Trading Range Bounce - Weekly Market Outlook
Just when it looks like the bears are going to drive the final nail in the coffin, the bulls pick themselves up off the mat and come out fighting again. Friday's huge upside reversal forces us to acknowledge the possibility that we may yet stave off a re-entry into a bear market.We've got the details below; but first, let's start with the bigger economic picture.
Economic Calendar
It may have been a light week in terms of the amount of economic data, but it was plenty important... particularly on the housing front. And, the news wasn't good. Existing home sales plunged to a multi-year low of 3.83 million, while new home sales plunged to an all-time low annual rate of 276K.
Durable goods orders figures didn't help in the least. July's durable goods orders were up 0.3%, versus expectations of a 3.0% increase. And, when taking out vehicles, durable goods orders actually plunged by 3.8% last month, versus forecasts for a 0.5% improvement.
Oh, and the Q2 GDP figure is going to be closer to 1.6% when the final figure is calculated. It's better than the alternative, but nothing to shout about.
The only bright spot from last week was still a dubious one... unemployment claims dropped. New claims fell from 504K to 473K, which is still higher than the recent average. Ongoing claims fell from 4518K to 4456K, which is in line with the recent levels. No real progress is being seen on either front.
Economic Calendar
As for the coming week, it's going to be a busy one to be sure - too much on the plate to detail, and too much on the plate to try and figure one out before the next one is unveiled. Just keep the calendar above handy, and know that even neutral numbers have been interpreted as bearish lately.
NASDAQ Composite
Don't be shocked that the NASDAQ posted such strong numbers on Friday, gaining 34.94 points to close out at 2153.63. Though still in the hole for the week, the bulk of last week's damage was confined to one day..... Tuesday. Moreover, when you take a step back and look at the bigger picture, the bullishness from Wednesday and Friday starts to look like more than luck.
To be specific, the composite seems to be finding support at two former proven support lines - the horizontal floor (black, dashed) at 2100, and the lower Bollinger band (gray) at 2091.
In fact, when taking the bigger-picture look, it becomes pretty clear the NASDAQ is simply range-bound, as it has been since May, between the two dashed lines. Last week's bullishness is just an attempt to push off the lower edge of the range. And, odds are that it will be able to make good on the effort, especially considering the strong volume buy-in and strong reversal bar we saw on Friday.
As you may have been able to guess from the chart, no bullishness will mean much unless the composite can get past the whole mess of moving averages as well as the upper Bollinger band, which will be around 2300 by the time it can be retested. The upper edge of the trading range is at 2311, which we'll use as the last bullish straw.
COMP Daily Chart
As far as what could trip the bullish effort up at this point (aside from potential resistance at all those moving averages), the biggest threat is
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Industrial Production and Death Crosses - Weekly Market Outlook
Indecision anyone? That's what we all got a plate-full of last week, with a very bullish Tuesday, a very bearish Thursday, and a surprising rebound after what started out to be a pretty rough Friday. All told, the S&P 500 only ended up losing 7.56 points last week (-0.70%) on 'average August' volume, slightly upsetting sure-fire talk that the next apocalypse was just was just around the corner (which it may well be, but it had other plans for the weekend).
We'll lay out the fine details for the index charts below. First, let's dig in with the bigger economic picture.
Economic Calendar
No sense in skirting the key issue - new unemployment claims surged to multi-month highs last week, reaching 500K... the greatest number since November, and a clear question mark for the pending recovery.
We won't deny it's a nasty number. We'll just ask the question nobody else has... how many of those new claims were former census workers? Unemployed is still unemployed, but the answer may offer some perspective on the last several months. Interestingly, continuing clams were a tad lower, to 4.478 million.
New, Initial Unemployment Claims
Elsewhere, we saw healthy stability on the inflation front; producer prices were up about 0.2% - much better than the expected 0.5% dip. No deflation yet.
