Weekly Outlook March 15 - FOMC and The Dollar
Written by Price Headley
In complete contrast to the prior week’s loss, the market was up four out of five days last week (and the one loser was barely in the red for the day). All told, the average stock gained about 1.0% over the prior five trading days. Most indices hit multi-year highs, by a hair.
Economic Calendar
On the unemployment front - which seems to be the hottest of the hot buttons at this point – we didn’t see anything significant in the way of change. Continuing claims (4558K) were a little higher than the prior week’s levels (4521K), and a little higher than anticipated (4500K). New claims (462K) were a tad lower than the previous week’s (468K), and pretty much in line with forecasts (460K). While ‘holding steady’ is better than ‘getting worse’, a stagnant employment picture will eventually take a toll on the broad economy’s health/growth.
The big surprise was retail sales. We pointed out last week how personal spending was up in January, along with the first increase in consumer credit levels that we’d seen in years. The supporting evidence for a revival in consumer spending came last week with a 0.3% increase in retail spending… which was actually a 0.8% improvement when you exclude auto sales.
Economic Calendar:
As for the coming week, you’ll see a lot more on our plate. There is a 2-day FOMC meeting beginning Tuesday, comments coming Wednesday afternoon. Also on Monday, capacity utilization and industrial production will be released. While a great deal of economic data has little to no relationship with the stock market’s success, both of those two data sets actually have a great deal of predictive power for long-term charts.
Another high-impact data set will be unveiled on Tuesday…. housing starts and building permits. Be ready – it’s anybody’s guess how those will shape up.
S&P 500 Index
The numbers by themselves, and the apparent momentum, are hard to consider anything but bullish. The S&P 500 has made gains in four of the last five weeks and is still going strong…. on the surface. What lies underneath though?
In the interest of full disclosure, our Traders Edge timing service is mostly bullish, based on a strict and disciplined view of our key timing indicators. And, that call caught the bulk of the uptrend that carried the SPX to current levels over the last few weeks.
Yet, as of last week’s modest gains, there are a couple of realities that strongly suggest the market’s at a major inflection point – and one of the forks in the road is a bearish one.
The biggest tripwire right now is the likely resistance we’re running into from the January peak. The S&P 500 topped at 1150.45 in mid-January, and probably not coincidentally, stalled at 1153.41 last week. Is it a mere coincidence that this is the last line in the sand before the market fully reclaims its value before the October of 2008 crash (which ended up being the most painful seven-consecutive days of the bear market)? Probably not. Either way though, tensions are high, and that’s when traders need to tread lightly.
At the same time, put/call ratios hit extreme lows on Wednesday. While that isn’t inherently a reason to switch from a bullish stance to a bearish one, it does establish a scenario where it would be very easy for the market to punish overconfident bulls for getting sloppy.
Moreover, those same put/call readings moved higher again late last week… indicating a reversal of the ratio’s trend that often coincides with a market reversal. Funny thing though – the VIX and Rydex ratio didn’t quite ring the same alarm bell. (Charts and interpretations of all these indicators are available in the Traders Edge newsletter.)
Bottom line: From a technical perspective, there’s no particular reason to be bearish. Yet, common sense says after 7.8% gains over the span of five weeks, the tank’s got to be close to empty. Be very cautious as the S&P 500 continues to test new highs.
SPX Daily Chart
US Dollar:
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Weekly Outlook March 8th - Basic Materials and Small Caps
Written by Price Headley
The market overcame the odds and continued to rally last week, gaining an average of about 3%. The numbers themselves look great, but before you pop the champagne, you should know the rally may have carried stocks a little too far for their own good, and a short-term pullback may be coming soon. More on that below. First up, the big picture.
Economic Calendar
As promised, the wave of economic announcement last week created fireworks. Without diving all the way into the details, here are the basics, incomes were up, but not as much as personal spending was, initial unemployment claims were low, as were continuing claims, basic industrial activity was up all around, the unemployment situation is holding steady, and…
… Consumer credit levels actually increased, for the first time in months. It was only a $5 billion increase, but that’s better than the double-digit monthly declines we’ve been seeing for a couple of years. Makes sense, in light of stronger spending.
