Weekly Outlook: The market made its way higher to close out this past week as easing from the Fed is looking more likely now and the market continues to act in a neutral, flat environment. Last week, the FOMC minutes showed that the Fed is getting very near to doing more easing, and that announcement comes just days before the key Jackson Hole Fed meeting that happens every year. The original reaction to the news was fairly lackluster, but the market turned up higher on the news on Friday. Coming into this week, we are in the last week of the lull of the summer for the market, and we should start to see some more volume return to the market. More attention should be paid to Europe this week as well as a pretty solid set of data is expected to be released.
We definitely will get some economic data to react to this week with Consumer Confidence and the Case-Shiller Index on Tuesday. Both reports are important as the housing market continues to recover, while consumer confidence is expected to rise as well. Wednesday we will get more Fed action with the Fed Beige Book, GDP numbers, and Pending Home Sales. All three of these reports are going to be key to the market's movement as well. Thursday we get an important initial jobless claims as well as Personal Income and Spending reports. Friday, we get the Chicago PMI, Michigan Sentiment Index, and Factory Orders. Each day has a pretty crucial report to market movement, and the reports here should definitely give us a bit more perspective into the Fed's potential QE3.
Overseas, we have some important reports to watch as well this week. Tuesday we get the Japanese Monthly Economic Report. Thursday we will get the German Unemployment Rate and Change. We will also get the Euro-Zone Consumer Confidence report as well. Both reports should be very important to the markets. Friday we get a great deal of Japanese data like joblessness and industrial production as well. It's a quiet week though for European data, but as we get closer to the September German High Court decision about bailouts, Europe should become more important. With a lot of American data and QE/Jackson Hole, Europe should be in the shadows this week for probably the last time before the start of September.
Earnings have definitely gotten to a quiet lull at this point, but we always have some interesting reports to watch for from the market. Some of the only key reports we have to watch are from H.J. Heinz (HNZ), Dollar General (DG), Tiffany (TIF) and Joy Global (JOY). None of the reports, however, are market movers. Earnings will not start to be terribly impactful until we get to mid-September again.
The Federal Reserve is definitely in the spotlight this week. Another round of QE seems imminent, but it may not be coming just yet. This week, we should get some more speculation about QE3 potential as well as a number of Fed announcements. We have several Fed speeches this week that will be important including President Evans speech on Monday as well as President Pianalto. We get the Dallas and Richmond Fed reports on Monday and Wednesday, respectively. All of this culminates in the Jackson Hole Economic Symposium on Friday. The Fed is back in the spotlight this week, so watch carefully.
So, where are we headed this week?
The market should be fairly tepid before the Federal Reserve symposium on Friday, but we do have several important economic data points that come out this week before the meeting. We are ending the summer lull, and we should still see lighter volumes this week before the holiday weekend. Yet, the meeting on Friday is one of the biggest events of the Summer. Will we QE or not? We doubt we do, but all in all, it should make for a big week's end. Look for light moves into the decision but a lot of movement out of the decision on Friday. The Beige Book may give us a preview of that.
Stocks To Trade:
The five stocks we will be watching this week are Cognizant Tech (CTSH), St. Jude Medical (STJ), Gamestop (GME), Kraft (KFT), and Visa (V). We like CTSH, V, and KFT for bullish positions, while we like STJ and GME for bearish positions.
Cognizant and Visa are looking very good for bullish options plays while we like Kraft for a long play. CTSH is right now building a great base around $62.50 after gapping up on a strong earnings report. The company lifted guidance on their early August report, and their base is looking very strong. We do not see a break below $62.50 coming anytime soon, and we like using that level to sell options. Visa is also looking like its ready to sell options against it. The company has hit its 50-day MA after some recent weakness. The company has not broken its 50-day MA on any extended period since June, and it has not broken its current upward channel since December.
What's the catalyst for V? We believe that the company has bottomed technically as well as great fundamentals. Future P/E is now below 18, showing value, and the company has shown a lot of support at these levels. Visa appears to have priced in its recent lawsuit weakness, and we believe it will do very well if the market continues higher in September on positive Fed news. KFT has been one of the strongest companies in August, and we like the low-risk buy here. The company is a great stock to have during times of weakness, but it also has good growth going on right now in its stock. The company's announcement to sell Back to Nature line is definitely a catalyst and gives a nice bottom. If the Fed shows weakness, KFT is a nice contrarian play, but at the same time, they have momentum right now.
Two stocks we are not keen on right now are STJ and GME. STJ is looking weak due to a downward moving price channel as well as a recent report that says that the company's heart device is dangerous and the long-term effects are not known of the device. The company does not have much of an upward catalyst right now with strong resistance in a downward moving channel. We believe the $40 line is a good place to start building a bear call spread. The company looks to have completed a solid bounce and now hit resistance after raising their dividend amongst mixed earnings. While we love the long-term prospects for the company, the company's dividend increase has done about much upside as we think it can without the real underlying business picking up. Without any sign of video games turning around in sales, the company has limited catalyst. Until we see the next major release of Microsoft, Playstation and Nintendo software, we may see a stalled video game sales market with low growth.
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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.