Stocks look to end the week on a positive note with technicians looking for a close above key support. We are heading into earnings season and this could create some volatility. JC Penny (JCP) announced an earnings warning this morning and this brought futures off their highs. Of course, the economy will also continue to get a lot of attention with data on personal income and spending released this morning.

On Thursday, declines in the major market indices resulted in a close below their respective 50-day moving averages. Technicians are looking for the week to end above this key level as a sign that a bottom has formed. This moving average sits at 12,310 for the Dow ($INDU); 1,335 on the S&P 500 ($SPX); and 2,300 on the Nasdaq ($COMPQ).

JCP shares are falling sharply this morning after the retailer announced an earnings warning. The company now sees first-quarter earnings of 50-cents a share, which is well below its prior range from 75-cents to 80-cents. JCP stated hat consumer demand has faded, but the question traders have is whether this is a problem specifically for JCP or if all retailers are going to see similar revisions. JCP shares are off more than 13 percent in early trading on the news.

Speaking of consumer spending, this component of the personal income and spending report showed a gain of 0.1 percent. This was in line with expectations, though personal incomes did rise 2-tenths more than expected at growth of 0.3 percent in February. At least the core PCE price index rose just 0.1 percent, putting the year on year rate for core prices at 2.0 percent. However, the headline figure is still up 3.4 percent year on year.

The financial sector got some good news this morning when Citigroup upgrade Lehman Brothers (LEH). Citi raised its rating on the financial giant to “Buy” from “Hold” due to LEH attractive valuation. Many traders are afraid of the financial sector giving Bear Stearns (BSC) near collapse, but Citi feels LEH has plenty of cash and that its shares do not reflect this. LEH shares are higher by nearly four percent in early trading.

In the housing sector, KB Homes (KBH) reported earnings this morning that were disappointing. Even worse, the home builder provided a dim outlook for the housing sector. In fact, KBH stated that they do not expect meaningful improvement in the sector in the near term and that it will remain this way until prices stabilize and consumer confidence returns. KBH lost $268.1 million in the quarter compared with a profit of $27.5 million in the year ago period. KBH shares are down more than six percent Friday morning.

Jody Osborne

Senior Writer & Options Strategist

Optionetics.com ~ Your Options Education Site