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“Relief at the pump” efforts and some optimistic shopping counter increased woes in the financials. For the five-day period the S&P500 (SPY) and NASDAQ100 (QQQQ) are up 0.62% to 1.78% in a slightly more mature bull market.

THE WEEKLY NUTSHELL

• S&P500 breakout on continued US Dollar strength and swooning commodity complex equaling “price relief.” Retail (RTH, AMZN, BBBY) and airlines (UAUA, AMR) are major beneficiaries of increased optimism for consumer and businesses. Upgrades in large-cap tech (VRSN, CIEN) and union agreement at Verizon (VZ) aid in bulls efforts.“Turnaround Tuesday” for S&P500. Bevy of financial wake-up calls (MS, JPM, GS and UBS) find credit worries weighing in on sentiment and prices. Related collateral concerns at Constellation Energy (CEG). Black gold (USO) finishes off 1.10% driven by plunging demand data has “relief at the pump” optimism taking a backseat to increased risk of an economic slowdown. Machinery giant Fluor (FLR) gets “floured” on “bte” results, confirming more cautious sentiment shift.
• 2^nd Half market recovery, but slight “profit-taking” finish for Wednesday’s record books. Opening weakness attributed to soft retail sales report and disappointing Deere (DE) results. Financial “lynching” of Goldie (GS) and Morgan (MS) and “two-fer” at Lehman (LEH). Separately, BofA (BAC) swoons on multi-state lawsuits of Countrywide. Equity bulls move into technically beaten down commodity complex (MOO, GDX, GSG, XLB). Oil (USO) and energy suppliers (OIH, XLE) spearhead on larger-than-expected bullish inventories drop. Separately, bulls cheer Longs Drugs (LDG) 32% premium offer from CVS (CVS). Earnings from chips (NVDA, AMAT and CREE) help tech-heavy NASDAQ beat back the bears. 
• “Snap Back Thursday” after out-the-gate inflation worries courtesy of hot CPI data and weakening labor trends via weekly claims. “BTE” Retailers (WMT, URBN and EL) quell investors anxious over consumers dropping and not shopping. Wednesday’s financial anchors (XLF, LEH and BAC) hoisted on bargain-hunting. Bulls cheer lower oil / pump relief as US Dollar rallies. SanDisk (SNDK) buzz of Seagate (STX) as a suitor has tech bulls suit up into relative strength leader.
• “Expired Bulls & Bears” Friday. Mixed fractional action finds financials leading out the gate on Soros’ Lehman (LEH) stake and Ambac (ABK) ‘AA’ S&P affirmation. Investors shop in retailers on mixed earnings bag (KSS, JCP and ANF). IP & CU, Empire & Michigan reports please with “bte” results. Lower oil and commodities complex finds tug-o-war for investors; bulls cheer US Dollar strength and “price relief” vs. growling bears “global slowdown!” Financial drags from latest Goldie (GS) estimates cut at JP and latest ARS buyback from Anchor Banker Wachovia (WB).

ON TAP THIS WEEK

Will investors be hot to shop this week? For a second straight week a flurry of earnings reports from the retail (RTH) universe will try to maintain a position of relative strength with investors. Last week reports from the group were mixed, but ultimately well-received. Renewed optimism / better-than-feared results and continued pressure for crude oil certainly played a central role for bulls in the group.

Spearheading will be home improvement giants Lowes (LOW) and Home Depot (HD) on Monday and Tuesday respectively. For the former, First Call pegs earnings of $0.56 per share and 16.5% below the prior year’s results. Technically, Lowe’s appears situated in a YTD cup base with four sessions of consolidation carving out a handle-style consolidation. Additionally and much like Home Depot, the pattern essentially mimics the retail sector’s daily chart after making a nice climb from the mid July lows.

Black Gold (USO) and the rest of the commodity complex (GLD, GSG, DBA, UNG, SLV) for that matter will continue to be worthy of setting the tone for equities. However, as traders found out on occasion last week, lower prices in those underlying products don’t always translate into bullish posturing for the broader market.

