Weekly Market Outlook: Can the Bulls Establish Control?

Includes: DIA, QQQ, SPY, VXX
by: Price Headley, CFA

Two back-to-back winning weeks? Yep, even if the second of the two was a 'just barely' situation. The positives are starting to roll in as frequently as the negatives when looking at major index charts, and maybe (if we can just catch a break from some of this week's economic data) the bulls can finally take control again. They aren't quite there yet though.

The details of that contest are detailed below in our index discussions, but first, let's poke and prod the economy.

Economic Calendar

Looks like a week of minimal economic data was just what the doctor ordered; stocks managed to rally any the absence of any landmines. Too bad this week we're back to the long laundry list of data to work through.

As for last week, the biggie was unemployment claims - new claims fell to 451K, while ongoing claims fell to 4478K. Though the market celebrated, neither number was below the recent range, and as such isn't celebration-worthy yet. In this environment though, 'not losing' is the same as winning.

The only other data nugget of interest isn't even all that impacting.... consumer credit levels contracted (again) by $3.6 billion. It's still better than the expected $5.2 billion contraction, but fairly meaningless in the grand scheme of things.

Economic Calendar
As for this week, look out - it's going to be a wild ride.

The fireworks start on Tuesday with August's retail sales numbers. Look for slight increases (of 0.30%) with or without autos.

On Thursday we'll once again get initial and continuing unemployment claims data. The pros are basically looking for flat numbers, but given last week's overly-pessimistic expectations, that'll be news worth watching. On the other hand, it's news worth watching no matter what the expectations are.

We'll also get two other monster announcements on Thursday... capacity utilization, and industrial productivity. We call them monsters simply because they have such a strong and consistent correlation with long-term market trends. And, both have been trending higher - with the overall market - since the middle of last year. Both are also expected to inch higher this time around, which is good news for the true long-termers.

On the inflation front, look for a very modest increase in producer prices on Thursday (+0.3%), and a modest uptick of consumer inflation on Friday (+0.2%). So far, we've yet to see any indication that last month's deflation panic has any merit.

Industrial Productivity Index, Capacity Utilization
S&P 500

As of last week, one of our biggest complaints about the S&P 500 was that it hadn't been able to hurdle the 100-day moving average line (gray) despite the huge rally... a particular worry, considering that the 100-day line was the ultimate beginning of the pullbacks in June and August. Well, at least that problem was solved last week - the 100-day line is at 1102, while the S&P 500 closed at 1109.55.

On the other hand, the 200-day moving average line (green) - which is the more meaningful of the two - still lies ahead at 1115. And of course, the ultimate ceiling at 1130 (dashed) looms above as well. If they seem familiar, it's because that's the same list of pitfalls we've been dealing with for months now; we really didn't make any meaningful progress last week, and we're still under any key breakout levels.

Likewise, the CBOE S&P 500 Volatility Index (or VIX) hasn't actually made any meaningful progress lower. The close at 21.99 last week is still holding above the recent floor at 21.50. Until that floor is broken, we can't assume investors are feeling confident enough about stocks to take a big bullish plunge.... just a small one.

S&P 500
091210-sp500Click to enlarge
NASDAQ Composite

Not much to add about the NASDAQ... despite a little progress last week, the major hurdles still lie ahead. The 100-day line (grey) is at 2260, and the 200-day average is resting at 2273. And as we've mentioned before, the ultimate ceiling is 2311. Until that's cleared, don't get too excited.

Like the VIX, the VXN has also failed to sink enough to suggest traders are feeling significantly more comfortable with the market. Until and unless the VXN can move under 22.90, any market bullishness will be a little bit questionable.

NASDAQ Composite
091210-nasdaqClick to enlarge
Sector Performance

Technically speaking, the healthcare sector won the week last week with a 1.9% pop, though the runner up - telecom - may have been the most noteworthy leader. The average telco stock gained 1.6%, widening the lead developed since the April 23rd top (and subsequent rebound). In third place were the industrials, with a 1.0% advance.

At the bottom of the barrel you'll find utilities, with a 0.7% dip last week - a stark change of character for the group, which had otherwise been very bullish. Technology and financials were also bottom dwellers last week, turning in losses for the week.

The S&P 500 gained about 0.5% last week, just for reference.

With all that being said, energy and consumer staples may actually be the most compelling plays here. The energy sector overtook the tech sector on an intermediate-term performance basis, while the staples sector has simply continued to (quietly) outperform. Plus, the energy group has some of the most recovery potential here.

Sector Performance
Industry Performance

No real surprises here. It's clear why healthcare was at the head of the class last week - healthcare services and managed health care placed in the top five (of about 200) groups. Industrial conglomerates, internet retail, and aluminum were in the middle of the leaders' pack. Though the basic materials group wasn't especially impressive last week, aluminum's leadership is curious in that it's been a severe underperformer for so long.

At the bottom of the barrel is consumer electronics, and then real estate development. The biggest turnaround, however, is the sudden weakness in leisure facilities. It's ripe for a tumble after a string of persistent strength.

Industry Performance
Disclosure: No positions.