Housing starts were down to 546K, but better than expected. Building permits were down as well, to 565K, which was worse than expected. Don't over-react though (despite the media's ability to do so), as this is about the time builders start to slow things down for the year.... a convenient fact ignored by the 'crash loving' press.
The rest of the important news was all in the industrial front.... everything from the NY 'Empire' Manufacturing Index to the Philadelphia Fed's leading indictors. Let's call it a mixed bag, tough net-positive. The two 'biggies - industrial production and capacity utilization - rolled in at +1.0% and 74.8%, respectively. Both were improvements, and both were better than estimates. Most importantly, both point to continued economic growth that ultimately fuels bullishness.
Industrial Production & Capacity Utilization
Economic Calendar
As for the coming week, much less is in store, though what we've got on the plate is big stuff.
We'll kick things off on Tuesday with existing home sales; they should be lower. New homes sales will be reported on Wednesday. The pros are looking for flat numbers. Though flat = disaster for homebuilders at this juncture.
We'll also get durable orders numbers on Tuesday, which should be up by 0.5%. Of course, considering the low bar set by June's 0.9% dip, any upside may not mean much, as it will be easy to muster.
Don't sweat Friday's Q2 GDP guesstimate. It's old news anyway (as we near the third quarter), and it's still not the final number. If you want something to worry about on Friday, watch out for the Michigan Sentiment Index instead. Experts are looking for a slight dip.
S&P 500
Like we said above, last week was pretty modest for the market... about a 0.7% dip for the SPX, and a decent 'save' on Friday to leave things off on a not-disastrous note. Unfortunately, that's not going to cut it for the bulls at this point - they need a decisive string of gaining days to reignite last month's bullishness.
Why's that? Because, while the S&P 500 has shown us a couple of glimmers of hope over the last week and a half, we've also come much closer to a couple of the proverbial 'death crosses'.... bearish crosses of key moving averages that suggest a much bigger - and bearish in this case - shift in the market's broad momentum.
Specifically,
Market Earnings Valuation Looks Reasonable - Weekly Market Outlook
With earnings season all but behind us, yet here in the shadow of a massive pullback on the heels of the last thing we wanted to see the Fed need to do, last week was a trying time for the market. We'll sort it all out below, and make a roadmap for the current week.Economic Calendar
It was not only a moderate week last week in term of economic data, what little data there was could largely be interested in multiple ways. Let's just dig in from the beginning with Tuesday's productivity. The 0.9% dip in productivity on the surface would indicate wasted man-hours (which it does). There were some spins on the data, however, suggesting that the decline in productivity was an indication that employers actually needed to hire more workers to meet needs... a counter-intuitive idea initially, but one that's not entirely without merit, as labor costs barely budged (+0.2%).
Wholesale as well as business inventories both crept upward, the former by 0.1% (versus expectations of 0.4%), and the latter by 0.3% (versus expectations of 0.2%).
Initial claims were even higher than the prior week's multi-month high of 482K, coming in at 454K this time around. Continuing claims actually sank though, to 4452K.
Retail sales were up, with or without autos (+0.4% with, and +0.2% without). And, both were basically in line with forecasts.
The big story from last week, however, had to be the inflation figure...a bitter irony to Tuesday's Fed announcement and the aftermath of it.
After three months of declining inflation figures, the possibility of deflation was being posed more and more in a non-hypothetical sense. Bernanke & Co. hammered that nail in the coffin when announcing quantitative easing (even if a diet version of it) on Tuesday... a surefire sign that deflation was inevitable, right?
Sure enough, the inflation rate not only didn't sink into negative territory last month, it actually pushed upward, to 1.24%. Not that one month makes or breaks a trend, but thus far, the deflation chatter remains more fear-mongering than a qualified assumption.
Economic Calendar
As for the coming week, it should prove less eventful.
Housing starts and building permits on Tuesday are expected to both be roughly in line with last month's numbers. We'll hear about producer (manufacturer) input inflation on Tuesday as well; look for tempered figures there too.
