former Market Maker01 Chris Tyler

Weekly Outlook: May 23, 2011

 

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Chris Tyler, Optionetics.com
May 22, 2011

After three weeks of consolidating gains, it’s shaping up to be make or break time technically for either the bulls or bears. For the five day period the SP-500 (SPY) is off -0.34% and still wrestling with key levels crucial to both directional camps.

THE WEEKLY NUTSHELL 

• “Neckwear Returned Monday.” Early stab at trying on SP-500 neckwear from inverse H&S test goes out of style intraday with index closing off -0.62% on heavier volume below key 1330 – 1340 support. Out-the-gate weakness in dollar and bargain-hunting attempts to reverse Friday’s technical breakdown in the financials (XLF, JPM, BAC) are largely responsible for market’s early support from bulls. Intraday wear and tear of EU/IMF meeting regarding Debt PIIGS constituents Greece and Portugal, a technical “tech wreck” (GOOG, AAPL, AMZN, BIDU) with no specific catalyst other than the charts and failure of silver (SLV) and black gold (USO) to find a bid, all conspire to break market’s flashy neckwear.
• “Turnaround Tuesday?” An early “return move” of bullish neckwear with SP-500 cracking key pattern and 50SMA support is triggered as investors focus on below views Hewlett (HPQ) guidance, mildly disappointing outlooks from Dow peers Wal-Mart (WMT) and Home Depot (HD) and dose of weak economic data on US housing starts / permits, industrial production, ZEW sentiment surveys from Germany and Eurozone, as well as none-too-jolly spike in consumer prices in England. Intraday technical u-turn back through 50SMA with bullish, flat hammer finish in SP-500. Turnaround assisted in large part by relative strength, defiant bid from bulls shaking off Monday’s technical breakdown in financials (XLF, JPM and BAC), key hold and rally off 200SMA in black gold (USO) and weaker US Dollar (UUP) toying with 50SMA support on session.
• “DE-LLightful Wednesday.” Bulls confirm SP-500 corrective low with 0.88% gainer. Buying inspiration courtesy of Dell (DELL) and Deere’s (DE) earnings beats and above views outlooks and some less crude, bullish energy from oil complex (USO, XLE and OIH) driven by Tuesday’s successful technical test of 200SMA support and surprise drop of 15,000 barrels versus forecasts of 1.7M barrel build in weekly inventories report. Analog Devices (ADI) upside guidance helps bulls “handle” things better with semis (SMH) holding onto high technical handle development. Mixed FOMC minutes message as policymakers split on inflation concerns and future tightening agenda versus derailing economic recovery, adds a bit of intraday volatility before market resumes upside bias to finish near session highs.
• “Sell in May Goes Slightly More Away.” SP-500 finishes higher Thursday by 0.24% despite three out of four headline catalysts favoring bears. Out-the-gate bulls enjoy word of larger-than-forecast drop in weekly claims to 409,000, as well show sympathetic nod for Wednesday’s upside performance and a pair of jolly reports out of England on consumer confidence and retail sales. Intraday weakness precipitated by worse-than-expected weak data from Philly Fed, leading indicators and existing home sales before bulls manage to pick up their bootstraps to post modest lighter muscle gainer.
• “Pre Rapture Friday Rupture for Bulls.” Blissful set up for weekly gainer taken away by rekindled Eurozone woes and stateside consumer concerns. SP-500 finishes down -0.77% in unwanted return move to key support as Germany’s Bunde*****ank warns of threatening economic headwinds, Greece receives downgrade on long-term credit to B++ from Fitch, fiscal concerns re-emerge for Spain and ECB’s debt burden. Stateside, pair of below views outlooks from retailers Gap (GPS) and Aeropostale (ARO) send shares plummeting 17.50% and 14.25% respectively as rising operating costs and strength of consumer are paid fashionable attention.
  
  

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday:
Economic: NA.

Earnings:  Campbell’s (CPB), Krispy Kreme (KKD), Tech Data (TECD).