As for the coming week, there’s much less to contend with. In fact, the ball doesn’t even get rolling until Wednesday with wholesale inventory levels. That, along with Friday’s business inventory levels, should give us some idea of potential demand for goods. It’s data worth watching, but nothing that should move the earth either way.
The biggies for the coming week will be the unemployment claims data on Thursday, and Friday’s retail sales information. All eyes will be on the jobs numbers, as last week was the first week of hope all year long – claims have been drifting higher since early January. Retail sales could be a real powder keg as well, as several retailers have already reported outstanding February numbers. Of the 28 stores that have already posted last month’s numbers, they saw an average same-store sales increase of 4%.
NASDAQ Composite and NASDAQ VIX
Nice week. The NASDAQ jumped 1.48% on Friday to end the week 3.94% above the prior week’s close. It’s everything the bulls could ask for. At the same time though, the market is overbought by most any measure imaginable. However, just because an oscillator is showing "overbought" doesn't mean a stock or index can't go more overbought or stay in that condition for some time. On the chart of the composite below, RSI as well as stochastic lines confirm it.
Be that as it may, even without the technically overbought situation, the rally is at growing degree of pullback risk. In that past five days the market has left behind not one but two gaps, and it would have been three were it not for Thursday’s intra-day retreat.
While the “no gap goes unfilled” theory doesn’t always hold water, in this case it’s probably going to hold true – given the circumstances. The NASDAQ is now 4.6% above its 20-day moving average line, which is about as extended as the index can get before being reeled in.
As if that weren’t enough of a worry, though the market rocketed higher on Friday, volume was actually pretty weak. The NASDAQ’s rally was also halted right at January’s peak level. Suspicious.
OTC and VXN Daily Chart
The VXN, however, still hasn’t hit the likely floor found at its lower Bollinger band. So, despite the challenges that are stacking up, we need to be careful about assuming a dip is night just because we’re overdue. While a pullback of some sort is impending, we may see the composite fall no further than the 20-day line at 2244. This is still a day-to-day affair.
Sector Performance:
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The Week Ahead - Real Estate and Unemployment are Key
Written by Price Headley
Stocks fought off the sellers on Thursday and Friday, though it wasn’t enough to pull the market back into the black for the week. Was it the beginning of a rebound though? We’ll discuss that possibility below.
First, however, we need to work our way through last week’s economic data – and there was plenty of it. We’ll even chart the most important pieces of the economic puzzle,
Economic Calendar
As promised last week, we saw fireworks thanks to a boatload of economic news. In short, the real estate crisis is ‘less worse’ in terms of decline, confidence is more than a little shaky, and joblessness is creeping higher again. (Other than that, everything’s great.)
The Conference Board’s consumer confidence measure was the early bomb for the week, dropping from 55.9 to 46.0 – well short of the expected 56.5. What happened? The confidence reading was largely on the rise in anticipation of a better employment situation and signs of life on the real estate front. When investors saw neither over the last few weeks, fears of the worst-case scenario were revived.
Interestingly, however, the University of Michigan sentiment index score didn’t move much from its prior reading. Don’t read too much into one bad month just yet; we’ve seen blips before end up having no major effect. Here’s a chart of both, compared to the S&P 500.
SPX Monthly Chart with Consumer Confidence & Michigan Sentiment
As was said, the ultimate prompts for the stifled confidence came from a still-declining Case-Shiller Index, weak new home sales, and tepid existing home sales. In fact, new home sales reached multi-year lows last month, of 309,000. Existing home sales sank to 5.05 million, though that’s still better than levels we saw a year ago. The total between the two is also better than it was a year ago.
The concern for both, however, is the renewed or existing downtrend, particularly knowing that the average sale price sank to nearly a twelve-month low of $254,500 last month. Lower volume on top of lower per-sale dollars means there’s still a very tepid amount of real estate activity happening. Here’s a chart of the whole shebang.
