Note: While Tom is in Australia, the Market Outlook is being covered by Optionetics' Chris Tyler.

Investors finally show a slight bit of atypical fear during the market's defense of SP-1000 this past week. For the five-day period, the S&P500 (SPY) is off a mild 0.41% versus mostly difficult-to-handle conditions in Week Two of a technical tug-o-war.

THE WEEKLY NUTSHELL

• A "Monday Mourning" continues to find fractional Closing Bell Tears. Four-straight weeks and five months of gains in excess of 50% in S&P500 find light profit-taking on even lighter news and FOMC two day on tap. Goldie (GS) tries to muscle with analyst raise of Asia's GDP.
• "Not-So-Terribull but Expected Tuesday" as bulls give it a "brake." Indices shed a little something in front of Wednesday's FOMC. Profit-taking in leading financial sector (XLF, JPM, AIG, and BAC) spearheads. CIT (CIT) delays quarterly filing. Fluor (FLR) issues all-around decent report but finds pressure.
• A "Non Humper" midweek as Fed pulls no surprises but suggests economic activity is leveling out. Early pre-FOMC lift courtesy of "b-t-e" semi (SMH) results from Applied (AMAT) and Cree (CREE), Macy's (M) beat and guidance raise and results from homebuilder Toll Bros (TOL). Financials (XLF) bounce back after profit-taking. Paulson & Co. or "The man who bet against subprime" in 2007 snaps up key financials (BAC, GS, RF and COF).
• "Vive le France & Danke Schon Germany." Standing ovation by bulls Thursday as across-the-pond economies expand by stronger 0.3%. Paulson's bullish financial disclosure receives investors' full attention. Fed's message gains green shoots traction in commodity complex (GSG, MOO, GLD, SLV, USO, GDX, OIH). Wal-Mart's (WMT) profit beat of two cents for $0.88 per share is well-bid. Disappointing and unexpected retail sales drop (-0.6% and -0.1%) and larger-than-expected weekly claims filings shaken off after out-the-gate sympathetic sell side keystrokes.
• A Friday schnitzel despite easy-to-handle CPI data and 0.5% increase for Industrial Production. Boos from Wall & Main as Michigan sentiment comes in weak at 63.2. Commodity complex (USO, JOYG) spearheads for bulls looking to dust off the sell button on reduced green shoots fervor and downgrade of heavy machinery operator Joy Global. Two week highs in treasuries (TLT) suggest reduced risk tolerance for equities.

ON TAP THIS WEEK

Earnings season is winding down, but bulls could be doing some heavy shopping or dropping this week on a flurry of corporate confessionals from the retail sector. Spearheading, home improvement retailers Lowe's (LOW) and Home Depot (HD) are set to report on Monday and Tuesday respectively. The two heavyweights are considered important indicators of the economy as their fortunes tie both the health of the consumer and housing market together.

Another potential market mover is tech heavyweight and Dow component Hewlett Packard (HPQ). The computing giant is expected to report a profit increase of four cents to $0.90 per share versus last year's $0.86 Tuesday evening. Year-over-year profit increases haven't been too common this earnings season, regardless of whether the results are a product of sales growth or cost cutting. That said, technically speaking bulls appear to be well aware of the company's top notch performance.

Shares of HPQ have easily outpaced the gains of the broader market since those fearful July lows by putting together a strong climb of nearly 20%. The somewhat technically-extended price action puts bulls at risk of profit-taking come Wednesday's session, unless management really wows investors with a truly surprising report.

Also on the radar this week, Friday saw a willingness by investors to rotate into treasuries (TLT). The safe haven style move found yields slumping to month-to-date lows as instruments like the iShares 20-Year rallied strongly. Coupled with a bit of late week strength in the Dollar (UUP) and Black Gold (USO) unable to "handle" an upside breakout pattern, bulls and bears will likely be monitoring those instruments for potential follow-through and possibly setting the tone for the broader market.

