Bulls claim further support entering the testy month of September. For the five day period the SP-500 (SPY) is off 0.32% but looking constructive as a less fearful brand of bull takes shape. 

THE WEEKLY NUTSHELL

• “Never Buy or Sell a Dull Monday.” SP-500 finishes off 0.05% after modest opening bid. M&A (IBM, MTB and HTZ) deals from three diverse industries stokes a few bulls into action. “She said” talk from Germany’s Merkel telling party members to temper Greek exit talk with assist, while “He said” comments from Bundesbank Prez’ warning ECB’s government debt purchases could be illegal and yield unintended costs help keep a lid on bulls follow-through from a four-day pullback test into 1400. Germany’s IFO business climate index falls for fourth straight month and misses forecasts. Trader jitters in front of this week’s Jackson Hole Economic Symposium with Bernanke speaking on Friday. Apple (AAPL) hits record highs and gains 1.9% after winning patent suit against Samsung.
• “Tuesday Makes Two Minus One.” Second in a row tight doji action with -0.08% finish in SP-500. Unofficially, traders’ waiting on Bernanke’s Friday speech keeps a lid on prices. Cancellation by “one” keynote speaker, the ECB’s Draghi, due to a “heavy workload” nonetheless finds EUR/USD well bid by 0.6% within its five day consolidation. Mixed data on day with bulls snagging headline beats with Case-Shiller housing index’s “fairly significant turn” [0.5% vs. -0.3%] and German consumer confidence. Bears take a bite out of US consumer confidence data which falls to weaker-than-forecast nine-month low of 60.6, Japan cutting its economic assessment, while hedge hogs take Spain’s in-line contraction of 0.4% in its GDP in stride.
• “Another Wins-Day for Hedge Hogs.” SP-500 finishes up a scant 0.08% for third session of tight but anxious dojis. Continued focus on upcoming Fed Speak on Friday. Stronger-than-forecast reports on GDP [1.7% vs. 1.6% est. & 1.5% prior], pending home sales [2.4% vs. 0.0% est. and “best since 2010” status] and decent Beige Book aren’t necessarily “better-than-expected” for the QE crowd, keeping bulls and bears in a technical deadlock. Italian debt auction goes smoothly with 6-month yield at five-month low. Country sees surprise 0.4% increase in retail sales and in-line consumer confidence “to boot.” Draghi’s “whatever is necessary” reiteration while slipping in need for Germany to go the extra mile could cause a furor behind closed doors at region’s largest economy. VIX ($VIX) hits three week high, narrowly eclipses 50SMA with 10SMA differential of 11% and premiums at a historical average and constructive 17%.
• “Tense Thursday.” Bulls spooked into challenging 1400 support with jittery dip of 0.78% in SP-500 after IMF states it sees a “major challenge” in implementing measures for Greece and Slovak PM suggests a 50% chance of the euro breaking up. Assisting, likely quickly growing perception Bernanke isn’t likely to bear gifts for bulls in lieu of recent economic data at Friday’s highly-anticipated speech from Jackson Hole. Miss and reduced guidance by networker Ciena (CIEN) drags down peers (JDSU, CSCO, FFIV and JNPR) and pressures large cap tech. VIX jumps 4.5% to high of 18% and fearful 15% differential above 10SMA.
• “Fear of Missing Out Friday.” SP-500 finishes up 0.51% rebounding from fearful VIX condition and test of 1400. Mixed data with stronger-than-forecast factory orders increase of 2.8%, Michigan Sentiment reading of 74.3 versus flat 73.6 estimate, but marginal miss from Chicago PMI with 53 versus 53.8. Fed Chief’s anxiously-awaited Jackson Hole address fails to hint at additional stimulus but reaffirms “ready to act” stance if economic conditions deteriorate. After a volatile and fast intraday stint of dumping and jumping, SP-500 settles back to its pre-speech bid levels as well-prepped event is discounted. Metals (GLD, SLV) jump in response favoring optimism central bankers will still likely move from standing ready to actually 6 taking action.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday: US Holiday

Tuesday:
Economic: Chinese PMI, ISM (50.0), Construction Spending (0.5%) and Truck & Auto. Friday Fed Speak from Jackson Hole and ongoing Eurozone “updates” remain on radar.

Earnings: Campbell’s (CPB), Smithfield (SFD).
After Hours: Finisar (FNSR), Pep Boys (PBY), Francesca’s (FRAN), Teavana (TEA).

Wednesday:
Economic:  Productivity (1.8%).

Earnings: Dollar General (DG).
After Hours: ABM (ABM), Men’s Wearhouse (MW), VeriFone (PAY), Verint (VRNT).

Thursday:
Economic:  Challenger Survey, ADP (140K), Weekly Claims (375K), Continuing Claims (3.3M), ISM Services (52.2).

Earnings: Hovnanian (HOV), Layne Christensen (LAYN), UTI (UTIW).
After Hours: Cooper (COO), Quicksilver (ZQK), Smith & Wesson (SWHC), Ulta Salon (ULTA).

Friday:
Economic: BLS August Jobs Report (8.3%, NFP 130K & Private 145K).

Earnings: Brady (BRC), Kroger (KR), Lululemon (LULU).

TECHNICAL OUTLOOK

Figure 1: SP-500 ($SPX) Daily Chart

Entering Monday, a short, less than two week long, high level double bottom has managed to find support off the 1400 level and an intact mid-channel line within the SP-500’s uptrend. Bulls have price confirmation from Friday’s trade which took out Thursday’s pivot highs and instrumental secondary validation from the VIX ($VIX) which traded 15% above its mean-reverting 10SMA while striking three-plus week highs at more historically normalized levels of 18%.

What bulls need to be weary of is volatility rearing its head on top of the current price action. With the seasonal bearish month of September upon us, that tendency needs to be guarded against. In our estimation, given the current pattern hold and fear readings at conducive, but not over-the-top levels; Thursday’s lows look to be critical for the bull case. Below current support which is only about 0.5% removed from Friday’s close, lower channel support of 137.50 – 138, then the 200SMA and a gap fill from late July appear the next logical and much lower spots for bulls to defend.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• Third FTD signal on Thursday 7.26.12.
• Established 5 point uptrend off 30SMA and Channel line in SP-500.
• VIX (fearful) Stretch of 15% on Thursday while back at more normalized levels of 18%.
• High level two week long double bottom off 1400.

Bearish Technicals

• Fibonacci based butterfly completion March / April.
• SP-500 weekly bear flag-into-double top during Worst Six period.
• Historically weak June and July FTD signals.

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.