SPX Montly with Existing Home Sales, New Home Sales, and Average Sale Price
And finally, both the new unemployment claims and the continuing claim levels are starting to drift higher again after months of nice downtrends. The market can absorb two or three months of that. Over the last eight weeks though, we’ve seen both numbers move higher as much as they’ve moved lower. IT’S STILL TOO SOON TO CALL AN UPTREND, though it’s not too soon to say the prior downtrend is broken. Take a look at the chart.
SPX Monthly with Unemployment, Continuing Claims, and Initial Claims
By the way, the reason we care so much is that the unemployment claims trend is a very strong predictor of market direction. Moby Waller detailed this idea back on November 10th. http://www.bigtrends.com/blog/The-Most-Important-Economic-Indicator-to-Watch.html
As for the coming week, Monday kicks things off with income and spending levels. There’s a lot on the plate mid-week, but we don’t get into the big announcements until the end of the week with Thursday’s factory orders, pending home sales, and then Friday’s unemployment data and workweek/hourly earnings news.
NASDAQ Composite:
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The Week Ahead - Home Sales, Consumer, and GDP
Written by Price Headley
The bulls should be more than happy with last week’s results. Stocks were up about 3%, on average, and it was the second positive week in a row. In fact, the market has wiped away more than half of the pullback we’ve experienced since the latter half of January. Before the celebration begins though, let’s see if there’s any longevity to the trend.
Economic Calendar:
Overall, the economic data supported the market’s gain last week. Housing starts and building permits were both stronger than anticipated. The same goes for capacity utilization and industrial production – both were up, and a hair higher than the prior readings.
On the flipside, new and continuing unemployment claims were both up, and/or higher than expected. One week does not make a trend, but we’ve now seen stagnation for both sets of data over the last several weeks. Could the prior downtrends for each be at and end?
Inflation-wise, we saw mostly what we wanted to see…. moderation. Producer prices were up a little more than hoped, while core consumer inflation (which excludes food and energy costs) was actually down a tad. All told though, the inflation picture remains steady, which is all the economy really needs to continue strengthening.
Looking ahead on the real estate front, Tuesday’s Case-Schiller Home Price Index should stir the pot, new home sales should do the same on Wednesday, while Friday’s existing home sales data will round out the real estate picture. All are expected to come in lower than their prior readings.
In terms of consumer confidence, it will also be a busy week. The ‘Consumer Confidence’ reading is slated for a Tuesday release, while the Michigan Sentiment Index will be updated on Friday. Both are assumed to be higher, and both are poised to be dangerous letdowns if they fall short of expectations (which is a distinct possibility).
NASDAQ Composite:
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Weekly Market Outlook - February 15, 2010
Written by Price Headley
It ended up being a positive week for stocks, though only barely. Had it not been for Thursday’s pop, the S&P 500 wouldn’t have ended the week up by 0.87%.
And, the gains may well have been deserved. A destructive week before last week’s slight rise set up the dead-cat bounce, and a little good news legitimately spurred some buying. Moreover, it wasn’t exactly a low-volume rebound either… a lot of bulls were putting their money on the table. Will it be enough to get the ball rolling again? The answer is below.
First though, let’s take a look at what put the bulls back in a good mood.
Economic Calendar:
There wasn’t a lot going on last week in terms of economic news, but what we got was important.
The biggest victories were surprisingly big drops in new and ongoing unemployment claims, which followed last week’s surprising jump in both numbers. However, the fact that wholesale as well as business inventories both fell rather than got larger sets up a little boost in demand as those inventories are replenished. Don’t get too excited though – it’s just one month’s worth of data, and hardly a trend yet. The same goes for retail sales; they moved upward, even higher than expected. It’s just one month though.
As for the coming week, it should be a tad busier:
Also on Wednesday, the minutes from the last FOMC meeting will be released, as will capacity utilization. The former should move the market a little, though it’s the latter that actually has more meaning looking forward.
The week wraps up with a wave of inflation data; we’re starting to see some. While deflation was a concern for months, following last month’s uptick, inflation is starting to be a legitimate concern. And it should be. Interest rates are still stunningly low, and there are still lots of post-stimulus dollars in the pool.
NASDAQ Composite:
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