Weekly Outlook: The market tanked to finish the week off after a weak jobs report left the market with a bad taste in its mouth. The market started the week off nicely, but it struggled after the holidays. This week starts earnings season, and it will definitely be an interesting week to see how the market reacts to some of the first looks at quarterly reports. The main issues that everyone wants to know is how Europe is affecting earnings, any slowdowns in China, currency exchange issues, and outlooks moving forward. The major earnings to watch will be Alcoa (AA), Google (GOOG), and JP Morgan (JPM). The market will definitely be heavily impacted by how these companies report.
We believe the market has more downside risk this week. The market got hit hard on Friday, and it looks like the market will need some type of upward catalyst. Any big earnings report could help reverse the trend that ended last week, but until we get that catalyst, we may be looking at some more weakness as we continue to trade range bound. Data will be pretty light this week coming up, and the situation in Europe will continue to loom large.
As for data, we still have a pretty light week to complement the first week of earnings season. Wednesday will give the market Trade Balance as well as Wholesale Inventories. Thursday will be slightly busy with Initial Jobless Claims, Export/Import Prices, and Treasury Budget. We finish up the week with PPI and Michigan Consumer Sentiment. The jobless claims report on Thursday will be pretty important to watch for jobless claims as attention to employment will continue to be a big ticket item for the market. Friday's sentiment report is always an important data point as well.
Europe will continue to be important to the market, although some of the risk of that was taken off two weeks ago with the Euro-Zone providing some support to the market. Yields, however, were back on the rise to finish out last week, and we will have to continue to watch those Spanish yields moving forward. If they continue to press higher, we could have some issues for the market. Some of the important data points to watch for are the Euro-Zone Investor Confidence as well as German Trade Balance. Tuesday will give the market some British Industrial and Manufacturing Data to watch. Wednesday is the important German CPI, and Thursday is the Industrial Production report. Additionally, earnings reports will start to be announced for the European markets as well that will help move these markets.
Here is a rundown of the important earnings to watch for this week that can move the market. Alcoa will start off the week with their important report to get things rolling, but the really important reports do not start till later in the week. Marriott (MAR) will be important to watch for on Wednesday as they give the first look at hotels. Thursday we get reports to watch from Infosys (INFY), Progressive (PGR), and Google. INFY will give us a look at India while Google is a huge report for the market as it is a tech bellwether. We finish up the week with an important look at financials with JPM and Wells Fargo (WFC) reporting.
Ben Bernanke will be speaking in Thailand to start the week, and the market will be parsing his comments for anything QE-related. The Fed will be releasing their FOMC minutes from the June meeting this Wednesday as well, which will be another chance to see if we are getting any closer to potential QE. It's another lighter week from the Fed though again, and we will probably not get much catalyst from them.
So where are we headed this week?
We see the market as having the potential for some weakness this week, but there is going to be a lot of attention paid to yields in Europe, earnings, and post-holiday volume will come back. Without many catalysts, we may see some flat to downward movement for the market. Yet, if we can get something positive out of earnings or Europe this week, the market will push back to its current range, which seems to be between 1300-1400 for the S&P and more closely the 1320-1380 area. We will see strong support at the 1340 area where the 50-day MA sits, so there should not be too much weakness without some relief. A series of bad earnings reports, however, could break that support.
Stocks To Trade:
Stocks we are watching this week are Harley-Davidson (HOG) as well as Wynn Resorts (WYNN). We like looking at going long on HOG for the week and shorting WYNN. Harley has very good looking earnings coming out soon, and their recent weakness seems to be a nice buying point for the stock. We believe it had gotten ahead of itself at over $50, but we believe that the stock will outperform the market into earnings as the last report was very strong for HOG. The stock seems to have bottomed well at $45. WYNN is a stock that could break down further with market weakness, and we believe they have some downward potential with earnings around the corner. While a lot of weakness has been priced in, those investors that were looking for some turnaround into earnings may abandon this one into what was expected to be a flat earnings growth report. The company seems to be cyclically weak, and it will not regain market commitment until we see a better report.
Position #1: Long HOG
Position #2: Short WYNN
Oxen Group Holdings:
We have the following positions. In our Short-Term Equity Portfolio we are long Dollar Tree (DLTR), Ashland (ASH), Expedia (EXPE), Apple (AAPL), and Verisign (VRSN). We are short Pall (PLL), McDonald's (MCD), Life Sciences (LIFE), SPDR S&P (SPY). In our Options Portfolio, we are long Dicks Sporting Goods (DKS), Dollar General (DG) and AutoZone (AZO). We are short Aflac (AFL), Garmin (GRMN), and Under Armour (UA). We have a reverse iron condor on Apple. In our Earnings Alpha portfolio, we are long Apple, Capital One (COF), Disney (DIS), Ashland, Vertex (VRTX), Intuitive Surgical (ISRG), Marriott. We are short Pitney Bowes (PBI), Schlumberger (SLB) and Walgreen (WAG). We have a reverse iron butterfly in Decker's Outdoor (DECK).