, with hints of what might be released spilling out with Wednesday's loosely-correlated ADP and Challenger reports.

The consensus view is looking for slight job growth of 13,000 following last month's disappointing and surprise drop of 85,000. Realistically, sentiment and market prices should prove as important as the actual data with regards to any cheers or jeers that might unfold in the market that day.

Related and kicking the week off, on Monday President Obama will send a $3.8 trillion budget to Congress for approval. The plan endorses spending an additional $100B in an effort to counter high unemployment and make good on fresh job growth initiatives while also keeping true to recently promised spending reform in order to reduce the country's gargantuan deficit over time.

Weekly Calendar of Key Reports

Monday
Economic: Inc & Spend (0.3%, 0.3%), Construction (-0.5%), ISM (55.2)
Earnings: Exxon Mobil (XOM), Humana (HUM), Sohu (SOHU), Anadarko (APC), RGA (RGA), Rent-A-Center (RCII), Tupperware (TUP)

Tuesday
Economic: Pending Homes (1.1%), Auto / Truck, Senate Hearings Banking Reform
Earnings: AM Super (AMSC), Archer (ADM), BP (BP), DR Horton (DHI), Emerson (EMR), Hershey (HSY), Lexmark (LXK), Patriot Coal (PCX), Pepsi B (PBG), UPS (UPS), Whirlpool (WHR), AFLAC (AFL), CH Robinson (CHRW), Ctrip.com (CTRP), Massey (MEE), Metlife (MET), Riverbed (RVBD), Tesoro (TSO), VeriSign (VRSN)

Wednesday
Economic: ADP (-40K), Challenger, ISM Services (50.9), Weekly Crude
Earnings: Black & Decker (BDK), Brinks (BCO) Natl Oilwell (NOV), Polo (RL), Time Warner (TWX), Akamai (AKAM), Broadcom (BRCM), CBR Ellis (CBG), Cisco (CSCO), Dolby (DLB), Novellus (NVLS), Steel Dynamics (STLD), Visa (V), Walter (WLT), YUM! (YUM)

Thursday
Economic: Weekly Claims (454K, 4.60M), Factory Orders (0.6%), Unit Labor Costs (-2.5%)
Earnings: Bunge (BG), CIGNA (CI), CME (CME), Carbo Ceramics (CRR), Kellogg (K), MasterCard (MA), Moody's (MCO), Royal Gold (RGLD), RTI (RTI), Sony (SNE), Starwood (HOT), D&B (DNB), FMC (FMC), Illumina (ILMN), Microchip (MCHP), Multi-Fineline (MFLX), Vertex (VRTX)

Friday
Economic: Monthly Jobs (13K, 10.0%, 0.2%), Consumer Credit (-$9.5B)
Earnings: Aetna (AET), Beazer (BZH), CNA (SUR), Simon Props (SPG), Tyson (TSN), Weyerhaeuser (WY)

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Weekly Top

Last week we discussed the importance of bulls not "getting too aggressive or fixated" on what constitutes an oversold market. Following four days of loose consolidation work and a downside percentage break to finish the week, those thoughts rang unfortunately true and an intermediate top further solidified.

Entering Monday, the market's (SPY) one percent drop on Friday has the correction approaching 6.50%. That's a fair clip to be sure, but given the overall action last week additional downside is anticipated before potential oversold readings from the likes of the VIX Stretch (cash > 15% 10-SMA) and the next key technical levels come into play.

As emphasized late last week in the Growth Stock report, I think it's important right now to take a step back and appreciate the magnitude of 2009's historic rally on the weekly chart. From that perspective, the current correction and bulls trying to defend it have a less secure footing as shown in Figure 1.

Important as well, bulls failed quite miserably last week in their effort to put in an intermediate low. Obviously negative but not overly pessimistic sentiment needs to be appreciated as working in favor of the bears right now. Supporting that argument, mostly positive catalysts (GDP, Bernanke, FOMC and earnings) were ultimately dismissed as potential bargain-hunting efforts enjoyed the market's most severe short-term oversold condition since a year ago.

That being said, the outlook for a full-fledged 10% correction near the 105 level doesn't seem unreasonable, before any rally attempts and a subsequent trend changing follow-through day might confirm a more bullish reality for investors.

MARKET LAB

Bullish Technicals

• November thru April strongest six months for equities historically.
• Corrective activity of roughly 6.50% for SP-500.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl
• Mostly long-term overbought market conditions/weak internals.
• Q3 "Recession is over" data confirmation.
• High volume break below key 1100 and 50-SMA supports in SP-500.
• Waning momentum to fresh highs after 10-month long historic rally.
• IBD's "Market Under Correction."
• Failure to rally from extreme VIX Stretch and failed "Rally Attempt Day" low in SP-500 on Thursday.

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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