Wildcard credit market drivers, a dicey symmetrical triangle and key labor report look to put bulls or bears back to work this week. For the four day period the SP-500 (SPY) mimics 2011 with its bumpy up, down, up and virtually flat performance around, more important than usual, key levels for both ho-ho-hopeful and Grinch-like strategists.

THE WEEKLY NUTSHELL

• “All Quiet On the Western Fronts Tuesday.” Holiday trade dictated by void of officially and unofficially-sanctioned headline catalysts keep bulls toying with 200SMA in narrow trade following prior week’s near 4.0% jump in SP-500. Imbuing bulls to take a breather, Case Shiller data housing sales price data shows larger 3.4% decline versus estimates of 3.0%. Sears (SHLD) announces same-store sales dropping an icy 5.2% and forthcoming closure of 120 of its stores. European banks under pressure in front of Italian debt auction set for Wednesday. Keeping gains for the SP-500 to five-in-a-row, consumer confidence rises to stronger-than-expected 64.5 versus prior month’s 56.0 and estimates of 58.0 and gaming stocks (MGM, LVS) find a lucky bid following US DOJ reverses prior ruling regarding legality of internet poker.
• “Wins-Day for Bears.” Anticipated sleeper session turns technically rude as SP-500 slides 1.06% after ECB announces record deposits by member banks suggesting tightening credit markets across-the-pond. Skipped over by bulls returning gifts back below 200SMA is well-bid Italian debt auction as EUR/USD hits fresh 14 month lows after two plus weeks of lateral consolidation.
• “Santa’s Back Thursday.” SP-500 narrowly reclaims 200SMA with 1.03% gainer and flat on year as mixed but mostly pleasing data wipe away prior heightened credit market concerns. In the spotlight, weekly claims miss views but analysts are quick to cheer fourth week below key 400K level and lowest 4-week moving average in four years. Pending home sales climb 7.3% and easily top 0.6% forecast. Chicago PMI comes in flat at 62.5 compared to 60.1 estimates. And from across-the-pond, a second round of Italian debt auctions goes off with decent enough investor interest for bears to say “Ciao” and bulls to say “Good Buy!”
• “Bulls Sell-e-Brate a Flat, Yet Bubbly 2011 Friday.” Lightly-manned, pre-holiday trading ops with a couple modestly bearish catalysts find SP-500 finishing off 0.46% to finish volatile year, squarely flat. China PMI data shows second month in contraction territory though modestly higher at 48.7 for December. Spain announces 2011 deficit rises about 8% compared to targeted 6%.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday: US Holiday
Economic: NA.

Earnings: NA.

Tuesday:
Economic:  Ongoing potential for wild card credit market drivers. ISM (53.4), Construction Spending (0.5%), FOMC Minutes.

Earnings: Progress Software (PRGS).

Wednesday:
Economic:  Weekly Mortgage Index, Factory Orders (2.1%), Auto & Truck.

Earnings: UniFirst (UNF).
After Hours: Mosaic (MOS), Resources Connect (RECN), Sonic (SONC), Texas Industries (TXI).

Thursday:
Economic:  Weekly Claims (375K), Continuing (3.62M), ADP (180K), Challenger Job Cuts, ISM Services (53.0), Weekly Crude.

Earnings Constellation Brands (STZ), Monsanto (MON), MSC (MSM), RPM (RPM), Worthington (WOR).

After Hours: Apollo (APOL), Family Dollar (FDO), Global Payment (GPN), Ruby Tuesday (RT), Xyratex (XRTX).

Friday:
Economic: BLS December Jobs Report (8.7%, NFP 150K, Private 170K).

Earnings: Commercial Metals (CMC), Greenbrier (GBX), IHS (IHS), Robbins & Myers (RBN).

TECHNICAL OUTLOOK

Figure 1: SP-500 (SPY) Daily Chart

As discussed this past Thursday in the Market Barometer, we’re a bit more ho-ho-hopeful for the SP-500 entering 2012. After three months of forming a tightening triangle contraction pattern and a year in which volatile up, down and up action ultimately yielded a bagel or 0% return for the broader market average, we’re optimistic of reduced and more normalized price swings.

Our directional outlook currently favors (slightly) an upside resolution from the developing price pattern. Admittedly, that’s a shift for us. However, with the SPY flirting once more for a fourth attempt with its 200SMA and our descending resistance line; in conjunction with a bullish seasonal bias, a breakout should produce some quick upside gains as bulls buy in and bears are forced to cover their bets.

Upside favor doesn’t mean bulls are out of the woods fully. A weak and atypically late follow-through day signal and a still barren landscape of growth leadership keep us from being too optimistic regarding a breakout. As well, the triangle, while nearing completion as it approaches its apex does look to have potential room to first test its shorter-term moving averages and ascending support zone, before and if, there’s an upside resolution. In saying that and as stated last week, we’d be mindful of technical support and the bearish implications if broken.    

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 low 20s.
• Early Day 3 and late Day 17 FTDs.
• Fourth attempt at 200SMA / Triangle breakout SP-500.

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.
• Late FTD signal and lack of growth stock bases are bearish factors.
• Near 20% test in VIX.

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.