After Hours: GT Solar (SOLR), Perfect World (PWRD), Verigy (VRGY).

Tuesday:
Economic:  New Home Sales (300K vs. 300K prior).

Earnings: AutoZone (AZO), Cracker Barrel (CBRL), DSW (DSW), Medtronic (MDT).

After Hours: Applied Materials (AMAT), Avago (AVGO), Focus Media (FMCN), Take-Two (TTWO), TiVo (TIVO).

Wednesday:
Economic: Weekly Crude, Mortgage Apps, Durable Orders (-2.0% vs. 4.1%), FHFA Index.

Earnings: American Eagle (AEO), Costco (COST), Polo (RL), Suntech (STP), Toll Bros (TOL).

After Hours: Computer Sciences (CSC), Guess (GES), NetApp (NTAP), Semtech (SMTC), Sigma Designs (SIGM).

Thursday:
Economic:  Weekly Claims (400K vs. 409K & 3.7M vs. 3.71M).

Earnings: Big Lots (BIG), Heinz (HNZ), Patterson (PDCO), Quality Systems (QSII), Sony (SNE), Tiffany (TIF), Vimpel (VIP).

After Hours: Blue Coat (BCSI), Marvell (MRVL), OmniVision (OVTI), rue21 (RUE).
Friday:
Economic: Inc & Spend (0.4% & 0.5% vs. 0.5% & 0.6%), PCE Prices Core (0.2% vs. 0.1%), Michigan (72.4 vs. 72.4), Pending Home Sales (-1.8% vs. 5.1%).

Earnings: Mentor (MENT), Seadrill (SDRL).

TECHNICAL OUTLOOK

Figure 1: ProShares Ultra SP500 (SSO) Daily

A third week of challenging an inverse H&S neckline in the SP-500 and proxies (SPY, SSO) saw an actual failure of that support with shares falling below the prior week’s acceptable pivot low, established as part of the testing process. The good news for bulls is the additional time spent consolidating recent intermediate highs can be seen as constructive in that gains are digested and overbought conditions neutralized.

Some bulls might also find refuge in the fact the SP-500 is still holding onto its double of 1333 while finding support off its 50SMA after an intraday breach Tuesday resulted in a daily chart hammer low. In fact, the action did signal a rally attempt pivot low as part of a follow-through day count for growth traders which follow IBD’s rules for judging the health of the market.  

The bad and more pressing news is seasonal weakness is still just underway following a very strong six month run, as is the still intact “double” from those devilish March 2009 lows of 666. As well, the lighter volume rally of two plus sessions off Tuesday’s hammer low came on weaker volume and ultimately saw confirmation of the neckline acting as resistance during Friday’s higher volume bearish reversal.

In lieu of the price action, the advantage coming in Monday looks to favor the bears. But this market strategist would be wary of short delta positions above Thursday’s pivot highs. It is a holiday week which holds an upside bias. Secondly, a breaking of a bullish pattern such as neckline support followed by a lengthy failure to make good on that bearish promise; is appreciated as the kind of setup which could find bulls reinvigorated and bears forced to cover their tracks.

MARKET LAB
Bullish Technicals

• Year Three of Presidential cycle. 
• First Week Effect. 
• Memorial Day holiday week bias. 
• Three weeks of consolidation / correcting. 
• Rally Attempt low set on Tuesday, day five of FTD count Monday. 

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• 10-Yr. anniversary mark of ATH top in broader market.
• First uptrend break during March for SP-500.
• Market in “Worst Six” calendar period.
• Risk aversion and breakdowns in commodities, financials.
• Elliott W5 / W4 weekly development in SSO.
• Failure of neckline support from inverse H&S to hold.
• VIX still near nominally cheap historical levels.

Index or Sector Proxy	Ticker Symbol	Support	Resistance
S&P500	(SSO)	52.50, 50 - 51	55, 57, 60

         

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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.