The market got off to a wild and wooly start in the third quarter as increased financial and economic concerns produced a heaping dose of stretched sentiment readings and prices. For the four-day period, the S&P500 (SPY) and NASDAQ100 (QQQQ) are off but not out by 3.37% to 5.59% on seasonally adjusted and increased levels of investor panic.
THE WEEKLY NUTSHELL
- Out-the-gate relief bid tied to Gustav miss and latest buzz of KDB interest in Lehman turns tail to finish as a bearish distribution day. No specific news, but downward spiral in commodity complex suggests hand wringing over global economic slowdown.
- Disappointing reports and reactions to earnings (ETH, CAG) spearheaded by mining equipment and Naz 100 component Joy Global (JOYG) and “tech wreck” courtesy of LCD manufacturer Corning (GLW) and its warning. Pressure in commodity complex (GSG, XLB, and SLX) attributed to demand worries / slackening world economies and hedge fund troubles courtesy of Ospraie Fund.
- Technical thumper on Thursday. Mostly disappointing same-store sales. Weak claims and ADP data spook in front of jobs report. Further commode-like commodity action tied to global economy anxieties, Anchor Banker difficulties (MER, AIG and LEH) and PIMCO’s Bill Gross “I’m not buying it” cautionary interview regarding the bond giant’s stance on the credit market.
- “BOOyah!” Out-the-gate doom & gloom TGIF on worse-than-expected jobs data, broker downgrades (MER, CIEN, AMD, AIG) and warnings (NOK, NSM). Chatter of China’s central bank looking to raise capital, Moscow dumping foreign currencies and hedgie Atticus Capital being mauled by bearish finger pointing, umm claws…add to the market’s early demise. Intraday reversal to the upside attributed to nothing less (or more) than excessive bearishness and sentiment extremes last tested during July lows. “MOOyah!”
ON TAP THIS WEEK
What’s will motivate investors this week? One thing that won’t be a determining factor until Friday’s quadruple play of economic growth and price stats will be officially-slated catalysts. Pending Home Sales and Wholesale Inventory reports on Tuesday will attempt to rattle or have investors humming, but shouldn’t be driving factors beyond the time it takes for the proverbial ink to dry.
Not that investors need scheduled items to make a decision. The current market reality remains hinged on unscheduled news-driven factoids related to the credit and financial markets, as well as stretched sentiment readings and interlinked market panics. Considering Friday’s round-turn rally on nothing more (or less) than excessive pessimism and an After Hours report of a Treasury-backed rescue of GSEs Fannie & Freddie (FNM, FRE) and subsequent percentage spike in the S&P500 futures can attest to, that reality is confirmed in spades.
Weekly Calendar of Key Reports
Monday:
Economic Consumer Credit
Earnings Pep Boys (PBY)
Tuesday:
Economic Pending Home (-1.0%), Wholesale Inv’s (0.7%)
Earnings Korn Ferry (KFY), AeroVironment (AVAV), Verifone (PAY)
Wednesday:
Economic Weekly Crude
Earnings Stewart (STEI), US Global (GROW), Spartech (SEH)
Thursday:
Economic Weekly Claims, Import / Export, Trade & Treasury (-$58B, -$105B)
Earnings Campbell (CPB), Lululemon (LULU), Methode (MEI)
Friday:
Economic PPI & Core (0.2%, -0.3%), Retail Sales (0.1%, -0.2%), Biz’ Inv’s (0.5%), Michigan (63.9)
Earnings NA
TECHNICAL PICTURE
Figure 1: S&P500 (SPY) Daily
A statistical short-term trading edge per the CBOE Volatility Index and matching oversold conditions in the S&P500 helped bulls dipping their toes in the market look fairly smart by Friday’s close. Conditions on a closing basis remain stretched and advantageous for the nimble strategist, before overhead resistance and more neutralized sentiment readings become a reality once more. That being said and in light of Friday night’s After Hours GSE-driven price spike, the expectation for price levels to be radically different come Monday means not fawning over daily chart reversal bars like the hammer shown above. Instead, taking one day at a time and spreading our risk to take advantage of fresh situations is the reality for those not already involved.
MARKET LAB
Bullish Technicals
- VIX Stretch signal generated 9/4.
- Oversold market conditions.
Bearish Technicals
- EW4 SPY short signal via PS EBOT.
- Weekly downtrend major averages October highs.
- 3-Week lateral breakdown SPX.
- Seasonally bearish month of September.
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 1220, 1200 | 1265 -1280 |
NASDAQ100 | (QQQQ) | 42.75 – 43.25, 41 | 45.50 – 46.75 |
Chris Tyler
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.
