Note: This week's Market Outlook was covered by Optionetics.com's Chris Tyler.

A hard corrective move in the carry trade could find bargain-hunting bulls' collective risk appetite is back this expiration week. For the five-day period, the SP-500 (SPY) is up a mostly flat but impressive 0.09% within its home in the range.

THE WEEKLY NUTSHELL

• Contained indecision on Monday. Following Friday’s Catch-22 jobs data of higher rate implications and prompting an unwinding of the carry trade, bulls’ fears are eased by BernankeSpeak at economic luncheon assuring low rate environment. BofA-ML upgrade of credit card companies (AXP, COF, DFS) on “accelerated economic recovery” belief assists bulls in keeping profit-taking in market a constructive affair. News of Citigroup (C) looking to repay $20.0B in TARP monies fails to win support of investors on the heels of last week’s BofA $45.0B bailout fund exit strategy.
• Inside indecision turns lower Tuesday for 1.03% drop in SP-500 below 1100. Investors wake up with fresh take on BernankeSpeak and Monday’s muted sound bite of “formidable headwinds” for economy. Mixed guidance for 3M (MMM) and disappointing sales drop of 0.6% for McDonalds (MCD) weigh in. Moody’s chatter via WSJ that agency sees both US and UK needing to reduce deficits or risk downgrades. Stronger dollar keeps commodity-based carry trade as spotlight concern for broader market. For the bulls, FedEx (FDX) delivers guidance package above views.
• “Risk appetite is back!” by Wednesday’s non-humping close as bulls decide to shop after dropping. Slightly pressured dollar helps select commodity strength (GDX, SLX, KOL, XLB) after first half continuation of carry trade unwind. Large cap tech (QQQQ, RIMM and GOOG) assists bulls with leadership from Apple (AAPL) on tablet PC news. Administration extends bailout. Early market wobbles from disappointing mid quarter tightening but non-boost of EPS from TI (TXN), downward revision to Japan’s Q3 2010 GDP data, re-escalating Dubai concerns and S&P downgrade to “Neutral” for Spain.
• “Follow-through Thursday”, well kind of and SP-500 still at home in-the-range. Choppy session follows upside gap through wall of worry as modest strength in dollar, mixed-to-weak claims data and continued meager risk appetite for gold (GLD), oil (USO) or financials (XLF) fail to keep bulls from nibbling in SP-500. Buzz of Citi (C) close to TARP repayment is purported early inspiration for bid in market. Trade deficit improves above views with -$32.9B versus estimated -$36.8B, as does treasury budget’s -$120.3B shortfall compared to expectations of -$131.6B.
• Bulls turn their “BACk” on potential profit-taking in broader market despite continued unwind of carry trade, stronger dollar and slumping bonds. Better-than-expected retail sales and Michigan survey result in an optimistic bid to close week in the face of possible Catch-22 situation for higher rates. Retail (RTH) and financials (XLF, BAC) spearhead for bulls feeding at home in-the-range.

ON TAP THIS WEEK

On the earnings front, it’s a light schedule but both potential warnings or upside surprises, as well as a handful of influential reports from the likes of Best Buy (BBY), Nike (NKE), General Mills (GIS), Joy Global (JOYG) and FedEx’s (FDX) pre-announced bullish package are on tap. Spearheading the corporate confessionals, a twosome in large cap tech from RIM (RIMM) and Oracle (ORCL) on Thursday evening will likely be of most interest to traders.

For its part, RIM, the maker of the popular but slightly immobilized of late, Blackberry handhelds, is expected to earn $1.04 versus last year’s $0.83 per share. Oracle, the world’s largest database software management provider, is slated to post profits of $0.36 per share and two cents above last year’s mark. The two influential shops have the ability to shift and / or reinforce investor’s outlooks on business spending. As much, what’s said or not said could have the ability to influence Santa’s lateral staging area of the past few weeks.

On the economic front, out-the-gate Monday, the heads of Wells Fargo (WFC) and Citigroup (C) meet with the Obama Administration to discuss strategy in repaying TARP monies. Also on the junket, the Fed convenes for the final time this year. Wednesday’s early afternoon “FOMC Decision” isn’t expected to produce any shift in its language regarding monetary policy to keep low rates on hold “for an extended period.”

