Bulls enter the Q4 earnings season in good, overall technical shape despite a bout of late week, bearishly persistent overseas credit market drivers. For the four day period the SP-500 (SPY) is up 1.75% and affording bulls a technically very good and spirited, “First Week Effect” looking slightly ahead into 2012.

THE WEEKLY NUTSHELL

• “A Happy Manufactured New Year for Bulls.” Opening trade for 2012 produces 1.55% above average gainer clearing key triangular and 200SMA resistance in SP-500. Aiding the seasonal and in-place price bias, investors applaud global manufacturing data out of China, India, Europe and then the US act as headline trigger for Tuesday’s price move led by materials (XLB), picks-n-shovels (GDX) and financials (XLF). Construction spending also proves strong with 1.2% increase, while FOMC minutes show members in favor of possible additional monetary action given current economic conditions. The VIX ($VIX) dips 1.83% in narrow consolidation trade above 10SMA support, below 200SMA and largely in position to support bulls at 23%.
• “Constructive “Wins-Day” for Bulls.” SP-500 handles out-the-gate profit-taking pressure assisted by reignited euro-trash credit and Chinese growth concerns to finish up 0.16% and maintain key breakout support. Report of Spain mulling loan applications from both Eurozone bailout fund and IMF, along with left field financial concerns for Hungary, rattles bulls and sends EUR/USD down 0.85% to put failed breakdown in currency pair back in play. China’s top brass issue warning country faces a difficult economic road ahead, puncturing bulls inflated optimism following Tuesday’s mixed but better-than-expected manufacturing data. No “Yahoo!” for you know who (YHOO) after company announces PayPal’s President as its new CEO.
• “Overtime for Bulls on Thursday.” More euro-trash saber rattling as ECB announces ballooning deposit data finds investors initially working another session of constructive defensive testing of 200SMA and triangular support as EUR/USD hits fresh lows and sovereign debt yields jump higher. Technical hold and bullish sneak peek at Friday’s BLS jobs report as ADP sees private payrolls soar by 325K vs. forecasted 180K, pleasing and better-than-expected weekly claims of 372K and mostly in-line, expansion reading for ISM Services data assist bulls in gaining a fractionally footing of 0.27% in a heavier volume accumulation day.  
• “Bulls Back to Work, Kinda Sorta Friday.” SP-500 finishes off 0.26% in tight inside trade for second straight session of consolidation above 200SMA and triangular support. Of benefit to keeping price action constructive, December BLS jobs data tops with 200K gainer and dip to 8.5% in unemployment versus 150K and 8.6% estimates. Keeping the bull contained, rising Spanish debt yields and new lows for euro on little overt headlines but plenty of bearish momentum. Dip of nearly 4% to 20.60% suggests investors see the bull as in control with theta discounting the order of the day instead of worried “weekend holding risk” concerns dictating price action.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: Ongoing wild card credit market drivers with sovereign debt yields and pressured EUR/USD on the radar for traders. Consumer Credit ($7.0B).

Earnings: Acuity (AYI), Schnitzer Steel (SCHN).

After Hours: Aluminum giant and Dow constituent Alcoa (AA) unofficially kicks off the fourth quarter earnings season. Analysts expect profits of $0.01 per share compared to the year ago period’s $0.21 per share.

Technically, shares of AA look to have discounted or priced in a weak report with the stock down 50% from its April highs and trading just off its 52-week lows in a confirmed double bottom pattern and EW4 EBOT signal this week on the weekly time frame.

Tuesday:
Economic:  Wholesale Inventories (0.5%).

Earnings: Synnex (SNX).

Wednesday:
Economic:  Weekly Mortgage Index, Weekly Crude, Fed’s Beige Book.

Earnings: Lennar (LEN), Supervalu (SVU).

After Hours: NA.

Thursday:
Economic:  Weekly Claims (375K), Retail Sales (0.4% and ex-auto 0.4%), Biz Inventories (0.5%), Treasury Budget.

Earnings: Infosys (INFY), Shaw Comms (SJR).

After Hours: NA.

Friday:
Economic: Trade Balance (-$44.3B), Import / Export, Michigan Sentiment (71.0).

Earnings: JPMorgan Chase (JPM).

TECHNICAL OUTLOOK

Figure 1: SP-500 (SPY) Daily Chart

As discussed this past week on more than a couple occasions, we’re optimistic without having to resort to being too hopeful about the broader market’s ability to move into higher technical ground. Following the SP-500’s breakout above triangular and 200SMA resistance, bulls managed to digest those gains in a very constructive manner on Thursday and Friday despite continued credit market-related threats from the EUR/USD and rising sovereign debt yields.

A mean, but not-too-nasty or complacent CBOE Volatility Index ($VIX) remains instrumental in confirming our bullish forecast. The next areas of resistance in the SPY are near triangle pattern highs of 130, then around 133, which marks where the market began its rather nasty July descent. On the downside, should the market ultimately change its character; failure to hold the 125.50 – 126.50 area appears technically appropriate given our view on this week’s constructive action above prior resistance.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• October’s historical bottoms.
• “Best Six” period for market.
• VIX into more comfortable less volatile 20% w/o short-term complacency.
• Early Day 3 and late Day 17 FTDs.
• Successful 200SMA / Triangle breakout SP-500 and technical hold of new support.

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 still weak look of growth 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.