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Market Outlook for The Week Ending 16th April, 2010

 

   

This Week’s Reports

Monday – The March Treasury budget.

Tuesday – March's import/export prices and the February trade balance.

 Wednesday - The March consumer price index (NYSEARCA:CPI), the core CPI, March retail sales, February's business inventories, weekly U.S. petroleum supplies, and the Fed's Beige Book.

Thursday – Weekly initial jobless claims, the Philadelphia Fed's manufacturing index and March's capacity utilization and industrial production reports.

Friday – March's building permits, March's housing starts, and the University of Michigan's consumer sentiment index for April.

Outlook For The Week Ahead

There are many factors that will affect the outcome of the markets this week. I have outlined two that seem significant to trader’s mentality.

1.      The attention paid to the Dow Jones Industrial Average (DJIA) seems to be created to form a distraction to the traders. The fact that there is a surprisingly low volume of trading is being neglected. The rally that seems to be apparent is actually being created by a few traders. This, I feel, is where the bulls must take stock and re-think their strategy. The worry here is historical (NO…not hysterical), like the surges that preceded steep declines of the 1930’s in the U.S. and in Japan more recently.

2.      The other factor of importance is the psyche of investors where there is a tendency to act a certain way during specific events ….in this instance…..”tax day”. If we look at a table showing five trading days preceding April 15 and comparing that to the five trading days after April 15 you will see what I mean. The table below summarizes the performance of the S&P 500 Index (SPX). It seems as though heading into tax day investors use their trading capital to pay their tax bill. The week leading into tax day is very bearish, averaging a loss of 1.58%, and it has been positive in only four of the last 10 years. That's quite a contrast to the following week, which was negative only one time in the last 10 years, averaging a return over 2%.

                                 

Other issues to consider are:

·         The Dow Jones Industrial Average (NASDAQ:DLIA) trying to overcome the 11,000 level.

·         April expiration of options coming up this week.

·         China’s yuan is still in contentious mode.

·         The Greek bailout and the effects on their two-year notes.

·         The April 8, 2010 American Association of Individual Investors' survey revealed that only 43% of traders are bullish compared to 49% at the beginning of the year.

·         There are poor reactions to earnings reports during the past two quarters which is significant to the investors' minds.

Caution needs to heeded this week, but so saying, I believe there is a great deal of profit-making both sides of the coin with put and call options, particularly since it is expiration week.

In-the-money options that have little time premium built into the price of the option to leverage stocks poised to make big moves during the next few trading days will definitely be a sound move.

Companies to Keep an Eye On

Dominos Pizza Inc. (DPZ)

Deckers Outdoor Corporation (DECK)

SanDisk Corporation (SNDK)

Constitution Mining (OTC:CMIN)

International Speedway (NASDAQ:ISCA)

Amico Games Corp. (OTC:AMCG)

Jaguar Mining (NYSE:JAG)

Compania de Minas Buenaventura (NYSE:BVN)

Randgold Resources (Nasdaq:GOLD)

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Success is simple. Do what's right, the right way, at the right time.


Ian Harvey                  




Disclosure: No positions held in stocks mentioned