The biggies for July, however, are going to be industrial production and capacity utilization...two 'summation' figures that put a bottom line on most of the other data being batted around. If you're looking for a bigger-picture clue, that'll be it. The experts are looking for a 0.6% increase, and 74.5%, respectively. These two data sets have been quite accurate and helpful in terms of making long-term investment decisions based on economic data.
Dow Jones Industrial Average
Just to keep things fresh, this week we're going to dissect a chart of the Dow Jones Industrial Average - even if the message is essentially the same as it would have been for the S&P 500. And for this week, that message is...
It sure doesn't take long to give it up, does it?
With
Bull vs Bear Debate - Weekly Outlook
A late rally on Friday managed to salvage most of the work that had been done Monday, but undone for the next three and a half days. Stocks finished the week with an average gain of 1.8%, thanks to Friday's 1.3% intra-day swing. The question is, did the dip burn off overbought pressure that had been weighing in on the market, or was Friday's rebound simply a temporary stroke of luck? We'll explore the questions below.First though, let's dissect the economic data from the prior week. There was plenty of it, particularly on the jobs and consumer spending front.
Economic Calendar
First things first. The economy - technically - lost jobs last month. However, taking out the census workers who were slated to lose their jobs anyway, we did see a slight gain (in terms of private hiring). We just didn't see enough. Experts were looking for 83K new private-sector jobs, but we only got 71K new ones.
Aligned with that data, new unemployment claims surged to 479K.... the highest reading in weeks, though bear in mind many of those 'extra' initial claims may have been census workers looking for work again. Continuing claims were about average, at 4537K. The unemployment rate, incredibly, held steady at 9.5%, though experts are still calling for a bigger number as the year wears on.
As for the health of the consumer, income and spending were both flat (0.0%) - pretty much in line with expectations. Hourly earnings and the average workweek were up, by 0.2% and to 34.2 hours, respectively. Both topped forecasts. And, though it still shrunk, the $1.3 billion contraction in consumer credit levels was still better than the anticipated $5.7 billion contraction.
Economic Calendar
This week's economic news doesn't start until Tuesday, with productivity and wholesale inventories, though the Fed will also be making some sort of announcement (or non-announcement) that day. Not much is expected to change on any of those fronts.
Of course, we'll hear initial and continuing unemployment claims on Thursday; no major disruptions foreseen.
The fireworks really don't start until Friday (the 13th) though, with inflation/CPI data for July being released. Fears of inflation have slowly melted into fears of deflation, and the trend is indeed pointed in that direction.
We'll also get retail sales numbers on Friday, which are forecasted to grow 0.5% with autos, and to grow 0.4% without autos. Both are lofty, and as such, could either really disappoint or really please the market. Watch out.
S&P 500
The good news/bad news duality lingers.... and we have to acknowledge the scales actually tipped in favor of the good news this week. Let's lay out the arguments from each side of the table.
The bulls are saying....
1. The late rally on Friday is a huge testament to the ultimate conviction of the market. Buying a stock on a Tuesday at 11 am EST is one thing, as you've got five more hours that day to change your mind, and you've still got three full days after that to shed it if need be. But to choose to be long the market on a Friday afternoon (when you're stuck with it for two whole days) is a major, and bold, commitment.
2. We just saw our fifth straight close back above the 200-day moving average line (green), and the bulls went well out of their way on Friday to score that fifth one.
3. The VIX is on the verge of breaking to new multi-month lows; the line in the sand is 21.73.
The bears are saying....
1. While the SPX may have cleared the 200-day moving average, the real test lies ahead, around 1125. That's where the 100-day moving average line (gray) is, as well as the recent peak level. To make matters more alarming, the 100-day line was also lined up with that ceiling when the market peaked at it in June. Translation? Major hurdle.
