By John Nyaradi Wall Street Sector Selector
This will be an exciting week with Dr. Bernanke's first press conference following an FOMC meeting on Wednesday and the release of the 1Q GDP estimates on Thursday. Both have potential to be market movers, along with some signficiant economic and earnings reports during the week.
On My Radar
On a technical basis, we remain locked in the same trading range that we have seen since the beginning of the year, with the major indexes now back at the high end of that range.
Above, the Point and Figure Chart shows us right at the upper level of resistance but still with a bearish price objective of 1160.Overhead resistance is at the 1330-1340 level with support at 1300 within the longer term uptrend that would take a decline down to 1070 to break.
It was a very choppy week with Standard and Poor's downgrade of their outlook on U.S. debt from stable to negative that was immediately offset by mostly positive earnings reports.
The big events for the week will be the press conference on Wednesday and the GDP estimate on Thursday which will likely set the tone going forward into spring and summer.
Seasonality is now working against the markets as we've entered the "sell in May and go away" period wherein the market historically moves in a sideways to downward fashion until about Halloween.
The View From 35,000 Feet
Volatility was the name of the game last week and we can probably expect more of the same this week.
Gold reached record highs (Disclosure: Wall Street Sector Selector holds a position in GLD) while the dollar continued declining towards lows last seen at the depths of the financial crisis in 2008.
The big news was the downgrade by Standard and Poor's and positive earnings from Apple and General Electric.
This week earnings continue in earnest with 180 reports from S&P 500 companies including bellwethers Amazon, Coca Cola on Monday, eBay and Starbucks on Tuesday, and Microsoft and Exxon on Wednesday.
Last week's economic reports were mixed, as they have been in recent weeks.
April Housing Starts were up, although still at depressed levels
March Building Permits; up
March Existing Home Sales; UP
Initial jobless claims down from previous week but still above 400,000/week
April Philadelphia Fed Report down big to 18.5 from previous 43.4
March Leading Indicators declined to 0.4 from 1.0
February Housing Prices declined -1.6% from previous -1.0%
What It All Means
We now see economic reports pointing to a slowdown ahead, with unemployment remaining stubbornly high and now manufacturing slowing down with this week's big drop in the Philly Fed report and housing in what surely looks like a double dip.
Offsetting the negatives, we have overall solid earnings, particularly in technology, largely driven by productivity and sales in the emerging world, and, of course, we have "Big Ben" and his friends with their printing press at the ready.
However, the Fed increasingly finds themselves between the old proverbial rock and a hard place as the deficit hawks and ratings agencies are starting to circle overhead and global inflationary pressures grow.
The Week Ahead
Major Issues/Themes: Wednesday and Thursday will be the big days with the Fed press conference and 1st Quarter GDP, along with the slew of earnings reports coming all week long.
Tuesday: February Case/Shiller Home Price Index, April Consumer Credit
Wednesday: March Durable Goods, FOMC announcement/press conference
Thursday: Initial Unemployment Claims, Continuing Claims, 1st Quarter GDP Estimate, March Pending Home Sales
Friday: March Personal Income, March Personal Spending, April Chicago PMI, April Michigan Sentiment
Leaders: (NYSEArca: SLV) iShares Silver (NYSEArca: IEZ) Oil Services
Laggards: (NYSEArca: BAL) Cotton (NYSEArca: EGPT) Egypt
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