Weekly Outlook: The market ended the week on a rough note as non-farm payrolls came in worse than expected and led to a stern sell-off in the market. Additionally, the market got a weaker than expected ISM Services number mid-week that also gave the market some weakness after starting the week on a strong note after a better ISM Manufacturing number.
The market got but yet another jolt after the French election saw Socialist challenger Hollande defeat Sarkozy and Greek elections went poorly for pro-austerity members. It's a lighter week of data, which most likely suggests that European developments and any developments from the Federal Reserve will be in the spotlight.
Sell in May seems to be developing after weak data last week and turmoil continuing to brew in Europe. The situation in Europe is going to be very dominating of the marketplace, and until the market gets some catalyst for either our own economic situation or the European one, we could be facing a tough situation. Economic data is fairly limited this week, but we do have a couple reports that can cause some market movement.
Data does not get going until Wednesday with Wholesale Inventories and Crude Inventories. Thursday is probably the most important day of the week as far as data with Trade Balance and Initial Jobless Claims being reported. Finally, we close the week on Friday with PPI and Michigan Consumer Sentiment Index. It's a very light week, but more news on employment data will be crucial to the market. Additionally, trade balance data has been better as of late, so that report could be a good catalyst for the market as well.
Earnings reports are still coming out this week, and with a light amount of data on the docket, earnings could be crucial again this week. On Monday, we have earnings from Vornado (NYSE:VNO) and DISH Network (NASDAQ:DISH). Tuesday, we will be getting reports from DIRECTV (NASDAQ:DTV) and Walt Disney (NYSE:DIS). Wednesday, reports from Cisco Systems (NASDAQ:CSCO) and Priceline.com (NASDAQ:PCLN) will be very crucial to the market. On Thursday, Express Scripts (NASDAQ:ESRX) and Wynn Resorts (NASDAQ:WYNN) will be reporting, and we finish up the week with NVIDIA (NASDAQ:NVDA).
With the light data points, these earnings are definitely going to be impactful of the market.
The overarching theme of the market this week, though, will be reaction to European elections and data. The defeat of Sarkozy does not look good for further austerity measures and signals a definite shift in leadership in that area. The market is definitely going to take a hit on the election news to start the week. Euro-Zone Investor Confidence reports are due out on Monday as well as German Factory Orders.
The ECB will be reporting their monthly report on Thursday as well as the Bank of England rate decision. Finally, the European Commission releases its economic growth forecasts on Friday. China has a lot of data also coming out the week that should be watched about their industrial production.
The Fed has a ton of speeches out this week that need to be watched for possible conversation about any plans for QE. Any mention of that could provide a catalyst, and the most important speech will be Bernanke's on Thursday. With recent developments, the market will definitely be parsing these speeches for any signs of change about possible quantitative measures. With lighter data, their headlines will be more closely watched once again.
So, where are we headed this week?
It is not looking good, and we hope we're wrong. Europe's situation is looking very bleak, the latest data looks negative, and the elections are going to provide a shock to the market this week. All in all, it is not a situation that breeds a lot of upside in the market. Until we get some change to the market's headlines, we may see "risk-on" trading with money coming out of equities. Look for a rough start with the potential for earnings, the Fed, and other developments to change the pace of the market. For now, it's looking very rough.
Stocks To Trade:
Stocks to watch this week are ones that have the ability to weaken at a faster rate than the market, which we believe are companies with a lot of European exposure. Two stocks that we think may see some tough times this week are BP and Deutsche Bank (NYSE:DB). BP came out with a less than desirable earnings report recently, and the stock showed a major technical breakdown as it moved below all key moving averages and broke a wedge that it had formed at the $42 level.
Additionally, DB looks like it is going to have some weakness this weak as Europe is weakening. The stock broke all key moving averages, and the chart is looking quite weak right now. We believe both companies will have a tough time this week and present shorting opportunities.
Trade of the Week: BP Short, DB Short.
Oxen Group Holdings:
We have the following positions. In our Short-Term Equity Portfolio we are long Dick's Sporting Goods (NYSE:DKS), short Johnson Controls (NYSE:JCI). In our Options Portfolio, we are long Nike (NYSE:NKE), Panera Bread (NASDAQ:PNRA), SPDR Goldshares (NYSEARCA:GLD), Walgreen (WAG), Polaris Industries (NYSE:PII), Monster (NASDAQ:MNST), Dollar General (NYSE:DG). We are short BP. We have a reverse iron condor on Ultra Proshares Financial (NYSEARCA:FAS). In our Earnings Alpha portfolio, we are long Polo Ralph Lauren (NYSE:RL), Wynn , Western Digital (NASDAQ:WDC), Teva (NYSE:TEVA). We are short Amazon (NASDAQ:AMZN). We have a reverse iron condor in Las Vegas Sands (NYSE:LVS).
Chart courtesy of finviz.com.
Disclosure: I am long RL.