Weekly Outlook: September 8, 2009

• By Chris Tyler
• On 8:32 am EDT, Monday September 7, 2009

Confirmation of a "trending in the right direction" but still dismal jobless recovery may have bulls asking "Is it half full or half empty" next week. For the five day period the S&P500 (SPY) is off 1.61% but back above that that still hard-to-handle "SP-1000" level.

THE WEEKLY NUTSHELL

• "Monday Mourning" and not much else. Early percentage drop on China's [Shanghai down 6.7% & 23% August] "tighter lending" fears and more likely looming stateside correction / priced-to-perfection green shoots. Remainder of session flat-lines while under pressure. Bearish AIG (AIG) article from Barron's has bulls putting down most-coveted financial and momentum toy of late. Bulls ignore helpful Merger Monday (BJS, MVL) nuggets and better-than-expected Chicago PMI to focus on intact platform for profit-taking.
• "Tuesday Tumbler" as two out of three bulls fall on their own weight in broad-based follow-through profit-taking. Better-than-expected and expansion data from ISM and surprise strength on pending homes get dismissed, or umm "discounted" by crowd's new vision-wear focused on fear and loathing. VIX climbs towards 30% and S&P500 reclaims coveted 1000 in 2.20% decline and "Worst!" (Thanks CNBC) two day shellacking since May.
• Slightly pressured Hump Day as bulls fold on "SP-1000" by closing bell. Mostly "technical tighty" action intraday with multiple jumps and dumps in and around 1000. Poor ADP data hints at further confirmation for "Jobless (recovery)." FOMC Minutes stress labor market concerns and disagreement over low inflation. Flight moves into gold and treasuries (GLD, TLT) aid late closing break of 1000.
• "Turnaround Thursday" well kinda, sort of. Bulls show out-the-gate willingness to re-cross "SP-1000" courtesy of "Shanghai Surprise" rally and OECD announcement global recession is concluding earlier than expected. Early disregard for "still" weak and worse-than-expected weekly claims data and overall poor same-store-sales comps send bulls scurrying back in and around 1000 for most of yet another intraday "technical tighty" aimed at frustrating. Late "Buy, Buy, Buy!" surge in front of discounted (POOR) monthly jobs report or likely short squeeze put a smiley face on the session. Retail shopped (COST, KSS and WMT) despite mostly weak reports.
• "Festive Friday" as "three and three-quarter day holiday" finds a relief-felt reason to celebrate. Ultra slow pre-holiday session dictated by lone better-than-expected jobs report and seasonal bias. Payroll losses of "just" 215K beat official views of 225K. The number was far better than a "prepped for" worse-than-expected shocker following weak ADP and claims data. Results continue to emphasize downsizing trending in the right direction within a still dismal "jobless recovery."

ON TAP THIS WEEK

Quite honestly, an abbreviated work week couldn't be any less important to the market as far as earnings releases are concerned. The one report, literally of a handful announcing, which might spark some sector interest is National Semi (NSM) on Thursday evening. The company is expected to earn $0.06 versus profits of $0.33 per share in the year-ago period.

On the economic front, it's a bit better but not by much. Wednesday's Beige Book will unearth anecdotal economic evidence from various regions and Thursday's routine, but important weekly claims data should spotlight for economic watchdogs as we move forward in our country's "jobless recovery."

This strategist's thoughts on the week ahead sides with traders reacting to either the less likely "improving sentiment" and further upside beyond Friday's highs-or back into "red chutes" mode that looks to discount the market's green shoots discounting mechanism that has likely gotten ahead of itself. On that note and potential acting as a technical tell for the broader market, the Greenback (UUP), treasuries (TLT) and Black Gold (USO) will be watched ever closely for leading price action as to improving or deteriorating sentiment and investor action.

Weekly Calendar of Key Reports
Tuesday:
Economic Consumer Credit (-$4.0B)
Earnings Smithfield Foods (SFD), AeroVironment (AVAV), Casey's (CASY), Pep Boys (PBY)
Wednesday:
Economic Weekly Crude, Beige Book
Earnings Korn/Ferry (KFY), Talbots (TLB), Titan (TITN), Utd Nat Foods (UNFI), Zale (ZLC), Men's Wearhouse (MW), Shuffle Master (SHFL), Smith & Wesson (SWHC)
Thursday:
Economic Weekly Claims (556K), Trade Bal (-$27.0B
Earnings Lululemon (LULU), National Semi (NSM)
Friday:
Economic Import / Export, Michigan (67.3), Wholesale Invs (-1.0%), Treasury Bud (-$174.0B)
Earnings Brady (BRC), Campbell's (CPB)

TECHNICAL PICTURE

Figure 1: S&P500 (SPY) Weekly Chart

Thursday evening's Growth Stock Option report wrote of the expectation for a larger and minimum corrective move of 5% to 10% remaining in this strategist's sights. The market delivered what was and is still felt to be an insufficient 4.25% correction. Not-too-surprisingly, that cautious bias is due to all the prior ad-nauseam background reasons laid out below in the bulleted points and in other recent market updates.

Friday's light volume, celebratory reaction confirmed a four (well really two) day pullback by moving handily higher. The spirited showing now finds the price action at the 50% retracement level from last Friday's highs. That marker should have bulls stopping to ask, "Is it half full or half empty." Additionally, early August highs near 102 that were broken after much work and only to fail without much real headway-are being tested.

Due to the potential resistance facing investors and grander thoughts of larger corrective activity in store for the market, this non-card carrying bear but pragmatic and technical-oriented strategist sees current levels as an attractive spot to do something other than "Buy, Buy, Buy!" That is, unless you're willing to use those commands to open an option position that protects and serves before items like "Well, of course you schnitzeled a little" become a part of the dialogue once more.

MARKET LAB

Bullish Technicals

• Historic corrective low.
• Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
• Above the 50 and 200-Day MAs SPY.
• Weekly Inverse H & S being breakout from October lows. "MM" of 113 - 120.
• SPY 98 - 100 first corrective support zone of notice gets tested.

Bearish Technicals

• US "Jobless Recovery!" green shoots versus China's "red chutes" of late.
• Potential W5 Daily and W4 Weekly in SPY.
• 1930 Bear Market Rally repeat and "W" pattern SPY?
• "W" midpoint doji weekly confirmation.
• Weak calendar months of September and October.
• Larger minimum correction zone of 94 - 96 given historic magnitude of rally.
• Corrective lows reached in SPY fail to signal VIX Stretch condition.
• Consistent weekly breakouts suspect.
• A 50% retracement of 5 day cycle from intermediate highs.

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.