Despite warnings of June gloom now firmly the more popular forecast; the immediate technical outlook appears a bit sunnier. For the five day period the SP-500 (SPY) is off 0.57% and giving fresh support to bulls entertaining pullbacks, rather than favoring clearly complacent conditions.
THE WEEKLY NUTSHELL
- “Indecisive Doji Vote Monday.” Unsurprising doji decision and scant 0.14% gainer in SP-500 following a less-than-decisive Greek pro-austerity win, whispers of increased bad loans for Spain’s banks following last week’s doubtful central bank cash injection, Wednesday’s FOMC meeting and two weeks of gains amounting to 5% help stall bulls. Of notice, the VIX ($VIX) tumbles about 13% to close near 18.3% despite a still-troubled Eurozone situation and likely monetary action from Fed amounting to an extension of Operation Twist versus fresh quant easing program. EUR/USD and FTSE Greece 20 ETF (GREK) both succumb to profit-taking, while bankers (XLF, JPM and BAC) see relative weakness and finish modestly lower.
- “Bulls Get Fed Up Tuesday.” Optimism Fed will deliver favorable Operation Twist extension, Greece quickly building its coalition government and possible confidence central bankers will still serve a dish of Greek Supportlova such as rumors of EFSF set to buy sovereign debt assist bulls to gain of 0.98% in SP-500 and through 50SMA resistance. Bulls are allowed to apparently have their cake and eat it too as strong upward revisions to housing starts and much stronger-than-forecast building permits data of 780K fails to discourage QE3 camp. VIX follows through for second day with decline of nearly 4% to 17.39%, stretching more than 18% below its 10SMA and warning of confidence having turned too complacent.
- “Decision Day Doji Wednesday.” SP-500 finishes off 0.17% in inside doji against 62% retracement level after “well-Fed” investors are served an extended Operation Twist through 2012, additional treasury purchases if necessary, reduced real GDP growth of 1.9% to 2.4% this year, unemployment range of 8% - 8.2%through year-end and contained inflation. After jumping modestly higher to test 20% from oversold / complacent conditions, the VIX reverses course and continues to slide for a fifth day of losses, down 6.2% near 17% and stretched 17% below 10SMA as confidence breeds complacency yet again as Fed uncertainty is removed.
- “Terri-Bull Turns-day.” SP-500 sees hardest tumble since December with near 2.25% reversal from 62% retracement and “100% complacent” levels in VIX after trio of oversold readings. Acting as a trigger for profit-taking platform, disappointing PMI contraction readings out of China and Germany and surprise slump to -16.6 versus 0.00 forecast in Philly Fed manufacturing report jostles bulls into action. Steady stream of 387,000 first time jobless filings doesn’t help matters, while Spanish stress test audit which shows much lesser levels of capital needed to safeguard banks against bad loans, better-than-forecast 0.3% increase for leading indicators and in-line existing home sales are dismissed.
- “Free to Feed Friday.” Bulls bounce back in careful, but better-looking grazing of 0.71% for the SP-500 to close out the period and keep weekly damage to deserved 0.58% dip. Thursday’s “manufactured bear” disappears with void of economic data. Moody’s cuts 10 money center banks credit ratings by two or more notches, but the well-telegraphed action also proves better-than-feared allowing bulls to “buy the news” (JPM, BAC, KBW). VIX cooperates nicely for bulls with its theta-crunching near 10% dip back towards 18% from a neutralized attack of key 20% and 10 / 50SMAs on Thursday.
WEEKLY CALENDAR OF KEY UPCOMING EVENTS
Economic: New Home Sales (350K). Wildcard Eurozone credit markets with Spain’s record yields and bad loan situation, as well as Greece’s new coalition government still likely targets for daily drivers stateside.
Earnings: Apollo (APOL), HB Fuller (FUL), Synnex (SNX).
Economic: Consumer Confidence (63).
Earnings: LDK Solar (LDK), Robbins & Myers (RBN).
After Hours: H & R Block (HRB), Sealy (ZZ).
Economic: Weekly Crude, Durable Orders (1.0%, 0.0%), Pending Homes (1.0%).
Earnings: Commercial Metals (CMC), Gen Mills (GIS), Lennar (LEN), Lindsay (LNN), McCormick (MKC), Monsanto (MON).
After Hours: Herman Miller (MLHR), Paychex (PAYX), Progress Sftwr (PRGS).
Economic: Weekly Claims (385K), Continuing Claims (3.29M), GDP Q1 3rd Est. (1.9%, Deflator 1.7%).
Earnings: Family Dollar (FDO), Schnitzer Steel (SCHN), Worthington (WOR).
After Hours: Retail athletics giant Nike (NKE) reports after the close. Analysts expect profit growth of about 10.5% on earnings of $1.37 per share on sales of $6.5B compared to the prior year’s $5.1B. Technically, shares are showing mixed signals. On the daily, a complex H & S top is being confirmed with a bearish flag built around a test of its 200SMA, which broke marginally lower during Thursday’s session. The weekly view looks a bit more approachable for bulls as shares look to establish a W4 weekly low off 50-Week SMA support.
Other: Accenture (ACN), RIM (RIMM), TIBCO (TIBX).
Economic: Income & Spending (0.0%, 0.1%), PCE (0.2%), Chicago PMI (52), Michigan (73).
Figure 1: SP-500 (SPY) Daily Chart
From overly-complacent conditions punctuated by three straight sessions of the VIX ($VIX) stretched in excess of 15% below its 10SMA as the SP-500 tested a key 62% retracement and prior price support turned resistance, the speed of strength of Thursday’s downdraft may not have been fully expected; but a pullback in-the-making was far from surprising. We discussed as much in our daily dialogues and the weekly Market Barometer. Entering the week and with warnings of further June gloom now firmly the more popular forecast, our outlook is more optimistic.
Some might find our optimistic view surprising as it’s also predicated on the VIX. Our takeaway from last week is the action looks more supportive than not for bulls after the sentiment gauge managed to reverse below its closely-watched breaking point of 20% while testing / neutralizing at its 10 and 50SMAs on Thursday. In finishing below 19% and at more historically normalized levels of volatility on Friday, the action suggests traders took the opportunity to sell decay into the weekend despite continued bearish credit-related overtures. In our mind that’s a good sign and allows us to see the potential for Thursday’s price action as being a welcome respite from excessive bullishness rather than a trend change.
With our forecast, we would caveat it with the ability of the market to hold the 1320 – 1325 area in the SPX. Unfortunately, there are too many levels of potential support down to even recent corrective lows, not to mention over the past year, two years and three years to seriously entertain being a serial bull as prices move lower. Also, with our support of the market predicated on the VIX’s behavior below 20%, that action would likely be rejected on a failure of Thursday’s lows, plus a little wiggle room into 30SMA support, to hold. Finally, mindful of the seasonally bearish “Worst Six”, the SPX still around the astounding “double” mark of 1333 from the devilish March 2009 “666” low and economically-sensitive commodities like silver (SLV) and oil (USO) acting like technically bearish canaries; keeping a tight leash or umm, collar on the bull seems to make sense and cents.
- First Week Effect 2012.
- Corrective “closing” low into key 1278 – 1300 support for SPX.
- Weekly Kings & Queens candle reversal low pattern.
- FTD signal in Naz’ on 6-15-12.
- Supportive “normalized” VIX readings and 20% level rejection Friday.
- Maintain 1320 – 1325 support in SPX critical.
- Fibonacci based butterfly completion around test of 1400.
- SP-500 daily downtrend established entering Worst Six period.
- Historically weak June FTD signals.
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