Two out of three bears were likely “stressing out” Friday but bulls aren’t fully out of the woods with the SP-500 still below its 200SMA. For the five day period the SP-500 (SPY) is up 3.55% and still in bear territory but making some pattern dents in the process and worth following in the days ahead.

THE WEEKLY NUTSHELL 

• “Bargain-Hunting Monday.” Bulls ignore light and mostly disappointing corporate (DAL, HAS) confessionals, intraday hammering from weaker-than-expected Nat Homebuilder Assoc survey [14 vs. 16] and European aches and pains ranging from Moody’s Irish debt cut, dissolved talks between IMF / EU and Hungary and Germany’s Hypo RE “stressed out.” Behind SP-500’s 0.60%, “Merger Monday Lite” (MOT, ATAC), Halliburton (HAL) report prompts bid in energy (OIH, XLE ) space and likely buy side interest from bulls following Friday’s near 3% drop.
• “Turnaround Tuesday for Bulls.” Out-the-gate percentage drop attributed to “tech wreck” sales miss at IBM (IBM) and “sell the news” response in TI (TXN) as wavering bulls focus on in-line quarter versus above views outlook. Weak housing starts decline of 5% aids bears efforts while better-than-expected 2.1% jump in permits is dismissed. Turning Tuesday into a closing gainer of 1.14% in SP-500, opening hold of 50% July cycle lows to highs prompts some bears to cover shorts, likely reconsideration of mixed housing data (XHB), TI’s report and double-their-pleasure analyst calls in steel sector (SLX, SCHN, XLB) provides technical sponsorship to “Buy, Buy, Buy!”   
• “Woeful Wednesday on Unwanted “Bear-nanke” Economic Update.” Semi-annual testimony with highlight nugget of “unusually uncertain” environment finds bulls failing their own stress test of sorts in second half. Opening bid on the back of strong results from Apple (AAPL), big banks (WFC, MS, USB) and select industrials (ETN, TXT) falters quickly as “tech wreck” reaction elsewhere (YHOO, ALTR, STX, JNPR) filters into broader market as does technical nod for upside gap failure at 50-SMA resi stance in SP-500 and existing double H & S with death cross in place. 
• “About-Face Thursday for Bulls.” Opening and sticky jump higher on well-received European PMI and UK retail sales data overseas. Bevy of mostly happy headline stateside confessionals from market heavyweights (CAT, MMM, QCOM, T, STI, HBAN, UPS, UNP, RCL, FFIV, RS) and lighter-than-expected existing homes drop of -5.1% adds further backbone to bulls efforts in taking back 2.25% and reclaiming 50SMA in SP-500 but still in pattern H & S bear territory with lighter volume participation on day.    
• “A Less Than Stressful Friday for Bulls.” Mostly sideways and flat ennui in front of closely-watched results of Europe’s financial stress tests as mixed corporate confessionals (AMZN, MCD, AXP, MSFT and CMG) do little to persuade to bulls or bears. In second half, with just 7 of 91 European financials “stressing out”, bulls break through bear territory in Naz’ and DJ-30 on heavier volume spearheaded by rebound bid in EUR/USD with SP-500 not far behind while clearing 1100 and breaking “continuation” right shoulder. GE (GE) brings good things to bulls with its 20% dividend raise.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: New Home Sales for June expected to show modest uptick to 310K from 300K.

Earnings: Mostly second-tier announcements (CYOU, FTI, ROP, SOHU and ACV) premarket and only slightly beefier after hours (ACL, LM, INSU, ACGL) with Jacobs (JEC) in the spotlight. “Green Shoot” engineering services concern expected to earn $0.60 versus prior year’s $0.76 per share. 

Other Notables:  Earnings in full swing this week. Possible “Merger Monday” cheer and US markets could once again take their lead from Europe (FXE, UUP, TLT and GLD) following Friday’s slug of stress test results. While just 7 of 91 failed, “if” actual stringency of results comes into play, profit-taking is likely.

Tuesday:
Economic: Analysts see housing prices via Case Shiller 20-City Index to build slightly to 4.0% for May from prior reading of 3.81%. Consumer confidence slated for modest drop from 52.9 to 51.0 for July.  

Earnings: Flurry of reports (ABC, AME, CRDN, ENR, DPZ, LMT, NDAQ, OXY, LXK, TLAB, UA, VLO, WU) with BP (BP), DuPont (DD), Cummins (CMI) and US Steel (X) on traders radars as top market movers.  

Afterhours: Possible heat-seeking interest from semiconductor outfit and relative strength leader Broadcom (BRCM), coal play Massey (MEE), farm machinery manufacturer Manitowoc (MTW) and property operator CBR Ellis (CBG).

Other notable tickers: (AET, CEPH, CHRW, DWA, GPN, ILMN, NBR, NSC, PNRA, TRMB, WBSN, RFMD).  

