Weekly Outlook, Oct 25, 2009

• By Tom Gentile, ProfitStrategies.com
• On 11:06 am EDT, Monday October 26, 2009

Note: This week's Market Outlook was covered by Optionetics.com's Chris Tyler.

As the market turns its back on generally bullish-sounding Q3 confessionals, investor focus this week will turn towards a strong mix of key economic data. For the five day period the SP-500 (SPY) is off 0.74% and forging a weekly double doji top within an "extended" 13 week upside romp.

THE WEEKLY NUTSHELL

• A "Good Mao'ing" for bulls Monday. China's projected 8% plus 2009 growth sets bullish tempo stateside. Price target and estimate hoist on Caterpillar (CAT) and "b-t-e" results and hopeful outlook from Eaton (ETN) bulldoze bears to recovery highs in market. Confidence trade continues with ever-slumping dollar (UUP) and breakout in oil (USO). Activist investor Carl Icahn offer of $6.0B loan to CIT Group (CIT) finds investor applause. Not impeding the bull, VIX nearing 20%, BB&T's (BBT) sharp rise in loss provisions and soft index reading of 18 for general housing market conditions disappoints.
• "Turnaround Tuesday" as a tasty Apple (AAPL) and a bumper crop of mostly ripe reports (TXN, CAT, UNH) doesn't stop bulls from sampling a sliver of market turnover. "Schnitzeling a little something" is helped along by profit-taking in commodity-based green shoots (OIH, SLX) and helped along by dollar (UUP) jump off YTD lows and strong gap bid in treasuries (TLT). Weaker-than-expected and slight drop in housing starts / building permits and PPI prices aids and abets.
• "Wednesday Humper" as fresh recovery highs reverses into last minute percentage tumble for broader averages. Slumping dollar (AGAIN) on Brit rate hike buzz and mostly positive confessionals (YHOO, USB, MS, WFC) and investor celebrations push SP-500 to 1100 retest and VIX to a confident 20% level. Fast Money bears say "Mr. Market" (GS) canary-like action responsible for sell-off. Slower money types point to bearish sounding Beige Book, which apparently takes ninety-plus minutes to read. Dick Bove issues negative comments intraday on financials on Wells Fargo (WFC) and maybe that disconnect thing of the market vs. economic clunker reality or "VIX 20%!" inspiring.
• "Turncoat Thursday" as bears give up Wednesday's engulfing price thumper and bulls re-enter after early downside follow-through. Weekly claims continue to emphasize jobless something or other for the economy with weaker-than-expected results. For the bulls saddling up intraday, blue chips lead the recovery (TRV, MMM and MCD) on earnings beats. Confessionals from financials (STI, PNC and FITB) also assist market lift. Intraday reversal in Dollar towards lowly trend and YTD lows helps commodity complex (USO, OIH, XLB) find a bid and aid the broader market to a one percent plus gain.
• Another "GOOG" Friday for profit-taking in majors despite more than "Window(S)" (MSFT) shopping and internet browsing (AMZN) for tech giants during Q3, a couple (COF, WHR and HON) other well-received beats and "b-t-e" existing home sales. Early strength derailed by pressured confessionals from Burlington "Southern" (BNI), Schlumberger (SLB), Amex (AXP) and Broadcom (BRCM) despite upside surprises. Mixed Bernanke testimony of financials (XLF) still in need of monitoring from Uncle Sam and likely linked dollar (UUP) strength reverses YTD lows pressuring green shoots beneficiaries in commodity complex (OIH, USO, GLD, XLB).

ON TAP THIS WEEK

Despite what's going to be the heaviest week of Q3 corporate confessionals to date, the type of pre-report build up that's worthy of tightening the briefs of traders in any individual heavyweights is very much absent. Not that it truly matters at this point. Friday's defiant or worn behavior in the broader averages despite strong reports and equally solid bids in Microsoft and Amazon suggests bulls are shooting blanks at bears at this stage in the market cycle.

Bearing that in mind, out-the-gate this week NASDAQ 100 mover and shaker Baidu.com (BIDU), telecommunications giant and Dow component Verizon (VZ) and one or two time growth juggernaut / volatility linchpin and dry bulk shipper DryShips (DRYS) all report after the bell Monday.

For its part, China-based internet search concern Baidu.com, is expected to post profit growth of 23% on earnings of $1.81 per share. Technically, BIDU hit fresh all-time-highs on Friday putting shares a bit more than 17% above a several week flat base, roughly 7% from a tighter short two week consolidation and less than two percent above prior highs set back in November 2007.

For economic watchdogs the pace of reports also picks up this week. With an expected diminished "wow factor!" for earnings, releases which run the gamut from data on housing, sentiment, income, durable orders and the like should enjoy a bit more of the spotlight and likely tone-setting for investors. Headlining for many is Thursday's first peek at the Q3 GDP.

Analysts expect growth of 3.2% from the GDP report. An increase in growth would be the first quarter in more than a year's time to show growth. As much, the data holds a bit of extra importance as it could mark the end of the recession according to analysts. And for bulls intent on aggressive green shoots discounting in the market; a slight bit of confirmation of a recovery being underway could be entertained.

Finally, we'd be remiss if we didn't mention those intertwined markets as being important additions to trader's radars. The trio of the Greenback (UUP), Black Gold (USO) and treasuries (TLT) should continue to influence equities. Follow-through from Friday's reversal off YTD lows in the dollar would likely pressure commodity prices and call into question some of the still prevalent green shoots efforts by bulls.

