A corrected but at-risk bull faces taxing credit markets from across one pond, but finds a surprise ally across the other from China. For the five day period the SP-500 (SPY) is off 1.99% on some timely bearish follow-through following an early completion to a truly “Best Six” run for bulls. 

THE WEEKLY NUTSHELL

• “Monday Mourning for Bulls.” Less-than-good jobs report of 120K announced during observed NYSE holiday and hotter-than-expected CPI increase of 3.6% vs. 3.3% out of China produce fourth day of taxing profit-taking with SP-500 finishing off 1.14%. CBOE Volatility Index ($VIX) shows first short-term fearful turn by bulls in a month’s time with 12.63% gainer to 19.25% and plus 18% differential relative to 10SMA. Treasuries (TLT) soar by 2.34% above 50SMA resistance as investors put QE3 provision back on the table given laboring jobs market. “iShares Bull ETF” i.e. Apple (AAPL) bucks the tide with 0.40% gain to fresh highs as investors tune into the possibility of a 2012 “iPanel” phenomenon versus a rare analyst downgrade on iPhone subsidy concerns.
• “Terri-Bull Tuesday.” SP-500 completes fifth day of profit-taking with fearful 1.71% decline penetrating halfway into 1343 – 1370 support zone as prices close at session lows of 1358. Further quant easing of portfolios tied to weak Chinese import data following country’s hot inflation report which looks to handcuff its central bank from acting aggressively with monetary policy. Stiff European losses with Germany’s DAX tumbling 2.5% and Italy off 5% on widening sovereign debt spreads is cause for stateside bulls to reenact Pamplona on Wall Street. The 20-Yr (TLT) jumps another 1.13% in further “risk off” game play and hope a hawkish Fed will bring QE3 to the table. The “iShares Bull ETF” (AAPL) sets fresh highs in first half trade before finally tuning in to general market mayhem and finishing off 1.17%. VIX gains another 8.39% to finish at 20.39% and challenge it’s one month highs, whole number numerology and remaining fearfully stretched for a second session.
• “Base Hit for Bulls Wednesday.” SP-500 finishes up 0.74% after gapping up 1.0% following surprise profit hit from Alcoa (AA) in first inning of Q1 earnings game, pair of successful short term auctions from Debt PIIGS and technically oversold and fearful two-strike situation at bat for bulls. VIX falls 1.81% to close at 20% and fearfully extended / overbought vs. 10SMA for third session, while SP-500 is stopped at 50SMA and prior May 2011 highs.
• “A Double for Bulls Thursday.” SP-500 tacks on 1.38% in upside and fear of missing out follow-through action which takes bulls back above 1370 and 50SMA. A bandied about and “very specific rumor” of China’s Q1 GDP to top forecasts of 8.4% with a figure of 9.0% stokes commodity markets and acts as bulls primary price driver. Surprise narrowing of US trade deficit and flat March CPI data versus forecasts of 0.3% act as background supports. Being dismissed in pick-n-chose rummaging, mixed Italian auctions, core CPI increase of 0.3% versus 0.2% estimate and one month high, surprise spike to 380K in weekly claims to 380,000.
• “Fearful Friday the 13^th.” “Kings & Queens” reversal candlestick of 1.25% finds resistance at 10/30SMA cross and finishes session back at May 2011 highs and 50SMA. Rumored Chinese GDP beat proves less-than-accurate as growth dips to below forecast 8.1% to three year low versus views of 8.4% and Q4’s 8.9%. Spike in borrowing from Spanish banks cause sovereign debt yields to spike led by Spain’s record high credit default spread of 492bps. Prelim April read of consumer sentiment comes in shy of forecasts with modest 75.7 dip, while CPI data rises by in-line 0.3%. Corporate confessionals from Anchor Bankers JPMorgan (JPM) and Wells (WFC) and tech giant Google (GOOG) all beat estimates but fail to provide leadership due to macro concerns and some investor backlash over Google’s non-voting class stock split.  