Other Notables:  Full week of economic data will have investors looking for signs of strength in order to shake off “Bear-nanke” testimony last week and talk of double dip.

Wednesday:
Economic: Weekly Crude, Durable Orders (1.0%, 0.5%) and Fed’s Beige Book for July, which traders will dissect for any unwanted confirmation of Bernanke’s “unusually uncertain” economic outlook.

Earnings: Heavy reporting (ATI, GLW, HES, CMCSA, NEM, PFCB, S, ROK, WLP, WAT, VPHM) with spotlight on heavyweight steel outfit Arcelor Mittal (MT) and high-flying Dow component Boeing (BA). Technically, shares of BA have held 200SMA support, properly-aligned 50 / 200 and nice-looking uptrend tarmac for lift-off.

Afterhours (AKAM, ASIA, BMC, CTXS, CLF, GMR, GMCR, NUS, NTRI, OII, OI, ORLY, RYL, SYMC, TSO, VAR, V, WLT) reporting samples broad array of industries. Spotlight “shines” on gold plays Agnico-Eagle Mines (AEM) and Goldcorp (GG).

Thursday:
Economic: Weekly Claims (464K, 4.55M)

Earnings: Continued flurry of reports (ABX, BG, CNX, DBD, GT, K, KBR, LIFE, MJN, LZ, MCO, MOT, NOV, NBL, NOC, POT, RTN, SNE, SHOO, TYC, WYNN) with Dow component and No. 1 mkt. capper Exxon Mobil (XOM) receiving top billing.

XOM shares just removed from weekly double bottom dating back to October 2008. Non-technical forecast calls for profits of $1.47 versus year ago’s $0.84 per share.

Afterhours radar features diverse semiconductor shops KLA-Tencor (KLAC), First Solar (FSLR), MEMC (WFR), Tessera (TSRA), Maxim Integrated (MXIM) and Varian Semi (VSEA). Other tickers: (APKT, AMGN, ARBA, DLB, CQB, EXPE, GNW, LVS, MFE, MWW, MET, ROVI, SUN).

Friday:
Economic:  Second / Advance Q2 GDP data. Analysts expect a slight dip to 2.5% from 2.7% and flat 1.1% chain deflator. Separately, Chicago PMI for July forecasted to drop from 59.1 to 56.5 but remaining in expansion territory. Final Michigan sentiment data for July is anticipated to produce slightly gainer to 67.5.

Earnings: World’s largest steel producer Vale (VALE) and Dow component Chevron (CVX) in position to “bully or bearrry” major averages out-the-gate. Other tickers of interest: (ACI, FO, MCK, CVH, AGP, AXL, MRK and SPG).

TECHNICAL PICTURE

Figure 1: ProShares Ultra S&P500 (SSO) Daily

For the bulls, Friday saw both the NASDAQ and Dow 30 drive through the 200SMA on heavier and above-average volume and officially out of bear territory. Further, right shoulders in the Naz (QQQQ) and SP-500 (SPY, SSO) were broken, as was the latter’s key 1100 level.

For the bears, left shoulders in both those indices remain unchallenged and death crosses (50 / 200SMA) in all the majors signaled over the past two and one-half weeks, still intact. Additionally and as discussed of late, the SP-500’s continuation H & S pattern of the past two months has aligned itself with a larger weekly H & S top.

Looking forward and entering the week, in lieu of what’s been described, the market does look to be at a genuine crossroads of sorts. Personally, I’d like to see the bearish patterns play out and still give them the favored nod. However, broken patterns are accepted as being powerful technical events. Just go back to June / July of 2009, if you traders need a refresher.

Last summer, a much ballyhooed (myself included) H & S top in the SP-500 was the toast of the technical town for a short while. The pattern even maintained a similar death cross MA alignment. In the end, the formation was broken and bulls stampeded northward. As much, somewhere in-between 36.67 – 39.03 in SSO, bears might want to consider shifting gears. Beyond that resistance zone, MA’s and both H & S patterns will have been broken and “selling the rips” and remaining short will have a whole lot less going for it.  

MARKET LAB
Bullish Technicals

• Early FTD scored 7/7/10.  
• Weekly close above neckline resistance in SPY and SSO. 
• DJ-30 and Naz’ above 200SMA 7.23.10. 
• Right shoulder pattern breaks in SPY and QQQQ. 

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• Worst Six Months calendar period.
• Fourteen-month old Bull Run and 10-Yr. anniversary mark of ATH top in broader market.
• “Sell in May and Go Away.”
• Confirmed weekly neckline breakdown in SP-500.
• Second “continuation” H & S pattern SP-500 still intact below left shoulder.
• SP-500 still below 200SMA.
• Death Cross Major averages.

Chris Tyler
Senior Staff Writer & Options Strategist
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.