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For market bulls, existing June Gloom turns into some very dark cloud cover as financial anchors, crude realities, key downgrades and appreciative sentiment spiral the markets lower. For the five day period the SPYder” (SPY) and “Naz’100 (QQQQ) are off 2.84% to 3.73% on heavier applications of protection.

THE WEEKLY NUTSHELL

• Failed bounce attempt Monday. Early props include “Oversold!” hymn, CME Group’s (CME) “special” dividend and buyback, M & A (BG, CPO) and sizzling upgrade at First Solar (FSLR). Bears ground bulls by close on higher, but “non peak” oil, rising pre-Fed jitters and financial triple threat of sector (XLF) d/g to “neutral”, layoffs at Citi (C) and AIG (AIG) cut.
• Gloomy Tuesday. UPS (UPS) delivers unwanted warning. Bears retain the “pre-Fed” woes by close. Dow Chemical (DOW) warns with “pass through” consequence. Grizzly-sounding consumer confidence slips 13% to worst reading in 16 years. Case Shiller shows continued but slowing home pricing weakness.
• NASDAQ spearheads rally attempt. Fed’s well-rehearsed policy statement pulls no punches. Durable goods data in-line and in tune with moderate growth. New Home sales suggest continued leveling off with slightly better decline of 2.5%. Crude tumbles 1.9% within trading range as weekly supplies surge versus forecasted drawdown. For the bears, Boeing (BA) grounded by Goldie Conviction Sell List.
• “Terrorbull Thursday” on earnings disappointments (RIMM, NKE, ORCL), downgrades and worrisome analyst notes (C, GM, MER, GE). Surging crude realities over possible Libyan production cuts and OPEC prez’ $150 - $170 musing take toll with NASDAQ scoring worst decliner in 2008.
• Financial hangover trumps early TGIF bid. Modestly higher open on surprise and ‘b-t-e’ core PCE (est. 2.5% real PCE Q2 growth) and spending data and oversold bargain-hunting efforts. Bulls backtrack as record oil prices, more credit worries and whispers (MER, AIG) and further housing teardown (KBH, LEN) make for easy pre-weekend risk / exiting triggers for some awfully mad and seeing red Q2 money.

ON TAP THIS WEEK

For earnings hounds, officially speaking some of last week’s financial hangover will receive some breathing room. There’s nary a report and none of any significance. Speaking of hangovers, beverage / spirits purveyor Constellation Brands (STZ) does release its earnings, but even there a well-shaken or stirred broader market reaction is unlikely.  

Unofficially, traders should be aware warnings season is underway. Painful responses in the likes of UPS (UPS) and Dow Chemical (DOW) amongst others have already weighed in on prices and sentiment. Additionally, if the next handful of sessions even remotely resemble the past five sessions, then influential analyst calls and credit-related woes and whispers, will continue to have investors on guard. 

For economic watchdogs and traders in general, the big report will be Thursday’s pre-holiday fireworks courtesy of the monthly jobs data. Referencing weekly claims of late and the report shouldn’t hold any punches with anticipated weakness “bad”, but not “recession bad.” However, a sixth consecutive month of job cuts, while anticipated, certainly doesn’t help sentiment which has grown increasingly nervous over the economy’s nascent expansion efforts.

Kicking off the week, regional manufacturing news and Tuesday’s national measure via the ISM are both expected to show slight contractions but mostly flat with prior readings. And on Wednesday, private payrolls from the ADP Survey is likely to deliver a pre-market pop or drop, but has failed to act as a great measure of the more closely-watched jobs report. Finally, there are those likely continued crude realities courtesy of ‘da patch. Current ‘tied at the hip sentiment’ in equities can be expected to motor on with the ups and downs of Black Gold as record prices impact fundamentals, as well as investor psychology.  

Weekly Calendar of Key Reports

Monday
Economic: Chicago PMI (48.5)
Earnings: Robbins & Myers (RBN), H&R Block (HRB)

Tuesday
Economic: Truck & Auto, Construction (-0.6%), ISM Index (49.6)
Earnings: Constellation Brands (STZ), MSC Ind (MSM), Apollo (APOL)

Wednesday
Economic: Weekly Crude, ADP (28K), Factory Orders (0.6%)
Earnings: Acuity Brands (AYI), Family Dollar (FDO)

Thursday
Economic: Weekly Claims (375K), Jobs Report (-50K, 5.4%, 0.3%), ISM Services (51.5)
Earnings: NA

Friday
N/A: Happy Fourth of July!

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Weekly

Stressing caution and anticipating that oversold conditions were still well-suited to make “Elliott the Duck” and RBS’ Black Swan cries appear directionally savvy, proved presciently correct since our last report. The good news for bulls is another type of end is probably near. The Dow (DIA) has been pummeled to fresh lows for 2008, other like-minded instruments are looking quite oversold and the VIX is finally moving towards levels where bottom feeding efforts become more qualified as we look to embrace Q3 and hopefully a more sizzling July.

MARKET LAB

Bullish Technicals

• Short-term oversold market conditions.
• Dumb $ at sentimentrader.com worst since March.
• Slew of technical indicators siding with pending rally.
• AAII, Investors Intelligence, Small Specs, Insider Scores and other surveys.Lower low DIA, SPY nearing triple retest, NASDAQ still showing relative strength.

Bearish Technicals

• Bearish H & S development from weekly wedge S&P 500 and Dow.
• Market Under Correction.
•  “VIX Stretch” (Px > 15% of 10-DMA) at 25.60%.
  

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
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. 

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