Market Outlook: Looking Forward to a Data-Heavy Week

Last week, the bulls took a beating. Having reigned supreme while the market worked 40% higher from its March low, the bulls seemed invincible. All news was construed to support stocks as the path of least resistance was higher. But over the past five trading days, that has changed. With the Dow Jones Industrial Average (Dow) falling below its 200-day moving average (MA), prices have returned to the persistent trading range which has lasted since early May.

I have long felt this chart offers the key to the future. If prices can again rally above the 200-day MA, the Dow should move above 9,000 (black box). A break below the 50-day MA opens the door to 7,400 (red box). With these moving averages only 195 points apart, the inflection point is quickly approaching. Unless bargain hunters emerge that decide the Dow's weekly decline of 3% offers an attractive entry point, further declines lie ahead. Given the quick nature of the rally from the March lows, I fear that weakness will spur more weakness and prices will cascade lower.

At times, I am an impatient trader who anxiously awaits answers. With the market in a low-volatility trading range for nearly two months, this is one of those times. Believing we will see dramatic swings once the direction is determined, I anxiously await the point where a new trend is established. Since news has driven this market since the March low, a data-heavy week may provide the catalyst we need. Lucky for me, the upcoming week of 6/22 to 6/26 fits the bill.

The week features existing and new home sales, an interest rate decision from the FOMC and the weekly employment report. The market will be focused on new information that deviates from expectations. Were a new piece of information to emerge, we may see prices break from the current range and establish a new trend. For now, I remain hopeful such an event will occur and am prepared to act once it does.

Comments

[frosty:]

The SMA tells one story, the EMA tells another. Since early April, the DJIA has been bounded below by the 50 day EMA and above by the 200 day EMA. The average has not penetrated the 200 day EMA resistance nor the 50 day EMA support. The DJTA shows exactly the same pattern. The S&P 500 shows nearly the same pattern with the EMA 200 as resistance and EMA 50 just recently showing support. You can draw horizontal lines on graph paper if you choose, but clearly, DJIA has been in an upward channel since early April and my guess is that a breakout through either EMA will set the trend for the next several months. I might be wrong, but as I guage the near term on prospects for the economy (for businesses and consumers), I would bet more on the 50 day pentration than the 200 day.

Jun 22 10:29 AM