Last weeks market and economic activity while possibly trend changing was not anything new. Poorer guidance by many US companies, disappointing economic reports, and a change in fed policy set the tone for the markets to fall.
Just seeing the Fed apparently more concerned over the economy was enough for traders and investors to begin selling equities and buy safer US treasuries. Risk has risen a notch. The Fed has begun a program of buying treasury bonds from the $1trl mortgage backed securities proceeds it now owns. The 10 year treasury closed Friday at 2.64%.
Just making earnings is not enough for companies to support current stock prices. 14 more companies will report this week as earnings season winds down. Among them are several retailers which may confirm last weeks market reaction to earnings from JCPenny, Nordstoms, Kohls, and Macys. (Macys was the only one to garner a small rise in stock price after beating earnings.) This week Home Depot (HD), Lowes (LOW), WalMart (WMT), and target (TGT) will report and help gauge the US consumer.
This is not an easy environment for companies to release results. Disney (DIS), last week announced they beat on revenue (+16% or $500mln), beat earnings (67c vrs 58c consensus), and the stock fell .4%.
Some are saying we are hanging on the edge. With retail sales only +.4%, CPI +.3%, unemployment at 6 months highs (484k claims last week); Briefing.com now estimates 2nd quarter GDP at .7%.
The result on the charts has the NASDAQ down 4.2%, and the S&P 500 down 3.2% for last week.
So much for last week, what about the week ahead?
Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, noted that the Standard & Poor’s 500 index has moved within a range of about 1,020 and 1,217 this year. “That broad range will hold until the middle of 2011,” he said. The index closed Friday at 1,079.25.
A similar but shorter-term prediction came from Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. “It looks like it will be this way for the rest of the year,” he said.
Looking at the charts the S&P 500 closed the week with an inside bar that formed a small sideways base on the intraday charts. Unfortunately for the bull this took place after a new move down started so it is a pause in a bearish move. If prices could rise above Thursdays and Fridays high it would be greeted well by hte bulls but they way this move started care should be taken in getting too long on a multi day basis. Actually a small move up like that could set up the next leg down. For example a move up and then a large sell off in the form of a sell set up or topping tail that could easily garner follow through at this point.
Barring anything happening in the morning just before the opening more traders will be looking for some continuation on the downside to start the day off. Longs are going to need a potent bottoming pattern to give any move up some credence.
Trade with a plan.