A second straight, key weekly win for bulls sets the stage for higher prices despite continued credit market related volatility. For the five day period the SP-500 (SPY) is up 1.12% and after working through a bit of expected mean, but not-too-nasty digestion, is handling the bulls’ bottom in strong form.

THE WEEKLY NUTSHELL 

• “Bulls Attacked by Germany’s War of Words.” SP-500 slumps -1.94% into test of 1200 level as overbought rally of nearly 6% from prior week hears less agreeable news from Germany’s Finance Minister that EU meeting later this month won’t resolve region’s credit crisis, essentially breaking last Monday’s promises and dashing bulls pined hopes for a quick resolution. VIX ($VIX) jumps 18.24% to 33.39% into 10SMA test from below following Friday’s oversold and optimistic differential in excess of 15%. Wells Fargo (WFC) helps drag financials (XLF) on penny miss and weak sales decline of -6.0%. Intraday, bulls try to find support from Apple (AAPL) report of record breaking 4.0M plus iPhone 4S sold during launch and Citigroup’s (C) top and bottom-line beat.
• “Turnaround Tuesday.” Bulls bounce back on advancing volume and strong gain of 2.04% in SP-500 while hitting best levels marginally intraday since July correction began. Session begins under pressure as “disappointing” 9.1% Chinese GDP growth, mixed earnings (GS, BAC and IBM) and possible Moody’s warning of “negative outlook” for France, weigh on bulls’ initially. Hotter-than-expected PPI spike of 0.8% versus forecasts of 0.2% in the mix as well, but actually finds buyers stepping in during premarket. Second session of pullback testing into 10SMA support narrowly below 1200 and VIX early rebound through 10SMA, help prompt bargain-hunters into action and into bullish engulfing reversal day as momentum buying builds into second half and into the closing bell.
• “Slightly Bruised Wednesday.” Big, bad and slightly bruised Apple (AAPL) earnings reaction counters mostly sweet earnings (INTC, FCX, ISRG, MS) in first half tug-o-war between market bulls and bears. Background support also provided by cooler-than-expected CPI data in stark contrast to PPI. Alas, another round of contentious credit market reports from across-the-pond spearheaded by splintered and contradictory reports on EFSF bailout plan, Spain downgrade from Moody’s and afternoon “no surprise” Beige Book which showed modest expansion in many districts but also weaker / less certain outlook for business conditions. SP-500 finishes off -1.24% on lighter volume inside candle above 1200 and 10SMA support.   
• “Sell The News, Buy Support Thursday.” Moderate profit-taking during first half as bulls wrestle with continued less-than-great credit market headlines and mixed / unsupportive earnings. Bulls push SP-500 into a second test of 10SMA support within six day consolidation as buzz of this weekend’s EU Summit hitting a potential snag compounded by more EFSF arrangement questions, raises concerns. Semi Lam Research’s (LRCX) mixed-to-weak results and near -6% technical breakage and eBay’s (EBAY) in-line profit-taking help imbue bulls to pressure large cap tech intraday. Technical reversal finds delayed headline comfort from much stronger and unexpected rebound in Philly Fed to 8.7, matching existing home sales, confirmation of Khadafy’s demise and industrial conglomerate Danaher’s (DHR) all-around strong and well-received results.
• “Follow-Through Friday.” Bulls score 1.88% heavier volume gainer to fresh rally highs as investors are imbued by word weekend EU Summit will proceed and optimism meeting will produce some momentum and clarity regarding plan for region’s debt crisis. Stronger batch of stateside corporate confessionals (MCD, SNDK, COF, TRV, CMG) assist in bid, while October’s notorious bears reach their October contract expiration.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: Trader reaction to weekend EU Summit as part of a critical two stage pow-wow. By early Sunday, policymakers focused on Italy and its austerity measures in order to circumvent the country from following in Greece’s less-than-fleet footed footsteps.

According to Reuters, leaders aim to have a plan in place as how to best reduce the Greek debt burden, strengthen member banks, improve regional economic governance and maximize the resources of the EFSF by Wednesday.  

Earnings: Caterpillar (CAT), Eaton (ETN), PetMed (PETS), Roper (ROP), VF Corp (VFC).

After Hours: Aaron’s (AAN), Amgen (AMGN), Healthways (HWAY), Netflix (NFLX), Texas Instruments (TXN), Unisys (UIS), Zions Bank (ZION).

