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Weekly Outlook: December 19, 2011

By Chris Tyler, Optionetics.com | Sun December 18, 2011 3:27PM PT


Continued “naughty and nice” headline risks from overseas credit markets, a sleigh load of heavyweight confessionals and stateside data weigh in this week on investors. For the five day period the SP-500 (SPY) is off 2.83% as Santa stages an unwanted technical detour below the 50SMA and fails to “follow-through” for bulls.

THE WEEKLY NUTSHELL

  • “Moody, Grinch-Like Monday.” Following impressive reaction to Friday’s better-than-feared, modest progress EU Summit finale, Moody’s warns nothing’s changed regarding Eurozone debt crisis and will review credit ratings of all members. Report triggers fears Europe’s pledge for economic integration and stringent budget rules won’t prevent debt crisis from spreading. Intel (INTC) weighs on tech (HPQ, WDC and AMD) as company warns of below views sales outlook for Q4 due to disk drive disruptions tied to Thailand’s flooding. Gold (GLD) fails as precious safe haven as the Yellow Metal dips a hard, red 2.65% as bulls flock to US Dollar (UUP) and treasuries (TLT) in search of relief in uncertain times. The VIX ($VIX) dips 2.69% into 200SMA to close at session lows as SP-500 rallies in final thirty minutes to finish off -1.45%.
  • “Eur-o” Mean One Mr (Bearnanke) Grinch.” In first half bulls overcome disappointing retail sales growth of 0.2% vs. estimates of 0.6%, pressured Best Buy (BBY) report on mixed guidance and Germany’s Merkel opposition to increasing size of the region’s bailout dragging the Euro to eleven month lows. Alas, Bear-nanke & Co’s FOMC decision delivers expected, status quo low rates through 2013 message and warns of strains on global markets without fulfilling rumors (so they tell us) the Fed would deliver a strong hint of additional quant easing in the works. Failure of report to produce a gift for bulls reverses market from early gains of about 1.0% to loss of 0.87%, confirming loss of 10SMA and lateral support and moving into the November 30 gap.
  • “Wins-day for Bears.” Light and uninspiring reports and more euro-trash price action to fresh eleven month lows on continued EU debt concerns keep bulls on the defensive with SP500 off 1.05% and losing 50SMA support. Dollar (UUP) flight strength further weakens dollar-denominated commodity complex. Silver (SLV) leads to the downside with loss of 5.87%. In a “vix’ing” defiant act of courage, the VIX ($VIX) closes up but 2.50% at session lows at 200SMA, while financials (XLF, JPM, BAC, GS) show leadership with very modest decline of 0.3%.
  • “Thursday’s Overnight Nick of Time Special Delivery.” Bulls receive a relief felt break from three days of selling pressure as SP-500 toys with 50SMA and wraps up gains of 0.37%. Stateside supports include special delivery profit beat by FedEx (FDX) with above views forecast and the gift of M&A news as semi (SMH, INTC) equipment manufacturer Lam Research (LRCX) announces $3.3B all-stock deal with Novellus (NVLS). Weekly claims drop unexpectedly to multi-month low of 366K vs. estimates of 390K, Empire and Philly manufacturing data trump views and from across-the-pond, well-bid Spanish debt auction and good regional manufacturing reports assist. Total PPI data for November comes in hotter-than-forecast with 0.3% increase versus 0.1% forecast but core levels match with modest 0.1% rise.
  • “Naughty or Nice Friday?” SP-500 ekes out 0.31% gain after early session strength and test of 50SMA denied by bears.  In the “nice” headline department, “Eur-o Mean One Mr. Grinch” stabilizes and stateside CPI data shows flat 0.0% reading vs. 0.1% forecast. Adobe (ADBE) beats and enjoys bullish support in assisting Naz’ 100 (QQQ) to relative strength gainer. For those Grinch-like bears, Fitch’s issues debt downgrades to eight global (BAC, GS, MS, BCS, UBS, CS, DB) banks, as well as intraday threat by said analysts to cut ratings on six EU constituents. Accenture (ACN) disappoints with slightly weak FY12 outlook which results in sympathy weakness in Dow heavyweight IBM (IBM), while RIM (RIMM) warns, much to nobody’s real surprise, from its earnings “Playbook” of recent quarters.