Separately but sometimes linked, coming off a week in which a breakout to YTD highs was held in USO looks important on the chart. Personally, which camp (bull or bear) "the hold" means more too at this juncture, isn't entirely known. Whether sometimes fickle investor perception would find a bid in USO agreeable with the broader averages or instead fret about inflation, is considered a wild card. Likewise, a move lower in USO could have investors sensing demand problems, rather than finding a positive spin on the situation, such as a fatter wallet.

Weekly Calendar of Key Reports
Monday:
Economic NA
Earnings Changyou.com (CYOU), Corning (GLW), Nat Oil (NOV), RadioShack (RSH), Tellabs (TLAB), Verizon (VZ), Baidu (BIDU), CF Ind (CF), DryShips (DRYS), Flextronics (FLEX), WMS (WMS)
Tuesday:
Economic Case Shiller (-11.90%), Consumer Confidence (53.5)
Earnings Boyd (BYD), Commscope (CTV), DineEquity (DIN), AGCO (AGCO), L-3 (LLL), Life Tech (LIFE), Schnitzer (SCHN), Ameritrade (AMTD), US Steel (X), Wynn (WYNN), Apollo (APOL), Boston Props (BXP), Buff Wings (BWLD), Cephalon (CEPH), Compass Mins (CMP), FMC (FTI), Harris (HRS), Massey (MEE), NutriSystem (NTRI), McKesson (MCK), Panera (PNRA), ValueClick (VCLK), Visa (V)
Wednesday:
Economic Weekly Crude, Durable Orders (1.0%, 0.7%), New Homes (440K)
Earnings Conoco (COP), Borg W (BWA), Gen Dynamics (GD), Rubbermaid (NWL), Qwest (Q), Southern (SO), WellPoint (WLP), Wyndham (WYN), Agnico (AEM), AsiaInfo (ASIA), CBRE (CBG), Cerner (CERN), First Solar (FSLR), Genco (GNK), Interdigital (IDCC), Oceaneering (OII), O'Reilly (ORLY), Ryland (RYL), Symantec (SYMC)
Thursday:
Economic Weekly Claims (525K, 5.91M), GDP (3.2%), Chain Deflator (1.3%)
Earnings Aetna (AET), Am Super (AMSC), Ball (BLL), Barrick (ABX), BioCryst (BCRX), Burger King (BKC), CME (CME), Colgate (CL), Exxon (XOM), KBR (KBR), Kellogg (K), Newmont (NEM), PG&E (PCG), Procter G (PG), Tidewater (TDW), Taiwan Semi (TSM), BMC (BMC), Cliffs (CLF), KLA-Tencor (KLAC), McAfee (MFE), Manitowac (MTW), SW Energy (SWN), Varian Semi (VSEA), Varian M (VAR)
Friday:
Economic Inc & Spend (0.0%, -0.5%), PCE & Core PCE (-0.5%, 0.2%), Chicago PMI (48.7), Michigan (70.0), Employment Cost Index (0.4%)
Earnings Arch Coal (ACI), Com Metals (CMC), Constellation (CEG), Dominion (D), Duke (DUK), Cummins (CMI), Progress (PGN), Sony (SNE), Tim Hortons (THI), Ultra Petrol (UPL), Wyerhaeuser (WY), YRC World (YRCW)

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Weekly Chart

Wednesday's jump to fresh recovery highs followed by a same day and last minute engulfing bearish price thumper was certainly the stuff "Must See CNBC TV" is made of. Thursday's show of force by bargain hunting bulls and then Friday's bearish equalizer were also impressive in the "got to be kidding" department of market behavior. The action is all the more ominous if one considers the market shook off huge gains in tech titans Microsoft and Amazon in closing handily lower on Friday.

Entering Monday, after an "extended" 13-5-13 weekly pattern and with regards to the worrisome developments discussed above, the price action continues to suggest bulls are shooting blanks or running out of green-shoots based gas for the market. As noted in more recent columns, this strategist believes bulls are more and more at risk of mini-price shockers like those encountered late last week, until a larger corrective move in both time and price, takes place.

Until that day or better yet, period of weeks or even months of corrective activity occurs, I'd guesstimate the hard directional delta will be that much difficult to handle. The good news is the option to protect gains won over the past several months are priced very fair within an increasingly unfriendly trend.

MARKET LAB
Bullish Technicals

• Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
• Weekly Inverse H & S being breakout from October lows. "MM" of 113 - 120.
• Two-thirds of October's "positive" when September shows gains.
• VIX Stretch not in jeopardy of signal.
• SPY 105 - 105.50 = flat October and 50SMA test.

Bearish Technicals

• 1930 Bear Market Rally repeat and "W" pattern SPY?
• Third time the charm? Potential W5 Daily and W4 Weekly in SPY.
• At 65%, market's run has "Come a long ways, baby."
• Fib Weekly cycle 13-5-13 completes 10/9. Rising wedge SPY and near O/B RSI 14.
• YTD lows in VIX.
• At 20% in VIX, market equals "complacently volatile" environment.
• Still high historical volatility spells difficult trend trading in individual names.
• Mostly short and long-term overbought market conditions.
• Astounding 98% of SP-500 components above 200-Day MA.
• "Extended" 13-week upswing with double doji candles.

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.