The calendar this week also holds a slug of officially-sanctioned reports with the likes of fresh stats on housing, manufacturing and market prices for consumers and producers. Finally, traders will be watching ever-closely the dollar. Last week the currency forged a strong move off its lows to test its best levels in a month. The popular risk-sensitive, commodity-tied carry trade saw unwinding of that position following stronger economic reports on labor the prior week and Friday’s stronger-than-expected retail sales data, which helped propel rates higher and buoy the dollar.

Weekly Calendar of Key Reports

Monday
Economic  NA
Earnings  Verifone (PAY)

Tuesday
Economic  PPI & Core (0.8%, 0.2%), Empire (24.0), TIC Flows ($42.3B), CU & IP (71.1%, 0.5%)
Earnings  Best Buy (BBY), FactSet (FDS), AAR (AIR), Adobe (ADBE)

Wednesday
Economic Weekly Crude, Housing Starts & Permits (578K, 570K), CPI & Core (0.4%, 0.1%), FOMC
Earnings  Joy Global (JOYG), Hovnanian (HOV), Martek (MATK), Paychex (PAYX)

Thursday
Economic Weekly Claims (465K, 5.17M), Leading Inds (0.7%), Philly Fed (16.0)
Earnings  Actuant (ATU), Discover (DFS), FedEx (FDX), General Mills (GIS), Pier 1 (PIR), Rite Aid (RAD), Accenture (ACN), Darden (DRI), Nike (NKE), Oracle (ORCL), RIM (RIMM), Palm (PALM)

Friday
Economic  NA
Earnings  CarMax (KMX), Carnival (CCL)
 

“Ho-ho-hope?” Entering Monday the market remains bound by its home in-the-range ways of the past month in a fairly tight, but erratic lateral congestion. That said, if I were a betting man on which direction a break from the pattern might occur, the guesstimate has shifted to favoring the bulls this week.

For the bovine-inclined, expiration weeks are somewhat notorious for providing a midweek thrust in the direction of the trend. A hopeful outlook also has an ongoing seasonal bias acting as potential support. Also important, the failure of the broader market to lose its composure despite a hard sell-off in the now “once-leading” commodity complex during a statistically weak trading week is considered impressive. That same corrective pressure now sets up spots such as Black Gold (USO), Comex Gold (GLD) and the miners (GDX) as likely influential spots for bargain-hunting and upside fuel for the broader market.

“Bah, humbug?” While there’s fresh reason to appreciate seeing a Santa Claus rally unfold this week, bulls should be mindful of the well-treaded bearish technicals in the bullet points below and still considered relevant. Additionally and not to put coal in the bulls stockings, sideways markets and consolidation work are much more common action than the more exciting “Buy, Buy, Buy!” and “Sell, Sell, Sell!” efforts attempted daily. To which and on that more tempered note, bulls and bears are still caught in the range and a spot where hedge hogs graze more successfully.    

MARKET LAB

Bullish Technicals

• Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
• Weekly Inverse H & S being breakout from October lows. “MM” of 117 – 123.
• November thru April strongest six months for equities historically.
• One man’s bearish “Fifth-Fifth” is “still” another’s uptrend.
• Seasonal strength and large technical air pocket to support momentum breakout.
• Expiration mid week bias.
• Failure of bulls to break trading range lower despite commodity complex sell-off.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl
• At 68%, market’s run has “Come a long ways, baby.” Green Shoots priced in.
• Mostly long-term overbought market conditions/weak internals.
• Q3 “Recession is over” data confirmation.
• Estimated minimum corrective support zone 99.50 – 102 testing.
• Bearish “Fifth-Fifth” and weekly SPY W5 against 50% retracement with triple doji.
• Three failed breakouts of 3-week lateral pattern SPY.
• “Market under Pressure” per IBD. Five sessions of distribution during range.
• Leading Russell 2000 (IWM) continues to show technical laggardship vs. 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.