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Market, Economic, Sector, & Earnings Outlook - January 25, 2010

|Includes: DIA, IWM, QQQ, SPDR S&P 500 Trust ETF (SPY), SPY, VXX, VXZ

Ouch! Not only was it the worst week for the year, it was the worst week since March of last year… the one that occurred right before what we now know was ‘the’ bottom. One could argue that this complete blowout is a signal of another bottom, but there’s a huge difference between this plunge and that last one…. this one occurred after a 67% rally – the last one occurred after a 56% loss.

We’ll look at some detailed charts below (and what’s likely to be next), but first let’s look at the economic data that helped fuel the selloff.

Economic Calendar

Just to be fair, the economic data was more of an excuse/catalyst, and not the reason for the market’s implosion itself. Stocks were rallying in fumes and borrowed time – a little bad economic news just got the bearish ball rolling. Anyway…

On the real estate front, housing starts were down, while permit request were up. As for jobs, new claims and continuing claims were both up, and a little higher than anticipated. That, however, may have been more seasonally-induced than an indication of the actual employment trend. Producer input prices were basically flat. See? Not earth shattering.

As for the coming week, we’re going to be a little busier. We’ve got a ton of home sales and home price data on tap for the first three days of the week, with consumer confidence squeezed in there. In the middle of the week we’ll hear the verdict ton interest rates (no likely change). Late in the week, GDP, Chicago PMI, Durable Orders, and University of Michigan Sentiment will be unveiled.

Needless to say, it should be a volatile week. The question is, will it be bullish or bearish? Keep reading.

012410-economic-calendar

S&P 500 Index:

When the market trends and pivots in a nominal fashion, the clues are pretty evident. Last week was hardly nominal though. The 3.9% dip for the S&P 500- 2.2% of which was seen on Friday – is a price shock. And, the immediate reaction to a price shock could be anything… a virtual coin toss, if you will. Moreover, odds are a little too good that the initial reaction to a price shock will also be a short-lived move.

That’s a point we want to make simply to add some perspective on our next comment.

After a sharp dip like the one we just saw, we’re apt to get a dead-cat bounce. Don’t read anymore into it than that.

It’s not just the unbridled selling that leads us to that conclusion though. When the S&P 500 reached a low of 1090 on Friday, it also brushed an intermediate-term support line, and pretty much touched a horizontal support that that’s aligned with the floor from late November and early December. That’s a little more than a coincidence, and odds are good at least a few bulls will stage a rebound effort here… particularly after a plunge.

As we said though, don’t read anymore into it than just a dead-cat bounce for now. Let’s see the 1090 area tested again – and hold up – before assuming too much in the way of bullishness. Remember, the ‘average;’ bull market correction is on the order of 10% to 15%. Over the last two weeks, we’ve only lost 4.9%. We need to give up a little more ground (fall under 1090) before we can get a good ‘reset’ for the next leg higher.

To be clear though, we do think the market will be moving higher in the big picture again following a full, healthy pullback. That short-term bottom should be somewhere in the 1000 area.

012410-spx-vix

Sector Performance

It goes without saying that most sectors and industries lost a lot of ground last week. To point one or two out would not only be incomplete, it would be meaningless - this is a marketwide, technical correction, and nothing you’d want to bother calling a trend.

The groups that were up, however, are far more interesting. Why? They’ve demonstrated the ability to move higher regardless of a nasty environment. Though the overall tide will certainly catch up with some of them, a few others will resist the broad selling.

Here are most of last week’s top-performing industries. Preference was given to the groups that also posted gains on Friday, when things were at their worst.

Food Retail: +5.1%

Education Services: +2.1%

Airlines: +2.0%

Oil Storage and Trans.: 1.5%

Insurance Brokers: 1.4%

Regional Banks: 1.4%

As for the individual sectors’ performances, here’s last week’s result:

012510-sector-rank

Upcoming Earnings

There are a ton of earnings releases on tap – here are the ones most apt to move the market in the coming week.

012510-earnings-cal

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