Weekly Outlook: The market made some very nice strides this past week as the fiscal cliff situation seemed to take a positive turn, and the market was very hopeful about positive sales from Black Friday. At the same time, some of the potential gains from the week were held in check by the fact that Greece has still not secured another round of funding from its Eurozone partners.
This coming week, the results from Black Friday, the Greek situation, and the fiscal cliff will be the main issues on the docket for the marketplace. The initial results from Black Friday look very promising with record results and great online results as well. The situation in Greece hinges on a decision on Monday from the Eurozone. Without a secured funding, Greece could belly up, causing a major market crisis. Finally, the fiscal cliff will continue to take shape. The market can only move up on "talks" for so long, and at some point, it will need results. That situation will be something to watch carefully as well.
The coming week will bring a large slate of economic data that will also be very crucial to market movement. Things get started on Tuesday with Durable Orders, Consumer Confidence, and Case-Shiller Home Index. Data continues on Wednesday with New Home Sales, Crude Inventories, and the Fed's Beige Book. The continuation of housing data will definitely be intriguing to watch, and it can definitely create a lot of movement in the market. Thursday, the market will be reacting to Initial Claims, GDP - 2nd Estimate, and Pending Home Sales. Finally, we finish the week with personal spending/income and Chicago PMI. It's a busy week with a lot of important data points to watch.
Europe will be very important this week, centering around Greece. New talks on Monday between Eurozone financial leaders will determine if Greece gets funding. If the country does get funding, it will create a strong "risk off" market, and we should see some solid rallying. If talks fall apart, though, the market could see a strong decline with a strong "risk on" move in the market. Greece may be the key to the week. The country's ability to secure funding is very crucial because without it they will run out of cash and likely default on loans. The Monday decision, therefore, is very important.
For earnings, we have a very light week, and with such a bevy of other market moving indicators, earnings will have minimal impact. The three reports we will want to watch this week are Kroger (NYSE:KR), Tiffany (NYSE:TIF), and Seadrill (NYSE:SDRL). KR will be an interesting report to see how grocers are doing currently. TIF will give the market some perspective in luxury spending, and SDRL should give us a fresh look at oil drilling. All in all, though, these reports will have fairly minimal impact on the market.
The Federal Reserve has several reports out for the week including their monthly Beige Book, Richmond Fed Index, Chicago Activity report, and Dallas Manufacturing report. Besides that, though, it's a quiet week for them. We are not expecting another big move from them until 2013. The Beige Book is always important to market movement on its release date and will give some interesting perspective on how Superstorm Sandy may influence decisions.
So where are we headed this week?
The relief on the fiscal cliff is going to wear off as the weeks progress and nothing is done, and the market starts the week on a very strong note with Greece. Despite a strong week last week, the market has a lot of potential to have some serious issues moving to the upside. If Greece fails to secure funding, this could create a serious crisis that could be very detrimental to our markets here at home.
Black Friday results were very positive, so that is a good sign for discretionary stocks. Yet, Greece would outweigh that news. Additionally, we have a ton of data to digest this week as well that should play a role. It's a wait and see week, and it will not be so easy to jump back into being 100% long in the market. Be careful out there.
Stocks To Trade:
We are liking the looks of COP and GM right now. COP looks like it is about to break out, while GM continues to look very solid and good for a bull put spread. COP is looking like it could break out after some positive moves last week and a test of its 50-day MA resistance. If the company can break the 50-day MA, it should see a strong move to the upside. What caused this reversal?
The stock had been very weak before last week as it had dropped from $58 to $54. It bounced off the 200-day MA, though, and has worked higher as the market has started to show signs of bottoming. Along with that bottoming process was a move higher in oil prices that also helped COP. If the market stabilizes more this week, look for COP to continue to be one of the main beneficiaries, and they could see a strong rally above the 50-day MA.
GM looks like it could make a major breakout this week if the market strengthens. The company got some positive news after agreeing to purchase Ally Financial international operations for $4.2B. The move will help bolster GM's international financing operations. The stock broke its 20-day MA on Friday of last week and is following an upward channel higher. We believe that if GM can break $26, it will break out much higher as it pushes past its 52-week high. Watch that level this week for a breakout potentially. In the meantime, the stock has very solid support at 23 where the 200-day MA is, and we like that area for a bull put spread.
Trade #1: Long, COP
Breakout: Break of 50-Day MA
Trade #2: GM, Dec22, 23/22 Bull Put Spread
Max Gain: 10%
For bearish trades, we like the looks of Amarin and Activision Blizzard. Stocks that did not show improvement in last week's snapback are definitely very weak right now. Two such stocks are AMRN and ATVI, and we believe both should continue to be weak. AMRN looks as if it could have a breakout to the downside, while ATVI has remained weak for quite some time and looks promising as a bear call spread. AMRN has been weak since September, and until it resolves a recent issue of pending NCE status for Vascepa, they will remain weak. The stock, additionally, is not benefiting from news that fish oil prescription trends are down as well.
The stock has been supported at the 10.25 - 10.50 area for some time now, but it is coiling around that area. If it were to break that area, we believe it could really break down. As long as the NCE status pends, the stock continues to weaken. There is no end in sight to the waiting game. ATVI has continued to show some weakness despite a strong release of its World of Warcraft: Mists of Pandaria and newest Call of Duty installment were released. Despite strong numbers for both, the stock has not regained a lot of confidence. The stock is still sitting under $12, which it has not been able to break since September.
We believe that the stock could get going again if the games helped ATVI's bottom line, but that will not be known until earnings in February. The company's November 7 earnings were solid as well with the Diablo, Skylanders, and WoW lines showing strength. Yet, the stock depends on Call of Duty now, and we believe it will not be a major catalyst till more numbers are known. Until the stock breaks 12, we believe it remains weak. There is a lot to like here, but be careful. The last WoW expansion helped for a couple months, but quickly lost interest. And if CoD does not absolutely smash estimates, the stock will struggle. Gaming has a black eye, and it's an industry where doing really well is not enough.
Trade #3: Short, AMRN
Breakout: Failure of 10.50
Trade #4: ATVI, Jan2013, 12.50/14 Bear Call Spread
Max Gain: 9%
Chart courtesy of finviz.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The Oxen Group is a team of analysts. This article was written by David Ristau, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.