Last Tuesday’s troublesome government demand data in crude oil was a testament to that type situation developing. That session both oil and the broader market dropped in tandem based on heightened trader concern over a weakening economy precipitating that report’s findings. Wall & Main will continue to determine the relationship of commodities and the broader market based on factors such as a rising US Dollar, reactions in influential commodity service and production groups (GDX, XLB, OIH, XLE) geopolitical catalysts and economic supply / demand drivers, which can be as much about investor perception as the actual latest statistical discovery.

Last week the financials (XLF) tried to reclaim some of their former influence by dictating price action and sentiment in the broader market. To a certain extent the group succeeded. Net-net though, for the five day period a jump in negative catalysts for the Anchor Bankers (GS, MS, JPM, BAC, WB, LEH) saw the sector press lower by 2.64% while the major averages gained ground.  Optimistically, the divergence suggests a willingness by investors to climb a wall of worry and an overall good sign. On a more cautious note, as the S&P500’s most heavily-weighted sector, any continued weakness would likely be more difficult to shake off and result in broader profit-taking efforts for the market.

Weekly Calendar of Key Reports

Monday:
Economic NA
Earnings BHP Billiton (BHP), Lowe’s (LOW), Trina Solar (TSL)

Tuesday:
Economic Housing Starts & Bldg P’s (963K, 949K), PPI & Core (0.6%, 0.2%)
Earnings Home Depot (HD), Medtronic (MDT), ReneSola (SOL), Saks (SKS), Target (TGT), Analog Devices (ADI), Hewlett (HPQ), Open Text (OTEX), DryShips (DRYS)

Wednesday:
Economic Weekly Crude
Earnings BJ’s (BJ), Ross Stores (ROST), Suntech (STP), Citi Trends (CTRN), Gymboree (GYMB), Limited (LTD), JD Uniphase (JDSU), Salesforce (CRM)

Thursday:
Economic Weekly Claims, Leading Indicators (-0.2%), Philly Fed (-14.1)
Earnings Barnes & Noble (BKS), Burger King (BKC), Children’s Place (PLCE), Dick’s Sport (DKS), Gamestop (GME), Heinz (HNZ), Hormel (HRL), Patterson (PDCO), Toro (TTC), Aeropostale (ARO), Blue Coat (BCSI), Intuit (INTU), Verigy (VRGY), Zumiez (ZUMZ)

Friday:
Economic NA
Earnings AnnTaylor (ANN), China Sunergy (CSUN)

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Daily

Last week we posed the question, “All systems go?” It was observed after strong gains that a consolidation effort below ascending triangle and 50-day moving average resistance was likely. The bulls it turned out would have none of that on Monday. They did, however, proceed to move into profit-taking motif operandi midweek, before tacking on gains in the last two sessions.

Entering Monday’s session, the SPY is fractionally removed from a two=day pullback. The price action puts the index in a position of reclaiming technical turf above ascending resistance, the ballyhooed 130 level and a 38% retracement from its YTD Fibonacci cycle. With an intermediate-based FTD in place and the short-term “VIX Stretch” indicator in neutral territory, the overall evidence suggests siding with the immediate uptrend in place.

Should conditions become stretched technically, “Sell the rips” will have evidence such as the 50% marker as a reason to reduce risk and / or reassess the situation. Conversely, with a bearish EW4 EBOT 1.5% below current levels and conditions bullishly neutral at the moment, that line in the sand is thought an important one in determining whether a larger bearish trend from last October’s top deserve the benefit of the doubt.

MARKET LAB

Bullish Technicals

• Mid July sentiment / extremes worthy of intermediate low.
• Late market FTD 7/29, 8/5 confirmation day.
• Technical breakout SPY 8/11 results in lower, but constructive action.
• VIX Stretch @ 17.75% versus current 19.58% reading.

Bearish Technicals

• EW 4 SPY Wednesday pivot low 8/13.
• Weekly downtrend major averages.

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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