 

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: Ongoing potential wild card credit market drivers. Late Friday downgrade of Belgium credit by Moody’s and EU pursuing measures to tackle debt crisis with more funds to IMF and tighter fiscal rules are on the radar as early catalysts.

Other Economic Data: NAHB (19).

Earnings: Red Hat (RHT).

Tuesday:
Economic:  Housing Starts & Permits (627K & 633K).

Earnings:
Carnival (CCL), ConAgra (CAG), General Mills (GIS), Jeffries (JEF), Navistar (NAV).

After Hours: Cintas (CTAS), Jabil (JBL), Nike (NKE), Oracle (ORCL), Paychex (PAYX).

Wednesday:
Economic:  Weekly Mortgage Index, Weekly Crude, Existing Homes (5.03M).

Earnings:
Actuant (ATU), CarMax (KMX), KB Home (KBH), Lindsay (LNN), Shaw (SHAW), Walgreen’s (WAG).

After Hours:
Bed Bath & Beyond (BBBY), Micron (MU), TIBCO (TIBX).

Thursday:
Economic:  Weekly Claims (390K), Q3 GDP & Deflator (2.0% & 2.5%), Michigan (68.0), Leading Indicators (0.3%) and FHFA Housing.

Earnings:
American Greetings (AM), Neogen (NEOG).

After Hours:
NA.

Friday:
Economic: Durable Orders & ex Trans (2.0% & 0.3%), Inc & Spend (0.2% & 0.3%), PCE Prices (0.1%), New Homes (313K).

Earnings:
NA.

TECHNICAL OUTLOOK

Figure 1: SP-500 (SPY) Daily Chart

This past week was a disappointing one as bulls were unable to use a solid neutralized technical platform with favorable seasonality to stage a rally to fresh intermediate highs. Instead, investors allowed bears to break key lateral gap support and move prices aggressively lower. The overall technical picture deteriorated considerably with the loss of 50SMA, but the real concern in our view was the failure of a follow-through day or “FTD” to signal within 13 days of the rally attempt low.

According to the record keepers at Investor’s Business Daily, no bull market has ever made its mark known without a FTD being in place. That said, the odds of prices challenging the November 25 low appear to grow increasingly likely, which would also allow for a fresh count to begin.

As it stands, IBD looks for FTD’s to confirm a bull within days 4 through 7 after the rally attempt, while our looser 13 day window is based on other analyst’s statistical findings which suggest being more lenient with regards to timing the FTD is appropriate. Either way, with both counts effectively voided, were a high-powered price thrust to occur, it would be more suspect in its bullish authority.

Finally and hinting at another warning flag is the damage inflicted upon more than a few bases in leading growth names during this past week’s slippery slope as the IBD 50 lost 4.2% compared to the SP-500’s 2.8% drop. Historically, that’s the sort of naughty behavior which flies in the face of a bull ready to make a lasting and technically healthy impression. As much, upon any bounce reactions and feigned sightings of Santa, we’d be careful toying around as a bull too aggressively; lest you find yourself cozying up with inventory from the Land of Forgotten Toys.

MARKET LAB
Bullish Technicals

  • Third Year Presidential cycle.
  • First Week Effect.
  • October’s historical bottoms.
  • “Best Six” period for market and Santa Claus rally period.
  • VIX into more comfortable less volatile 20s.
  •  

Bearish Technicals

  • 1930 Bear Market Rally repeat states EW Intl.
  • 10-Yr. anniversary mark of ATH top in broader market.
  • H & S weekly top SPY and trendline breakdown.
  • Bear market time and price still in effect.
  • Loss of 50SMA support, test of 1200 in SP-500 spitting distance.
  • Failure of bulls to signal Follow-Through Day within 13 day time window.
  • Weak base structures in leading growth names.



Index or Sector Proxy

Ticker Symbol

Support

Resistance

SP-500

(SPY)

120, 118 – 118.5,115.75 – 116.5

123.50 - 125

 

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