Stock Market Data Storm Just Ahead

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Includes: CU, DIA, EWP, EWQ, FXY, IYE, QQQ, SPY, VXX
by: Wall Street Sector Selector

This past week was full of economic excitement and stress in the stock markets of the world but was nothing compared to what lies just ahead.

We’ll talk about the economic data storm coming this week in just a moment, but first I’d like to discuss the biggest potential news item of last week and that is that Fed Chairman Ben Bernanke appartently is rounding up support at the Fed for a renewed round of quantitative easing.

As reported on June 24th in the Telegraph.co.uk, a British newspaper and web site, Dr. Bernanke is considering expanding the Fed balance sheet from $2.4 Trillion to true nosebleed territory of $5 Trillion.

Dr. Bernanke looks at the same data we do every week and has come to the same conclusion; the economy is slowing and we’re at risk of a double dip recession and global deflation.

If new quantatative easing on the part of the Fed should actually take place, this would be a radical “game changer” indeed.

Looking at My Screens

This past week’s mostly bad news pushed markets down sharply mostly all week until Friday when we had a short rally in response to the financial regulation bill finally getting off the table and the highest consumer sentiment readings in two years.

We remain in the “Green Flag Flying” mode, expecting higher prices ahead for the short term.

Probably like you, my brain and gut tell me that markets must decline in response to all the bad news swirling about, however, as technical traders, adhering to one’s trading discipline is vital to long term success. Perhaps current days will be another example of “climbing a wall of worry,” perhaps not. Our positions could change at any time but for now we remain committed to the long side of the market.

There has been much written this week in “the blogosphere” about a “head and shoulders top” forming, which could come to fruition, however, I tend to believe in the old quote that “what everyone knows isn’t worth knowing.”

The View from 35,000 Feet

Last week saw mostly poor economic news with existing home sales plummeting, along with new home sales, while the Fed kept rates unchanged and tuned down their language to reflect a slowing economy ahead.

Durable goods were down but better than expected, (up minus transportation) while initial and continuing unemployment claims showed slight improvement.

GDP was revised downward on Friday which was a dash of cold water on the recovery story while the University of Michigan Consumer Confidence gauge rose to its highest level in two years.

We also saw strong earnings from tech bellwethers Oracle (NYSE:ORCL) and Research in Motion (RIMM), and the market seemed to like the financial regulation bill rolled out on Friday.

The ECRI, Economic Cycle Research Institute continues flashing yellow lights with its annual rate dropping yet again to a 56 week low and signaling rough water and slowing economic activity ahead.

What It All Means

So it seems that everyone agrees that we have a slowing economy and the potential for a double dip recession within the next few months, possibly as early as fourth quarter.

The “X” factors for the markets are Chairman Bernanke and the Fed as we discussed earlier along with corporate earnings that start in earnest in mid-July and the economic data points due to be released this week.

The Week Ahead

The week will be a data storm as mentioned earlier.

The G20 is meeting amid protests in the street this weekend in Toronto and may have something to say about global events when they adjourn while a huge stream of economic reports will be coming at us all week.

As outlined below, we’ll have news on home prices, consumer confidence, construction, home and truck sales, and the all important Non Farm Payrolls report on Friday.

This data storm will likely set the tone for the coming weeks and whether or not it will be “risk on” or “risk off.”

Economic Reports:

Monday: May Personal Income, May Personal Spending

Tuesday: April Case/Shiller Home Price Index, June Consumer Confidence

Wednesday: June ADP Employment Change, June Chicago PMI

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, May Construction Spending, June ISM Index, May Pending Home Sales, June Auto/Truck Sales

Friday: June Non Farm Payrolls, June Employment, June Factory Orders

Sector Spotlight:

Leaders: Copper, VIX, Japanese Yen

Laggards: Spain, France, Energy

Wishing you happy trading and a great weekend wherever you may be.

Disclosure:EWW, IYR, TUR, FXI, XOP, QLD, UWM, SPY December Call Option