2. Even if the 1125-ish area is surpassed, the upper Bollinger band lies dead ahead at 1141. (The longer-term Bollinger bands have been surprisingly important support, resistance, and reversal levels over the last several months.)
3. The market may be going up, but there's a serious lack of volume behind the move. As such, this impressive move is also apt to be an errant one, and corrected soon.
It's not difficult at all to realize we are indeed
Boiling it Down - Weekly Outlook
Thanks to Friday's rebound, the broad market effectively closed out last week at a break-even. The Dow actually closed ahead by 41 points, the NASDAQ was off 15 points, and the S&P 500 ended the week just a hair under (-1.06 points) the prior week's closing level.Was it a lucky week for the bulls, or an actual glimpse of their intent? It may well be the latter, considering there was little on the economic news front - nor in the way of earnings - that would have suddenly inspired the buyers.
We'll look at all of it below.
Economic Data
It wasn't a terribly busy week in terms of economic announcements, but it was an important one.... particularly for real estate.
The good news is, home prices appear to be in the rise; they were up 4.6% in May, according to the Case-Shiller index anyway. Bear in mind they're being compared to pretty weak comparables though. New home sales also jumped in June, by about 25%, but again, that's a comparison to May's pathetic number (which not only dialed in at a multi-decade low annual rate of 300K when first announced, but was adjusted lower to 267K in the meantime).
On the industrial front, as expected, the second quarter's GDP growth slowed... to 2.4% versus the anticipated 2.5%. Durable orders were also down for June, with or without transportation.
Joblessness split the difference, with initial claims coming in under expectations of 464K, while continuing claims edged in a little above expectations of 4550K. Neither have shown any threat of rising or falling over the last few months though, which is a blessing in some ways and a curse in others. Likewise, consumer confidence is a split decision .... the Conference Board's measure fell to a multi-month low of 50.4 for July, while the University of Michigan Sentiment Index bounced a tad, to 67.8.
In retrospect, the arguments for a re-entry into a recession remain just as strong as the arguments for a full exit out of one. No wonder stocks are on hold and investors are indecisive.
Economic Calendar
As for the coming week, even more is in store, beginning with Monday's announcement of June's construction spending. That will be a biggie to be sure, but the fireworks don't really start until Tuesday. Here's the play list:
Tuesday: Personal incomes as well as personal spending are expected to be flat. Since this (over the long hail) will make or break the economic revival, these numbers are quite important. Factory orders, pending home sales, and auto sales will also prod the market on Tuesday.
Thursday: As always, all eyes will be looking for any hints of meaningful improvement on the jobs front; none are really expected to be found this week, however.
Friday: if you really want to get a feel for the joblessness situation, wait until Friday when the nonfarm payrolls-added number (the number of jobs created by the private sector) for July is unveiled. Experts are looking for a net addition of 82,000 jobs; stocks can't afford anything less. We'll also get the unemployment rate that day, which as of our last look is expected to edge higher now that more people are actually considering themselves back in the labor pool (after dropping out for a while). Hourly earnings and the average workweek length will round out the whole employment picture on Friday.
S&P 500
The good news is, the S&P 500 is making a pattern of higher highs and higher lows... an idea that will be clinched if the bulls can just build on Friday's intra-day turnaround early this week.
The even-better news is, Friday's late rebound was on relatively stronger volume, and occurred right as the market brushed its 20-day average (at 1090). That's the subtle hint that the buyers are just waiting for dips as entry points.
The bad news is, the S&P 500 remains under its critical 200-day moving average line (at 1114.39, green)). Until this level - which has been resistance more than once since May - is actually worked past, there's not much reason to put new money into long or bullish trades.
Even worse, even if the 200-day line is cleared, the upper 50-day Bollinger band still looms at 1130 (and falling). If the bears can't hold the line at the 200-day moving average line, this upper Bollinger band has proven to be a formidable ceiling as well in recent months.
It's all part of this week's vigil.
S&P 500 Daily Chart
NASDAQ Composite
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