Weekly Calendar of Key Reports

Monday:
Economic Empire (2.20), Net LT TIC Flows ($17.5B)
Earnings CIT (CIT), Global Sources (GSOL), Lowe's (LOW), Agilent (A), Focus Media (FMCN), Trina Solar (TSL)

Tuesday:
Economic Housing & Bldg Starts (598K, 576K), PPI & Core (-0.2%, 0.1%)
Earnings Cardinal (CAH), Home Depot (HD), Solarfun (SOLF), Target (TGT), TJX (TJX), Analog D (ADI), Giant Int (GA), Hewlett (HPQ), Jack Henry (JKHY), Longtop Financial (LFT)

Wednesday:
Economic Weekly Crude
Earnings BJ's (BJ), Deere (DE), Yingli Green (YGE), Citi Trends (CTRN), Cyberonics (CYBX), Gymboree (GYMB), Harman (HAR), Hot Topic (HOTT), JDSU (JDSU), Limited (LTD), Net Apps (NTAP), PETsM (PETM), Synopsys (SNPS)

Thursday:
Economic Weekly Claims (553K), Leading Inds (0.6%), Philly Fed (-2.0)
Earnings Barnes & Noble (BKS), Children's Place (PLCE), Dick's (DKS), Gamestop (GME), Heinz (HNZ), Ross (ROST), Sears (SHLD), Suntech (STP), Buckle (BKE), Toro (TTC), AeroPostale (ARO), Brocade (BRCD), Gap (GPS), Intuit (INTU), Open Text (OTEX), Salesforce (CRM), Zumiez (ZUMZ)

Friday:
Economic Existing Homes (5.0M)
Earnings AnnTaylor (ANN), Smucker's (SJM)

TECHNICAL PICTURE


Figure 1: S&P500 (SPY) Weekly Chart

Headlines could very well have read "Bulls Turn Fearful in Late Friday Trade" as losses were cut in half during yet another last ditch effort by the Invisible Hand to keep prices looking happily satisfied above the 1000 level. That said, the fear of missing out did bow slightly to that other type of fear as weekly losses were delivered after July's strong three week climb and the grudging early lift to fresh highs in the first week of August.

The past two weeks in and around the 1000 level in the S&P500 has been the source of endless traps for both bulls and bears. There could always be a third and even fourth week of directional difficulty. However, the lateral motion has already diffused what had been an overbought condition, thus a platform for higher prices does look to exist entering Monday. That's the optimistic side of the coin.

On the other hand, while this market strategist is open enough to not rule out the possibility the market could go higher, the technical inclination is to favor the bearish delta. Historical similarities to the 1930 rally which apparently went on to become a magnificent bull trap, a potential turning point for the mid pivot in a "W" bottom near the 38% retracement level from 2007's all-time-highs in the SPY and too many difficult-to-handle pattern breakdowns beneath the surface (USO, RIMM, TNDM, FCN) have this trader's attention.

As much and as noted last week, the protection of profits is determined more important than entering into the next potential (failed) breakout or (fickle) trend long. Premiums in products like the SPY are slightly rich relative to the short-term gyrations of the past couple weeks. But, at "Pre-Lehman" levels, the market entering into the seasonally weak months of September and October, gains in excess of 50% from the March lows in place and the fore-mentioned concerns-to maintain a definitive line in-the-sand for less than a handful of percentage points, is thought worth considering.

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.
• No VIX Stretch signal.

Bearish Technicals

• Reality check "Jobless Recovery!" versus green shoots pricing?
• Abundance of "flakey" Cup with Handle or W bases as contrarian tell.
• Fib-based five month Bull Run from March lows and five week run from July lows.
• Potential W5 Daily and W4 Weekly in SPY.
• NASDAQ RSI above 75. Harbinger of strong corrective action past decade.
• 1930 Bear Market Rally repeat and "W" pattern at midpoint SPY?

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.