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: Retail Sales (0.3% & 0.6% ex-auto), Empire (17.5), Business Inv’s (0.5%) and NAHB (29). Reignited yield risks tied to Eurozone credit markets versus bullish China currency reform and wildcard of ongoing Middle East geopolitical / oil stresses.

Earnings: Citigroup (C), M&T (MTB), Mattel (MAT), Gannett (GCI).

Tuesday:
Economic:  Housing Starts & Permits (700K & 710K), IP & CU (0.2% & 78.5%).

Earnings: Goldman (GS), J&J (JNJ), Northern Trust (NTRS), State Street (STT), US Bank (USB).

After Hours: Cree (CREE), CSX (CSX), IBM (IBM), Intel (INTC), Intuitive (ISRG), Linear Tech (LLTC), Seagate (STX), Stryker (SYK), United Rentals (URI), Yahoo (YHOO).

Wednesday:
Economic:  Weekly Crude, MBA Mortgage Index.

Earnings: BlackRock (BLK), Freeport M (FCX), Halliburton (HAL), Huntington (HBAN), PNC (PNC), ASML (ASML).

After Hours: Amex (AXP), Core Labs (CLB), eBay (EBAY), F5 (FFIV), Marriott (MAR), Noble (NE), Qualcomm (QCOM), Stanley BD (SWK), VMware (VMW), YUM! (YUM).

Thursday:
Economic:  Weekly Claims (375K), Continuing Claims (3.27M), Existing Homes (375K), Philly Fed (10.3), Leading Indicators (0.2%).

Earnings: BofA (BAC), Danaher (DHR), Cypress (CY), DuPont (DD), EMC (EMC), Gen Parts (GPC), KeyCorp (KEY), Morgan (MS), Nucor (NUE), Peabody (BTU), Philip Morris (PM), Sherwin W (SHW), Southwest (LUV), Travelers (TRV), Union Pac (UNP), United Health (UNH), Verizon (VZ).

After Hours: AMD (AMD), Cap One (COF), Chipotle (CMG), Chubb (CB), Microsoft (MSFT), Riverbed (RVBD), SanDisk (SNDK), eTrade (ETFC), Altera (ALTR).
 
Friday:
Economic: NA.

Earnings: General Electric (GE), Honeywell (HON), Ingersoll (IR), Johnson Controls (JCI), McDonalds (MCD), Schlumberger (SLB), Under Armour (UA).

TECHNICAL OUTLOOK

Figure 1: SP-500 (SPY) Weekly Chart Topping

This past week, a long overdue correction stalled by three weeks of doji decision candles finally signaled a bearish completion for our observed Fibonacci-based butterfly. Following a rather epic, albeit slightly early “Best Six” rally from the October lows and the market now approaching the notorious “Worst Six” calendar period; price and time appear to favor the bears, if not option hedge hogs at a minimum.

While our technical prognosis strongly suggests downside risks are larger than continued strength and fresh highs for the market, a higher volume thrust day known as a FTD or “follow-thru day” would be enough to shift our view and give the benefit of the doubt to the bulls. Classic signals are generated between days four through seven from a corrective low.

A reset of the FTD count occurs if the low is broken. This structure sets up Monday as day four in the count. Given the current testing in the SP-500 has found support midway into a previously well-detailed zone of 1343 – 1371 and fear finally showed its face this past week with three straight sessions of strong 10SMA differentials in the VIX ($VIX); respecting any potential FTD signals makes more sense than otherwise.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• Final couple weeks of “Best Six” calendar bias.
• Mid-level testing of 1343 – 1371 with fearful VIX signaling last week.
• Watch for FTD signal this week as bullish event.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• Bear market time and price still in effect.
• Historically weak FTD signal.
• Fibonacci based butterfly completion around test of 1400 with triple doji high.
• Failure of Transports (IYT) and small caps (IWM) to confirm rally.
• “Early” Best Six complete from October corrective lows.

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.