Tuesday:
Economic:  Case Shiller (-3.5%), Consumer Confidence (46), FHFA.

Earnings: 3M (MMM), BP (BP), Coach (COH), Cummins (CMI), Delta (DAL), DuPont (DD), Illinois Tool (ITW), Peabody (BTU), US Steel (X), UBS (UBS), Under Armour (UA), UPS (UPS), Weatherford (WFT).

After Hours: Amazon (AMZN), Broadcom (BRCM), CH Robinson (CHRW), F5 (FFIV), Manitowoc (MTW), Panera (PNRA), RadioShack (RSH), Western Union (WU).

Wednesday:
Economic:  Weekly Mortgage Index, Weekly Crude, Durable Orders (-1.0% & 0.4% ex trans.), New Home Sales (300K).

Earnings: Alleghany Tech (ATI), Allergan (AGN), Boeing (BA), Brinker (EAT), Conoco (COP), Corning (GLW), Ford (F), NASDAQ (NDAQ), SAP (SAP), Sealed Air (SEE), Vitamin Shoppe (VSI), Wyndham (WYN), WellPoint (WLP).

After Hours: In the spotlight, internet delivery provider Akamai (AKAM) is expected to produce profits of $0.33 per share compared to the prior year’s $0.34 and a time when headlines and expectations were going along a wee bit more enthusiastically for the former growth star. Technically and strategy wise, readers may want to take a peek at Friday’s Hot Shots: Handling Earnings in Akamai to gain further insights.

Others: Agnico Eagle (AEM), BMC (BMC), Choice Hotels (CHH), Goldcorp (GG), KBR (KBR), Novellus (NVLS), Oceaneering (OII), O’Reilly (ORLY), Ryland (RYL), Symantec (SYMC), Visa (V).

Thursday:
Economic:  Weekly Claims (403K), Continuing Claims (3.70M), Q3 GDP-Adv (2.2%, deflator 2.5%), Pending Home (-1.0%).

Earnings: Aetna (AET), Barrick (ABX), Bunge (BG), Celgene (CELG), Colgate Palmolive (CL), Exxon (XOM), Johnson Controls (JCI), Monster (MWW), PF Chang’s (PFCB), Potash (POT), Procter Gamble (PG), Starwood (HOT), Time Warner Cable (TWC), United Cont (UAL), Zimmer (ZMH).

After Hours: Baidu (BIDU), Cerner (CERN), Crocs (CROC), Deckers (DECK), Gilead (GILD), LV Sands (LVS), NETGEAR (NTGR), SW Energy (SWN), Stamps.com (STMP), VeriSign (VRSN).

Friday:
Economic: Inc & Spend (0.3%, 0.6%), PCE Prices Core (0.1%), Michigan (57.5).

Earnings: Arch (ACI), Biogen (BIIB), Borg Warner (BWA), Chevron (CVX), Goodyear (GT), Rubbermaid (NWL), Newmont (NEM), Whirlpool (WHR).

TECHNICAL OUTLOOK

Figure 1: DJ-30 (DIA) Daily Chart

Despite a second straight week of gains, the path market prices took to get there was windy enough to promote a bullish platform entering the five day period ahead. From deserved profit-taking early last week assisted by short-term overbought conditions strongly evident in the VIX ($VIX); the fear gauge is now just 7% below its 10SMA and still slightly above the historically overly fearful 30% level.

Both factors in the VIX bode well for bulls as we move further away from a notorious October bottom and towards the more seasonally pleasing “Best Six” calendar period. In conjunction with the DJ-30’s and SP-500’s handle-like breakouts slightly above congestion highs of the past two plus months; it’s not blue skies conditions just yet, but then again that’s likely a good thing for option hedge hogs acting out as bulls. 

MARKET LAB
Bullish Technicals

• Third Year Presidential cycle. 
• First Week Effect. 
• Double bottom Naz’, “flush” corrective low SP-500 with VIX confirmation. 
• October’s historical bottoms.
• Bullish pattern breaking of bears continuation H & S pattern.
• Initial VIX break sub 30% complimented by current non-stretched readings slightly +30%.
• Entering “Best Six” period for market.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• 10-Yr. anniversary mark of ATH top in broader market.
• “Worst Six” calendar after historic run.
• H & S weekly top SPY and trendline breakdown.
• Bear market label for SP-500 with correction in excess of 20% and within typical duration.
• Still questionable growth stock leadership.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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.